In a significant case, the Bangalore bench of the Income Tax Appellate Tribunal (ITAT) has held that cash payments made to agriculturists are allowable and addition under section 40 A(3) of the Income Tax Act, 1961 not sustained.
The Assessee, M/s. Bappanalli Brothers engaged in the business of dealing in betelnut, cardamom, pepper and ginger. The AO disallowed a sum of Rs.11,92,500 by invoking the provisions of Sec.40A(3) of the Income Tax Act, 1961 (Act).
Provisions of Sec.40A(3) of the Act provide that if an assesses makes the payment for any expenditure to any person otherwise than Account Payee Cheque or Demand Draft or use of electronic clearing system through a bank account or any other mode as may be prescribed of more than Rs. 20,000 in a single day then such expenditure shall be disallowed.
It was observed that Rule 6DD(e) of the Income Tax Rules, 1962, (Rules) provides for circumstances in which disallowance should not be made u/s.40A(3) of the Act, viz., where the payment was made for the purchase of agricultural produce to the cultivator, grower or producer of Agricultural produce.
The Assessee stated that the payment in question was made for the purchase of ginger from the Agriculturists and filed a copy of RTC of Sri Mahadeva Gowda also known as M.V.Patil to whom payment of Rs.5 lacs and Rs.3,64,000 respectively were made by the Assessee in cash, his affidavit confirming that he received payment for the sale of ginger from the bank through his authorized representative Mr R. G. Bhat.
The Assessee contended that R. G. Bhat was a common representative of both the Agriculturists and therefore the Assessee, has proved the existence of circumstances specified in Rule 6DD(e) of the Rules. The CIT(A) rejected the plea of the Assessee for the reason that the Assessee did not make payment directly to the Agriculturists but through R. G. Bhat.
Shri N V Vasudevan, Vice President observed that CIT(A) treated the payment in question to R.G.Bhat, who was alleged to be an intermediary is not sustainable as the two agriculturists have affirmed in an affidavit that they received the payment through R. G. Bhat and when the cheques in question, though bearer cheques, were cheques issued in their names respectively.
The Tribunal remanded the issue to the AO to consider the evidence on record and verify the nature of the crop grown by the two agriculturists. The appeal was treated as allowed for statistical purposes.
The assessee was represented by Shri. Pranav Krishna and the revenue was represented by Shri. Ganesh R Ghale.
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