The ITO, Sabarkantha Ward-3, Himatnagar V. M/s. Kalyan Agro Tech, Sabarkantha

ITA 2468/AHD/2017

AI Insights

The case revolves around an appeal by the Revenue against the decision of the CIT(A), which had deleted a disallowance made by the Assessing Officer (AO) on commission expenses incurred in cash by the assessee, M/s. Kalyan Agro Tech. The disallowance was initially made under section 40A(3) of the Income Tax Act, 1961, which restricts deductions for cash payments exceeding a certain limit. The CIT(A) found that the payments were made for the purchase of agricultural produce through agents, which were exempted under Rule 6DD of the Income Tax Rules. The Tribunal's decision affirmed the CIT(A)'s findings, dismissing the Revenue's appeal.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 133551 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 11 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 30-10-2023
• Assessment Year: 2014-2015
• Appeal Filed On: 07-11-2017
• Other Referred Cases: ITO vs. Kenaram Saha & Subhash Saha [2009] 116 ITD 1 (Kolkata)(SB)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: TDS
• Section: 40A(3)

Judgement Text

आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरणआयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण, अहमदाबाद 瀈यायपीठ अहमदाबाद 瀈यायपीठअहमदाबाद 瀈यायपीठ अहमदाबाद 瀈यायपीठ ‘B’ अहमदाबाद। अहमदाबाद।अहमदाबाद। अहमदाबाद। IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, AHMEDABAD ]BEFORE SMT.ANNAPURNA GUPTA, ACCOUNTANT MEMBER AND SMT. MADHUMITA ROY, JUDICIAL MEMBER, JUDICIAL MEMBER ITA No.2468/Ahd/2017 Assessment Year : 2014-15 ITO, Sabarkantha Ward-3 Himatnagar Dist :Sabarkantha Vs. M/s.Kalyan Agro Tech B/G-10, Shalibhadra Complex B/h. Durga Complex Himatnagar Dist. Sabarkantha 383 001 PAN : AAHFK 4894 M अपीलाथ / (Appellant) यथ /(Respondent) Revenue by : Assessee by : स ु नवाई क तार ख/Date of Hearing : 31/10/2023 घोषणा क तार ख /Date of Pronouncement: 31/10/2023 आदेश/ O R D E R PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER The above appeal has been filed by the Revenue against the order passed by the ld.CIT(A)-2, Ahmedabad dated 28.8.2017 under section 250(6) of the Income Tax Act, 1961 (hereinafter referred to as the “Act”), for the assessment year 2014-15. 2. At the outset itself, it was stated that solitary issuein thepresent appeal relates to disallowance made of commission expenses incurred in cash by the assessee, in terms of provisions of section 40A(3) of the Act, which was deleted by the ld.CIT(A). The quantum of disallowance so made being Rs.1,87,56,399/- ITA No.2468/Ahd/2017 2 3. The facts relating to the case are that the assessee is a firm carrying on businessof trading in fertilizers and seeds. During assessment proceedings, the AO noted that the assessee had made purchases in cash from various parties in violationof section 40A(3) of the Act, totaling in all to Rs.2.88 crores. The details of the same are tabulated in par-3 of the assessment order. The assessee was show caused as to why said purchases be not disallowed under section 40A(3) of the Act, to which the assessee responded by stating that being in the business of trading/processing of seeds and fertilizers, the assessee was also engaged in job work activity and sowing/ growing/ ploughing etc. mainly to M/s.Ankur Seeds Pvt. Ltd.; that since it was not possible for the assessee to manage do so, therefore, it had appointed persons for carrying out such activities smoothly. The assessee and its sub-contractors/agents had agreed upon an arrangement to produce seeds and look after all the activities i.e. arranging farmers, acquiring suitable land, roughing, ploughing and land preparation, supervision and collection of produce, settle accounts of each farmer of their individual capacity. The assessee, therefore, contended that the payment in relation to which the AO had raised question was made to the farmers and contractors/agents which was covered by the exception provided in Rule 6DD(e)(g) and (k) of the IT Rules, 1962, from the rigours of section 40(A)(3) of the Act. Documentaryevidencesin the form of ledger account of various persons along with copy of written agreements of parties were filed. The assessee, therefore contended that the payments pertaining to that made for purchase of agriculture produce from the farmers and being made through agents was therefore excluded by Rule 6DD of the Income Tax Rules,1962(Rules) from the rigours of section 40A(3) of the Act. The AO went through all the written agreements and ledger accounts ITA No.2468/Ahd/2017 3 filed by the assessee and noted that the substantial payment made in cash was for job work activity undertaken by the assessee on behalf of Ankur Seeds P. Ltd. which had not been debited to profit & loss account. He therefore excluded those payments from the purview of section 40A(3) of the Act. The balance payments, he noted, pertained to the purchases of agriculture produce for the trading activity of the assessee. These cash payments, noted by the AO to be relating to expenses incurred by the assessee in its trading activity, was accordingly disallowed by the AO, which amounted to Rs.1,87,56,399/- pertaining to the following seven parties: 4. Matter was carried in appeal before the ld.CIT(A) who after going through the sub-contract/agents agreement of the assessee with these parties, ledger accounts of these parties, found merit in the contention of the assessee that these payments were made for purchasing agriculture produced through agents, and therefore, were covered in the exclusion mentioned Rule 6DD(e) and (k) of the Rules from disallowance under section 40A(3) of the Act. Accordingly, he deleted entire disallowance made by the AO. His findings inthis regard are at para 2.4 to 2.6 of the order as under: “2.4. I have perused the submission of the appellant and documents submitted before the Assessing Officer in form of two paper books. The assessing officer has made disallowance of following payments for the purchase of seeds of wheat, groundnut, bhindi etc.:- ITA No.2468/Ahd/2017 4 Sr. No. Name of the Party Amount 1 Rameshbhai S Patidar 875000.00 2 Jayntibhai L Patel 5013000.00 3 Mitabhai R Patel 282270.00 4 Atulkumar D Patel 4876000.00 5 Bharatbhai M Patel 2400000.00 6 Ishvarbhai M Patel 819129.0 7 Parshottambhai S Patel 4490000.00 Total.... 18756399.00 2.5. The appellant has submitted following documents before the Assessing Officer which is part of the paper book. i) Copy of agent contract agreement ii) Copy of ledger account of agents iii) Complete list of farmers from whom purchases were made on behalf of appellant along with amount and quantity iv) A copy of voucher / bills v) Copy of bills in respect of produced on behalf of Ankur Seeds Pvt. Ltd. vi) Detail of commission fee etc. in respect of service rendered As per the agreement, all the above persons have agreed to arrange farmers, acquire suitable land, land preparation, supervision and collection of produce, settle account with each farmers as a grower of seeds. The appellant as per the agreement has agreed to make payment to the growers of seeds, through these seven persons. The appellant has maintained the data in form of name of grower, village, area, quantity and grower payment along with the agent name. The appellant has also maintained processing, delivery and production note for each purchase. 2.6. In view of the above facts, it is evident that appellant has incurred expenditure for agriculture produce being seeds of wheat, groundnut, bhindi etc. the payment of which is covered by Rule 6DD(i). It is also evident from the payment made in respect of all the above seven persons that payment is made through agent which too is covered under Rule 6DD(k). Assessing Officer was therefore, not justified to make disallowance u/s. 40A(3) ignoring the Rule 6DD which is clearly applicable in the appellant's case. The ground of appeal is accordingly allowed.” ITA No.2468/Ahd/2017 5 5. Aggrieved by the same, the Revenue has come up in appeal before us raising the following grounds: i) The Ld.CIT (A) has erred in law and on facts in deleting the disallowance of Rs.1,87,56,399/- u/s. 40A(3) of the Act. ii) The Ld. CIT(A) has failed to appreciate that the persons to whom cash was paid were not the producers, cultivators or farmers, therefore provisions of clause (i) of Rule 6DD were not applicable. Reference is made to the decision of the Hon'ble Special Bench in the case of ITO vs. KenaramSaha& Subhash Saha [2009] 116 ITD 1 (Kolkata)(SB). iii) The Ld. CIT(A) has failed to appreciate that as per own admission of the assessee these persons were sub-contractors, which are a different speci as compared to agent therefore, provisions of clause (k) of Rule 6DD were also not applicable. 6. As is evident from the ground raised by the Revenue, their arguments against the deletion of the disallowance made by theld.CIT(A) is that these payments did not qualify for exemption from section 40A(3) in terms of Rule 6DD(k) and (e), because they were neither made to the cultivator or farmers nor they were made to the agents. The case of the Revenue is that all these payments were made to sub-contractors as per assessee itself. 7. As stated above, the issue relates to disallowance made under section 40A(3) of the Act for payment incurred in cash exceeding theprescribed limit. The provisionof section 40A(3) are reproduced hereinunder for clarity: “40A. (1) The provisions of this section shall have effect notwithstanding anything to the contrary contained in any other provision of this Act relating to the computation of income under the head "Profits and gains of business or profession". .... ..... ..... ..... (3) Where the assessee incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, or use of electronic clearing system through a bank account or through ITA No.2468/Ahd/2017 6 such other electronic mode as may be prescribed46, exceeds ten thousand rupees, no deduction shall be allowed in respect of such expenditure. 8. Rule 6DD of the Income Tax Rules lists the cases and circumstances in which provisions of section 40A(3) will not operate. In the present case, reference has been made to the cases and circumstances stated at sub-rule (e) and (k) of Rule 6DD, which are reproduced hereunder for clarity: 6DD. No disallowance under sub-section (3) of section 40A shall be made and no payment shall be deemed to be the profits and gains of business or profession under sub-section (3A) of section 40A where a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or [account payee bank draft or use of electronic clearing system through a bank account or through such other electronic mode as prescribed under rule 6ABBA, exceeds ten thousand rupees] in the cases and circumstances specified hereunder, namely:— .... ..... ..... ..... e)where the payment is made for the purchase of— (i) agricultural or forest produce; or (ii) the produce of animal husbandry (including livestock, meat, hides and skins) or dairy or poultry farming; or (iii) fish or fish products; or (iv) the products of horticulture or apiculture, to the cultivator, grower or producer of such articles, produce or products; .... ..... ..... ..... (k) where the payment is made by any person to his agent who is required to make payment in cash for goods or services on behalf of such person; 9. Reading of the above together alongwith section 40A(3) of the Act, leads to that all expenditure incurred in cash beyond a certain limit are tobe disallowed except payment made in circumstances listed under Rule 6DD of the Rules. The circumstances listed at sub-clause (e) and (k) are in relationto cases where the payment is made for agriculture produce to the cultivator/grower/producer of ITA No.2468/Ahd/2017 7 such article or things, and (e) where the payment is made to any person as agent who is required tomake payment in cash for goods or services on behalf of such persons. 10. In the present case, it was found by the ld.CIT(A) that the disallowance made by the AO of Rs.1.87 crores pertained to purchase of agriculture produce from farmers through agents, the payment being found to have been to the agents, therefore, Rule 6DD (e) and (k) were invoked to support the case of the assessee for deleting the disallowance made by the AO. 11. The case of the Revenue, before us is restricted to the fact that the payments have not been made to agents, but to sub-contractors, and therefore, neither sub-clause (e) nor sub-clause (k) of Rule 6DD will come to the assistance of the assessee. The argument being that since the payments have not been made to the farmers for produce of agriculture produce, sub-clause (e) will not come into picture and the payments having not been made to the agents, sub- clause (k) will not come to the assistance of the assessee. Therefore, the entire case of the Revenue rests on the fact that the persons to whom payment was made were sub-contractors and not agents of the assessee. The fact that agriculture produce was purchased by the assessee on account of these payments, is not disputed. 12. We find that the only basis with the Revenue for stating the fact that the payment was made to sub-contractor and not agent is that the assessee himself had admitted to these parties being sub- contractors. ITA No.2468/Ahd/2017 8 13. We have noted that the ld.CIT(A) has found these parties to be agentsacting on behalf of the assessee after going through the agreement of the assessee with these parties, and also on noting the fact that the assessee had deducted TDS thereon at the rate applicable to the commission payment. The Revenue has been unable to controvert this factual finding of the ld.CIT(A). Nothing has been brought to our notice from the agreement leading to the inference that the parties involved were sub contractors and not agents. Moreover, we find that the contention of the Revenue that the assessee had admitted to these parties being sub-contractors is not true. The reply of the assessee reproduced at page no.4 of the assessment order mentions these parties, as being sub- contractors/agents. The assessee had stated clearly to the AO that it had appointed sub-contractor/agents for carrying out activity smoothly. Therefore, we do not find any merit in the arguments of the Revenue before us. The grounds of appeal raised by the Revenue are therefore dismissed. 14. In the result, appeal of the Revenue is dismissed. Order pronounced in the Court on 31 st October, 2023 at Ahmedabad. Sd/- Sd/- (MADHUMITA ROY) JUDICIAL MEMBER (ANNAPURNA GUPTA) ACCOUNTANT MEMBER Ahmedabad,dated 31/10/2023