ITO, Aligarh V. Shri Sunil kumar Agarwal, Aligarh

ITA 319/AGR/2009

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 0326 (ITAT-AGRA)
• Duration Of Justice: 9 year(s) 9 month(s) 4 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 16-05-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 03-01-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 11-08-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: RAKESH GUPTA F
• Keywords: Business income; Business expenditure; Bonafide belief; Question of law
• Section: 40A(3); 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, AGRA BENCH, AGRA BEFORE : SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI A.L. GEHLOT, ACCOUNTANT MEMBER ITA NO. 319/AGRA/2009 ASSTT. YEAR : 2006-07 INCOME TAX OFFICER, VS. SUNIL KUMAR AGARWAL, WARD 1, ALIGARH. PROP. M/S. DURGAJI TRADERS, KHAIR, ALIGARH. (PAN : ABDPA 0007 F) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI WASEEM ARSHAD, SR. D.R. RESPONDENT BY : SHRI RAKESH GUPTA, F.C.A. DATE OF HEARING : 03.01.2013 DATE OF PRONOUNCEMENT OF ORDER : 11.01.2013 ORDER PER BHAVNESH SAINI, J.M.: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF LD. CIT(A), MUZAFFARNAGAR DATED 21.05.2009 FOR THE ASSESSMENT Y EAR 2006-07, CHALLENGING THE ORDER OF THE LD. CIT(A) IN DELETING THE ADDITION OF RS.1,03,59,365/- ON ACCOUNT OF DISALLOWANCE OF PURCHASE U/S. 40A(3) OF THE IT ACT. 2. THE FACTS OF THE CASE, IN BRIEF, ARE THAT THE AS SESSEE IS A PROPRIETOR OF M/S. DURGAJI TRADERS WHICH IS ENGAGED IN THE TRADING OF FOOD GRAINS. RETURN DECLARING INCOME AT RS.1,95,376/- WAS FILED ON 31.07.2006. AS PER THE FACTS STATED IN THE ITA NO. 319/AGRA/2009 2 ASSESSMENT ORDER, THE ASSESSEE HAS TRADED FOOD GRAI NS, BOTH ON ITS OWN ACCOUNT AS WELL AS ON ACCOUNT OF ITS PRINCIPALS, I.E., ON COMM ISSION BASIS. THE AMOUNT OF TOTAL PURCHASES MADE DURING THE YEAR IS RS.8,26,04,408/- OUT OF WHICH PURCHASES MADE ON ITS OWN BEHALF AND THEN SOLD, I.E., PURCHASES MA DE ON TRADING ACCOUNT IS TO THE EXTENT OF RS.5,17,96,824/- AND REST I.E., RS.3,08,0 7,584/- ARE PURCHASES ON BEHALF OF THE PRINCIPALS, I.E., PURCHASES ON COMMISSION BASIS . THE ASSESSEE MADE PURCHASES FROM KHAIR MANDI, WHICH IS THE PLACE FOR FIRST ARRI VAL OF FOOD GRAINS. ALL THE PURCHASES WERE MADE BY WAY OF CASH PAYMENTS EXCEEDI NG RS.20,000/-. 2.1 THE A.O. HELD THAT IN RESPECT OF PURCHASES MADE ON BEHALF OF OTHER PARTIES (RS.3,08,07,583/-) DID NOT ATTRACT SECTION 40A(3), AS ONLY COMMISSION HAD BEEN SHOWN IN THE PROFIT & LOSS ACCOUNT. HOWEVER, PURCHA SES MADE ON ITS OWN TRADING ACCOUNT I.E. RS.5,17,96,824/- ATTRACTED DISALLOWANC E U/S. 40A(3). 2.2 THE ASSESSEES PLEA WAS THAT THE PURCHASES WERE MADE, THROUGH KACHHA ARAHTIA, WHO ARE AGENTS FOR THEIR FARMERS CONSTITU ENT AND WHO WORK UNDER STRICT SUPERVISION OF MANDI SAMITI RULES AND NORMS. ACCORD ING TO THE ASSESSEE THESE KUCHHA ARAHTIA DO NOT ACCEPT CHEQUES PAYMENTS, AS T HEY HAVE TO DELIVER CASH PAYMENTS TO THE RESPECTIVE FARMERS AND HENCE PAYMEN TS WERE IN CASH UNDER THE BONAFIDE BELIEF THAT THE PAYMENTS WERE COVERED BY R ULE 6DD. ITA NO. 319/AGRA/2009 3 2.3 THE AO REJECTED THE CONTENTION ARGUING THAT C.B .D.T. CIRCULAR NO. 34 DATED 05.03.1970 HAD, LONG AGO MADE IT CLEAR THAT THE PAY MENTS TO ARAHTIA ARE NOT EXEMPTED FROM THE PROVISIONS OF SECTION 40A(3). ACC ORDING TO THE AO, RULE 6DD WAS NOT APPLICABLE IN THIS CASE. THE ASSESSEE COULD EASILY HAVE MADE PAYMENTS THROUGH CHEQUES AS LOCAL CHEQUES ARE CLEARED EITHER ON THE SAME DAY OR LATEST BY NEXT DAY. FURTHER, ACCORDING TO THE A.O., THE SELLE RS WERE HAVING BANK ACCOUNTS AND SO THE ASSESSEES CONTENTION THAT IT WAS NOT HAVING ANY OPTION BUT TO MAKE PAYMENTS IN CASH, WAS NOT CORRECT. THE AO MADE DISA LLOWANCE TO THE EXTENT OF 20% OF RS.5,17,96,824/-, THE AMOUNT OF DISALLOWANCE WORKED OUT TO RS.1,03,59,365/-. 3. THE ASSESSEE CHALLENGED THE ADDITION BEFORE THE LD. CIT(A) AND WRITTEN SUBMISSIONS OF THE ASSESSEE ARE REPRODUCED IN THE A PPELLATE ORDER IN WHICH THE ASSESSEE BRIEFLY SUBMITTED THAT AFFIDAVITS OF KACHC HA ARHATIAS CERTIFYING THAT THEY WERE NOT HAVING BANK ACCOUNTS HAVE BEEN FILED. THE ASSESSEE DEALS IN FOOD GRAIN BUSINESS IN HIS OWN ACCOUNT AND ON COMMISSION BASIS . MOST OF THE PURCHASES OF AGRICULTURAL PRODUCE WERE MADE THROUGH KACHCHA ARAH TIAS, WHO ACTED ON BEHALF OF THE FARMERS. A FEW PURCHASES WERE ALSO MADE DIRECTL Y FROM THE FARMERS. IT WAS SUBMITTED THAT KHAIR MANDI FROM WHERE ASSESSEE DID HIS BUSINESS DURING THE YEAR ITA NO. 319/AGRA/2009 4 UNDER CONSIDERATION IS A PRIMARY FARMERS ARRIVALS M ANDI, HENCE IT IS A TRADE PRACTICE THEREIN THAT ALL THE TRANSACTIONS ARE TO BE MADE IN CASH ONLY. THE ASSESSEE MAINTAINED PROPER BOOKS OF ACCOUNT. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE IS A PAKKA ARAHTIA AND HE HAD PURCHASED TH E AGRICULTURAL CROPS THROUGH KACHCHA ARAHTIAS WHO ARE ASSISTING THEIR FARMERS CO NSTITUENT, WHO USED TO BRING THEIR CROPS TO THE MANDI FOR SALE. IN OTHER WORDS, HE IS ACTING AN AGENT OF THE ASSESSEE ALSO TO MAKE PURCHASES FROM FARMERS ON COM MISSION BASIS. ALL THE AGRICULTURAL PRODUCES WERE PURCHASED IN THE SUPERVI SION OF A GOVERNMENT AGENCY, KNOWN AS KRISHI UTPADAN MANDI SAMITI. COPY OF COMMI SSION BILL (9R) IS RETAINED BY THE SAID GOVERNMENT AGENCY ON EVERY PURCHASE WHI CH WAS MADE BY THE ASSESSEE DURING THE YEAR. THIS FACT PROVES THAT ALL THE PURCHASES MADE BY THE ASSESSEE WERE GENUINE AND COPIES OF 9R AND 6R WERE PRODUCED FOR VERIFICATION. THEREFORE, ALL WERE GENUINE TRANSACTIONS RECORDED I N THE BOOKS OF ACCOUNT. KACHCHA ARAHTIA IS ACTUALLY AUTHORIZED TO SELL THE PRODUCTS OF THE FARMERS ON THE STRENGTH OF 9RS AND IN RESPECT OF PURCHASE TO ISSUE FORM 6R TO THE FARMERS. PRICE OF 6R AND 9R IS ABSOLUTELY SAME AND KACHCHA ARAHTIA HAS ADDED HI S COMMISSION @ 1.5%, BROKERAGE @ 0.5%, MANDI SHULK @ 2% AND VIKAS CESS @ 0.5% IN 9R AND ACCORDINGLY HE ACTUALLY WORKED AS AGENT OF PAKKA AR AHTIA. KACHCHA ARAHTIA HAS NO RIGHT OR LIBERTY TO CHARGE PURCHASE/SALE PRICE OF T HE PRODUCT AS GIVEN IN 6R. THE ASSESSEE IS REGULARLY ASSESSED TO TAX AND THERE IS NO CHANGE IN THE SYSTEM AND ITA NO. 319/AGRA/2009 5 BUSINESS ACTIVITIES. THE PAYMENTS TO FARMERS THROUG H KACHCHA ARAHTIA HAVE TO BE MADE IN CASH ONLY BECAUSE OF THE REASONS THAT KACHC HA ARAHTIA / AGENT AS WELL AS FARMERS ARE NOT HAVING BANK ACCOUNTS IN THEIR NAMES . THERE IS NO BANKING FACILITIES AVAILABLE IN THE AREA OF KRISHI UTPADAN MANDI ASTHA L KHAIR. KACHCHA ARAHTIA / AGENT HAS INSISTED TO RECEIVE PAYMENT IN CASH IN TH E INTEREST OF BUSINESS AS WELL BEING CARRIED ON TRADITIONALLY SINCE LONG. THE PAYM ENTS TO THE FARMERS HAVE TO BE GIVEN ONLY IN CASH. THE CASH PAYMENTS HAVE BEEN GIV EN IN THE INTEREST OF BUSINESS REQUIREMENTS / EXPEDIENCY. ALL THE STATUTORY FORMS HAVE BEEN MAINTAINED BY THE ASSESSEE AND SIMILAR BUSINESS ACTIVITIES HAVE BEEN ACCEPTED IN PAST BY THE REVENUE IN THE PROCEEDINGS U/S. 143(3) OF THE IT ACT. THE A SSESSEE RELIED UPON THE DECISION OF ITAT, BANGALORE BENCH IN THE CASE OF RENUKESHWAR A RICE MILLS VS. ITO AND SUBMITTED THAT KACHCHA ARAHTIA HAVE FILED THEIR AFF IDAVITS AND ACKNOWLEDGED THAT THEY HAD INSISTED TO TAKE CASH PAYMENTS ONLY IN TUR N TO MAKE PAYMENTS TO THE FARMERS. IT WAS SUBMITTED THAT THE AO HAS WRONGLY A PPLIED CIRCULAR NO. 34 AS IT WAS NOT APPLICABLE TO THE CASE OF THE ASSESSEE. THE AO HAS FAILED TO APPRECIATE THAT SOME OF THE CASH PAYMENTS WERE MADE DIRECTLY TO THE FARMERS AND SOME PAYMENTS WERE MADE ON BANK HOLIDAYS AND ALSO THE AO FAILED T O APPRECIATE THAT KACHCHA ARAHTIA AND FARMERS HAVE NOT MAINTAINED ANY BANK AC COUNTS. THE DETAILS OF CASH PAYMENTS MADE ON BANK HOLIDAYS AND DIRECTLY TO THEI R FARMERS HAVE BEEN GIVEN IN THE WRITTEN SUBMISSIONS. IT WAS, THEREFORE, SUBMITT ED THAT THE AO HAS ITA NO. 319/AGRA/2009 6 MISUNDERSTOOD THE PROVISIONS OF SECTION 40A(3) OF T HE IT ACT. SEVERAL DECISIONS WERE RELIED UPON BEFORE THE LD. CIT(A) AND REPRODUC ED IN THE WRITTEN SUBMISSIONS. THE BOARDS CIRCULAR NO. 220 DATED 31.05.1977 WAS A LSO RELIED UPON WHICH CLARIFIED CERTAIN CIRCUMSTANCES IN WHICH CONDITIONS LAID DOWN IN RULE 6DD(J) COULD BE RELAXED, I.E., TRANSACTIONS AND PAYMENTS M ADE ON BANK HOLIDAYS; THE SELLER HAS REFUSED TO ACCEPT PAYMENT BY WAY OF CROSSED CHE QUES / DRAFTS AND THAT THE SELLER ACTING AS A COMMISSION AGENT, IS REQUIRED TO PAY IN TURN TO THE PERSON FROM WHOM HE PURCHASED THE GOODS. IT WAS, THEREFORE, SUBMITTE D THAT THE ASSESSEES CASE CLEARLY FALLS IN THE EXCEPTION AS GIVEN IN RULE 6DD(J) AND RULE 6DD(K) OF THE IT ACT. THE WRITTEN SUBMISSION OF THE ASSESSEE WAS FORWARDED TO THE AO FOR HIS COMMENTS, IN WHICH THE ASSESSING OFFICER REITERATED THE SAME SUB MISSIONS AS MADE IN THE ASSESSMENT ORDER AND ASSESSEE ALSO FILED REJOINDER TO THE SAME, WHICH IS REPRODUCED IN THE APPELLATE ORDER, IN WHICH THE ASSESSEE REITE RATED HIS STAND SEEKING DELETION OF THE ADDITION. 3.1 THE LD. CIT(A), CONSIDERING THE EXPLANATION OF THE ASSESSEE IN THE LIGHT OF THE NATURE OF THE BUSINESS OF THE ASSESSEE AND EXCE PTIONS AS PROVIDED IN RULE 6DD OF THE IT RULES, DELETED THE ENTIRE ADDITION. THE F INDINGS OF THE LD. CIT(A) IN THE IMPUGNED ORDER IN PARA 8 TO 9 ARE REPRODUCED AS UND ER : 8. I HAVE APPLIED MY MIND CAREFULLY TO ALL THE REL EVANT FACTS AND EVIDENCE RELATING THIS CASE, AS WELL AS RIVAL SUBMI SSIONS. I HAVE ALSO ITA NO. 319/AGRA/2009 7 PERUSED THE LEGAL RATIO AVAILABLE IN RESPECT OF PRO VISIONS OF SECTION 40A (3) READ WITH RULE 6DD. MY FINDINGS ARE AS UNDE R:- 8.1 BEFORE I GO INTO THE INTERESTING ASPECT OF 40A (3); I WOULD CLARIFY THAT THE APPELLANTS ARGUMENTS REGARDING CA SH PAYMENTS ACTUALLY BEING BELOW RS. 20,000/- AND RELIANCE ON KACHHI ROKAR FOR THE SAME, IS TO BE TAKEN AS AN AFTER-THOUGHT. I AGR EE WITH THE A.O. THAT HAD THIS KACHHI ROKAR BEEN IN POSSESSION WITH THE ASSESSEE HE WOULD HAVE PRODUCED THE SAME OR MENTIONED IN ANY OF THE REPLIES. THUS THE CASE IS TO BE PROCEEDED ON THE PREMISE THA T THE ASSESSEE HAD MADE PAYMENTS IN CASH EXCEEDING RS. 20,000/- AND HE NCE THE ISSUE UNDER CONSIDERATION IS WHETHER ANY OR MORE OF THE C LAUSES OF RULE 6DD ARE APPLICABLE, OR NOT. 8.2 REGARDING THE ISSUE OF APPLICABILITY OF PROVISI ONS OF SECTION 40A (3) READ WITH RULE 6DD; THE FIRST AND THE FOREMOST FACTOR WOULD BE TO UNDERSTAND THE TRUE NATURE OF (A) BUSINESS OF THE A SSESSEE, (B) BUSINESS SET-UP OF THE MANDI WHERE ASSESSEE HAD MADE ALL THE PURCHASES, AND (C) THE STATUS OF KUCHHA ARAHTIA FROM WHOM THE RE LEVANT PURCHASES HAVE BEEN MADE AND TO WHOM RELEVANT PAYMENTS HAVE B EEN MADE. I SHALL DISCUSS THIS ASPECT ONE BY ONE HEREUNDER:- (B) & (C) I WILL START WITH THE SET UP AND CONSTITU TION OF KRISHI UTPADAN MANDI SAMITI, KHAIR AND OF ITS VARIOUS CONS TITUENTS, MAINLY KACHA ARAHTIA. I HAVE GONE THROUGH NOT ONLY THE S UBMISSION MADE ANY DOCUMENTS FILED BY THE APPELLANT, BUT ALSO THE ORIGINAL TAX OF UTTAR PRADESH KRISHI UTPADAN MANDI ACT, 1964 AND ALSO VAR IOUS LICENSES ISSUED BY KHAIR MANDI SAMITI. I FIND THAT ALL THESE MANDI SAMITIS INCLUDING KHAIR MANDI SAMITI, FUNCTIONS UNDER THE S TRICT NORMS AND RULES. KHAIR MANDI IS A MANDI OF FOOD GRAINS OF PRIMARY AR RIVAL (PAHLI AVAK), IN WHICH FARMERS BRING THEIR PRODUCTS FOR FI RST SALE. IT IS A MANDI OF FIRST ARRIVALS, MEANING THAT HER E FARMERS BRING THEIR PRODUCE FOR SALE FOR THE FIRST TIME. IT IS DIFFEREN T THAN MANDIS OF SECOND ARRIVALS, WHICH ARE MORE OF FREE TRADING M ARKETS. THE PRODUCE, SOLD TO PACCA ARAHTIAS/WHOLESALERS; IN MAN DIS OF FIRST ARRIVALS; REACH TO MANDIS OF SECOND ARRIVALS FOR FREE TRADING. ITA NO. 319/AGRA/2009 8 THE SALE TRANSACTIONS IN MANDIS OF FIRST ARRIVALS , LIKE KHAIR MANDI, ARE MUCH MORE GUIDED AND CONTROLLED BY VARIOUS RULE S/PROCEDURES; ALL WITH THE MOTTO TO FETCH MAXIMUM RETURNS FOR THE FAR MERS. FOR SUCH SALE BY THE FARMERS, EXHAUSTIVE RULES AND PROCEDURES HAVE BEEN LAID DOWN. KUCHHA ARAHTIAS ARE ISSUED SPECIFIC LICENSES BY THE MANDI SAMITI. THE JOB OF KUCHHA ARAHTIA IS ONLY TO MAKE AUCTION OF THE FOOD GRAINS AT SPECIFIED FORMATS. IT IS VERY IMPORT ANT TO NOTE THAT THESE KUCHHA ARAHTIAS ARE TO GET ONLY COMMISSIONS/BROKERA GE. THESE KUCHHA ARAHTIAS CANNOT INDIVIDUALLY TRADE ON THEIR OWN. IN OTHER WORDS THEY CAN ONLY MEDIATE BETWEEN THE SELLERS (I.E. FARMERS) AND THE PURCHASERS. KUCHHA ARAHTIA ISSUES SPECIFIC FORM NO. 6R TO THE FARMERS AND FORM NO.9R TO THE PURCHASERS, WITH COPI ES TO MANDI SAMITI. THIS IS IMPORTANT TO INFER THAT EACH AND EVERY BOUT OF AGRICULTURAL PRODUCE SOLD, CAN BE RELATED THROUGH THESE 6RS AND 9RS, TO SPECIFIC FARMER AND SPECIFIC PURCHASER. TO PUT IT DIFFERENTL Y, THROUGH THE CADRE OF THESE KUCHHA ARAHTIA, IT CAN BE ASCERTAINED AS T O WHO HAS PURCHASED, HOW MUCH FROM WHICH FARMER; AND THUS WHI CH FARMER HAS TO RECEIVE HOW MUCH PAYMENT, FROM WHICH PURCHASER. THUS, KUCHHA ARAHTIAS ARE AGENTS IN ITS TRUE SENS E; I.E. IT MEDIATES BETWEEN TWO CONSTITUENTS-ON ONE SIDE THERE ARE FARM ERS AND ON OTHER THERE ARE PURCHASERS(WHOLESALERS/ PACCA ARAHTIAS). IN ALL PRACTICAL SENSE, KUCHHA ARAHTIAS ARE NOT ONLY AGENTS FOR THE FARMERS BUT THEY ARE ALSO ACTING AGENTS OF THE PURCHASERS (WHOLESALE RS OR PACCA ARAHTIAS) BECAUSE IT IS ONLY THE KUCHHA ARAHTIA WHO CAN EFFECT COLLECTION OF MONEY FROM PURCHASERS AND DISBURSE TH E SAME TO THE SPECIFIED FARMERS. (A). THE ASSESSEE IS ALSO A PURCHASER OF FOOD GRAIN S IN THIS SET UP OF KHAIR MANDI BEING, MANDI OF PRIMARY ARRIVAL. I HAVE SEEN THE LICENCE ISSUED BY KHAIR MANDI SAMITI TO THE ASSESSEE; THE S TATUS OF THE ASSESSEE IS PACCA ARAHTIA/ WHOLESALER. SOMETIMES THE ASSESSEE MAKES PURCHASE ON BEHALF OF SOME OTHER PRINCIPALS; AT THAT TIME, HE IS A PACCA ARAHTIA. SOME OTHE TIMES, THE ASSESSEE TAKE S A POSITION I.E. IT MAKES PURCHASES AND THEN SELLS FOR PROFIT; AT THAT TIME, HE IS ACTING AS A WHOLESALER. ITA NO. 319/AGRA/2009 9 7.3 IN THE ABOVE BACK DROP, FOLLOWING ARE SOME IMPO RTANT CONCLUSIONS /OBSERVATIONS MADE:- (A). THERE IS A WORLD OF DIFFERENCE BETWEEN STATUS AND ROLE OF A KUCCHA ARAHTIA, AND THAT OF A PACCA ARAHTIA/ WHOLES ALER. ALTHOUGH BOTH ARE CALLED AND TERMED ARAHTIA; THESE TWO CANNO T BE EQUATED AT ALL. KUCHHA ARAHTIAS DO NOT TRADE; THEY ARE ONLY FASCILA TORS OF AUCTIONS/SALES OF AGRICULTURAL PRODUCE, WHICH FARME RS BRING TO MANDI AND, THUS KUCHHA ARAHTIA ARE ONLY AGENTS FOR FARMER S. KUCHHA ARAHTIA IS TO SAFEGUARD THE INTERESTS OF FARMERS, W HO ARE OTHERWISE ILLITERATE, NAVE AND THUS, VULNERABLE TO BE EXPLOI TED BY WAY OF CHEAP RETURNS, AND DEFAULT/DELAY IN RECOVERY OF SALE CONS IDERATION. AT THE SAME TIME, A KUCHHA ARAHTIA RECEIVES COMMISS ION FROM PACCA ARAHTIA, ENSURES DELIVERY OF AGRICULTURAL PRODUCE T O PACCA ARAHTIA, AND ENSURES DELIVERY OF SALE CONSIDERATION TO THE F ARMERS. IN THIS WAY, KUCHHA ARAHTIA ACTS AS AGENT FOR PACCA ARAHTIA ALSO . (B). THIS IS VERIFIABLE FROM THE RECORD THAT WHATEV ER PURCHASE PRICE ASSESSEE PAYS, ARE PASSED ON IN TOTO, TO THE RESPEC TIVE FARMERS; ASSESSEE PAYS COMMISSION AND BROKERAGE SEPARATELY T O KUCHHA ARAHTIAS AS PER SPECIFIC GUIDELINES AND RATES LAID DOWN BY THE MANDI SAMITI. KUCHHA ARAHTIAS RECEIVE CASH PAYMENTS FROM THE ASSE SSEE, ON BEHALF OF THE FARMERS. THEY KEEP THEIR COMMISSION AND BROK ERAGE, AND DISBURSE THE PURCHASE CONSIDERATION TO RESPECTIVE F ARMERS. (C). IT HAS BEEN STATED ON OATH (AFFIDAVITS) BY THE SE KUCHHA ARAHTIA THAT THEY HAVE INSISTED ON CASH PAYMENT TO BE MADE BY THE ASSESSEE, BECAUSE FARMERS DID NOT HAVE BANK ACCOUNTS AND HENC E ARE NOT READY TO ACCEPT CHEQUES/DRAFTS. KUCHHA ARAHTIAS HAVE ALSO FILED AFFIDAVITS TO THE EFFECT THAT THEY ALSO DO NOT HAVE ANY BANK ACCO UNTS. 7.4 IN SUCH A SCENARIO I FIND SUBSTANTIAL FORCE IN THE APPELLANTS CONTENTION THAT CASH PURCHASES MADE BY THE ASSESSEE WOULD BE EXEMPT FROM THE RIGORS OF SECTION 40A(3), MAINLY BECAUSE O F APPLICABILITY OF ITA NO. 319/AGRA/2009 10 CLAUSE (1) OF RULE 6DD. FOR READY REFERENCE, CLAUSE (1) IS REPRODUCED AS UNDER :- .. (1). WHERE THE PAYMENT WAS REQUIRED TO BE MADE BY A NY PERSON TO HIS AGENT WHO IS REQUIRED TO MAKE PAYMENT IN CASH F OR GOODS OR SERVICES ON BEHALF OF SUCH PERSON 7.4.1 AS DISCUSSED ABOVE, THE KUCHHA ARAHTIAS TO WH OM THE ASSESSEE HAS MADE PAYMENTS HAVE ACTED AS AN AGENT, WHO IS RE QUIRED TO MAKE THE PAYMENTS IN CASH TO THE FARMERS. THIS VIEW IS FULLY SUPPORTED BY THE FOLLOWING JUDIC IAL DECISIONS:- (I). SRI RENUKESHWARA RICE MILLS VS. INCOME TAX OFF ICER[2005] 93 TTJ (BANG) 912 : (2005) 93 ITD 263(BANG)) . BUSINESS EXPENDITURE DISALLOWANCE UNDER S. 40A (3 ) DIRECT PAYMENT INTO BANK ACCOUNT OF PAYEE PAYMENT WAS MA DE BY ASSESSEE TOO KP BY DEPOSITING CASH ALONG WITH CHALLAN IN ITS BANK ACCOUNT DIRECTLY TRANSACTION IS TRACEABLE FROM ORIGIN TO CONCLUSION IT IS NOT A DIRECT PAYMENT TO THE PAYEE HENCE, S. 40A(3 ) IS NOT APPLICABLE MOREOVER, PAYMENT IN QUESTION WAS MADE FOR PURCHA SE OF AGRICULTURAL PRODUCE TO KP, AN AGENT OPERATING IN T HE MARKET YARD SET UP UNDER STATE RMC ACT PERSON OPERATING THERE IS AN AGENT OF CULTIVATOR OR GROWER AS WELL AS OF BUYER SUCH AGE NT IS REQUIRED TO PAY THE CULTIVATOR IN CASH THUS, PAYMEN5T MADE TO KP IS INDIRECT PAYMENT TO THE CULTIVATOR THROUGH THE AGENT HENCE , S. 40A(3) IS NOT APPLICABLE ON A COMBINED READING OF CLS. (F) OF R. 6DD..(EMPHASIS SUPPLIED BY ME) (II). DEPUTY COMMISSIONER INCOME-TAX, CIR. 12(1), N EW DELHI V. HIND INDUSTRIES LTD.[2008] 26 SOT 196 (DELHI) .. IN THIS CASE, THE ASSESSEE COMPANY WAS ENGAGED IN THE BUSINESS OF PROCESSING AND EXPORT OF MEANT AND MEAT PRODUCTS. D URING THE ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD MADE ALL THE PURCHASES IN CASH AND HAD REGULARL Y WITHDRAWN ITA NO. 319/AGRA/2009 11 HUGE CASH FROM BANK AND OSTENSIBLY MADE PAYMENTS FO R SUPPLY OF CARCASS. AFTER PROCESSING THESE, THE ASSESSEE SUPPL IED THE PRODUCTS TO VARIOUS COUNTRIES. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE PAYMENTS MADE IN CASH WOULD BE HIT BY PROVISIONS OF SECTION 40A (3). ON APPEAL, THE COMMISSIONER (APPEALS) OPINED THAT S INCE THE ASSESSING OFFICER HAD STATED AND ASSESSEE HAD ALSO ADMITTED THAT THE PAYMENTS HAD BEEN MADE TO THE AGENTS IN RESPECT OF PURCHASE OF CARCASS, THERE WAS NO ROOM TO INTERPRET CLAUSE (F) OF RULE 6DD IN FAVOUR OF THE ASSESSEE. HOWEVER, SO FAR AS THE ASSE SSEES CLAIM FOR EXCLUSION FROM APPLICABILITY OF SECTION 40A (3), RE AD WITH CLAUSE (1) OF RULE 6DD, WAS CONCERNED, THE COMMISSIONER (APPEALS) HELD THAT PAYMENT IN CASH TO AGENTS FOR PURCHASES OF PRODUCTS OF ANIMAL HUSBANDRY COULD NOT BE TAKEN AWAY FROM THE PURVIEW OF THE EXCLUSION CLAUSE CONTAINED IN CLAUSE (1) OF RULE 6DD. THEREFO RE, THE DISALLOWANCE UNDER SECTION 40A (3) WAS UNJUSTIFIED. ON THE REVENUES APPEAL, HELD THAT .. THE CASE OF THE ASSESSEE FELL UNDER BOTH T HE CATEGORIES I.E. CLAUSE (F) AND CLAUSE (1) OF RULE 6DD. CLAUSE (1) HAS BEEN INSERTED BY THE IT (TWENTY-FIRST AMENDMENT) RULES, 1995 WITH EFFECT FROM 1-12-1995. THE ASSESSING OFFICER HAD DISALLOWE D THE CLAIM OF THE ASSESSEE IN VIEW OF THE DECISION OF THE ALLAHAB AD HIGH COURT IN THE CASE OF CIT V. PEHLAJ RAJ DARYANMAL[1991] 190 I TR 242. THE DECISION BY THE ALLAHABAD HIGH COURT WAS RENDERED I N 1991 WHEREAS CLAUSE (1) WAS INSERTED BY THE IT AMENDMENT RULES I N THE YEAR 1995. THEREFORE, THE RATIO OF THE DECISION OF THE ALLAHAB AD HIGH COURT WOULD NOT BE APPLICABLE TO THE FACTS OF THE INSTANT CASE, AS THE YEAR UNDER CONSIDERATION RELATED TO THE ASSESSMENT YEAR 2003-04. AS STATED ABOVE CLAUSE (1) WAS INSERTED FROM THE YEAR 1995 AN D WAS STILL ON STATUTE. THEREFORE, THE DECISION OF THE TRIBUNAL, B ANGALORE BENCH IN THE CASE OF SRI RENUKESHWARA RICE MILLS V. ITO [200 5] 93 ITD 263 WAS SQUARELY APPLICABLE TO THE INSTANT CASE AS FACT S WERE SIMILAR. [PARA 13.3] THE CONTENTION OF THE DEPARTMENT, THAT THERE WAS NO AGENT, DID NOT SOUND GOOD BECAUSE THE ASSESSING OFFICER HIMSELF HA D DISALLOWED THE PAYMENTS FOR THE REASON THAT THEY WERE NOT MADE DIR ECTLY TO PRODUCERS/CULTIVATORS BUT THROUGH INTERMEDIARIES OR AGENTS. [PARA 13.4] ITA NO. 319/AGRA/2009 12 FURTHER, AS PER CLAUSE (F) OF RULE 6DD, NO DISALLOW ANCE COULD BE MADE UNDER SECTION 40A (3). THOUGH THE COMMISSIONER (APP EALS) HAD REJECTED THE CLAIM UNDER CLAUSE (F), YET, IN VIEW O F RULE 27 OF INCOME- TAX (APPELLATE TRIBUNAL) RULES, 1963 AND IN VIEW OF THE DECISION OF THE SUPREME COURT IN THE CASE OF CIT V. MAHALAKSHMI TEX TILE MILLS LTD [1997] 66 ITR 710 THE CLAIM OF THE ASSESSEE WAS ALL OWABLE AS PER CLAUSE (F) OF RULE 6DD. [PARA 13.6] FURTHER, RULE 27 OF THE APPELLATE TRIBUNAL RULES IS VERY SPECIFIC AND CLEAR. WHATEVER POINT HAS BEEN REJECTED BY THE COMM ISSIONER (APPEALS), THE RESPONDENT-ASSESSEE COULD SUPPORT HI S ARGUMENTS AGAINST THE APPEAL FILED BY THE APPELLANT, I.E., TH E DEPARTMENT. THOUGH THE COMMISSIONER (APPEALS) HAS REJECTED THE CLAIM O F THE ASSESSEE UNDER CLAUSE(F) OF RULE 6DD OF THE INCOME-TAX RULES , YET IN VIEW OF RULE 27 OF THE APPELLATE TRIBUNAL RULES, THE ASSESS EE COULD RAISE/SUPPORT HIS CLAIM.[PARA 13.10] THE ISSUE WAS ALSO COVERED BY THE DECISION OF THE T RIBUNAL DELHI BENCH B IN THE CASE OF JT.CIT V. AL-NOOR EXPORTS [IT APPEAL NO.89(DELHI) OF 2001, DATED 26-10-2004] [PARA 13.12 ] G IN VIEW OF THE ABOVE AND DECISION OF TRIBUNAL IN THE CASE OF AL- NOOR EXPORTS (SUPRA), NO DISALLOWANCE COULD BE MADE UNDER SECTION 40A (3). ACCORDINGLY THE ORDER OF COMMISSIONER (APPEALS) WAS TO BE CONFIRMED [PARA 13.13]. THE ABOVE TWO CASES HAVE SIMILAR FACTS AND CIRCUMST ANCES, AS THAT OF PRESENT APPELLANTS CASE. THE RATIO OF ABOVE TWO DECISIONS IS IN FAVOUR OF T HE STIPULATION THAT (A) CASH PAYMENTS MADE BY APPELLANT TO KUCHHA ARAHT IAS ARE, IN EFFECT, PAYMENTS MADE DIRECTLY TO THE FARMERS, AND, THUS, ARE FAVOURABLY COVERED BY CLAUSE (F)OF RULE 6DD, AND, ITA NO. 319/AGRA/2009 13 (B). FURTHERMORE, AND MORE IMPORTANTLY, KUCHHA ARAH TIAS ARE AGENTS OF BOTH FARMERS AS WELL AS PACCA ARAHTIAS, A ND, THEREFORE, CASH PAYMENTS MADE TO THEM ARE FAVOURABLY COVERED BY CLA USE (1) OF RULE 6DD. THUS, I HOLD THAT THE IMPUGNED CASH PAYMENTS MADE B Y ASSESSEE ARE FAVOURABLY COVERED BY CLAUSE (1) READ WITH CLAUSE ( F) OF RULE 6DD. 7.5 AT THIS JUNCTURE LET ME DEAL WITH A.O. MAIN OBJ ECTION THAT CIRCULAR NO.34 OF 05-03-1970 HAS CATEGORICALLY CLAR IFIED THAT KUCHHA ARAHTIA IS NOT AGENT OF FARMERS. FIRST OF ALL, I FIND THAT THE A.O. IS MAKING THIS S PECIFIC ASSERTION FROM HIS OWN SIDE; THERE ARE NO SUCH WORDINGS (AS MENTIO NED BY THE A.O.) IN THE CIRCULAR NO.34 DATED 5-03-1970!! LET US SEE THE EXACT WORDINGS OF CIRCULARNO.34 DATE D 0-03-1970:- A LARGE PORTION OF TRADE IN AGRICULTURAL COMMODITI ES IS CHANNELED THROUGH THE INSTITUTION OF ARAHTIYAS. WHILE THE P AYMENTS MADE TO THE CULTIVATORS OR GROWERS OF AGRICULTURAL PRODUCE ARE SPECIFICALLY EXCLUDED FROM THE PURVIEW OF SECTION 40A(30 BY CLAU SE (F0 OF RULE 6DD, THE PAYMENTS MADE TO THE ARAHTIYAS FOR PURCH ASES MADE FROM THE CULTIVATORS IN CASH UNTIL THE CHEQUES ARE ENCHA SED AND THIS PROCEDURE INVOLVES SEVERE HARDSHIP. HOWEVER, THIS D IFFICULTY CAN BE MET BY OBTAINING THE ADVANCES FROM THE PURCHASERS, WHICH SHOULD OF COURSE CONFORM TO REQUIREMENTS OF SECTION 40A (3). THE EXTENSION OF THE EXEMPTION TO THE PURCHASERS WOULD DEFEAT THE OB JECTIVE OF THE PROVISIONS. THUS, FROM THE PERUSAL OF ABOVE; WE CAN SEE THAT TH IS CIRCULAR, ALTHOUGH DOES TALK ABOUT PAYMENTS TO ARAHTIA; BUT D OES NOT MAKE ANY ASSERTION TO THE EFFECT THAT KUCHHA ARAHTIA ARE NOT AGENT OF THE FARMERS. SO; I HOLD THAT THE ASSERTION MADE BY THE A.O., IS OVERZEALOUS AND REQUIRES TO BE BRUSHED ASIDE. 7.5.1 TO ANALYZE FURTHER, ARAHTIA WORD IN THIS CI RCULAR IS CLEARLY REFERRING TO A WHOLESALER AGENT/ PACCA ARAHTIA; WHO TAKE THEIR OWN POSITIONS (I.E. TRADE ON THEIR OWN) AFTER MAKING PU RCHASE FROM THE ITA NO. 319/AGRA/2009 14 FARMERS/AGRICULTURISTS; THE SAID WORD IS NOT REFERR ING TO KUCHHA ARAHTIA. THIS VIEW OF MINE IS STRENGTHENED FROM THE DISCUSSI ON MADE REGARDING KUCHHA ARAHTIA AND PACCA ARAHTIA BY THE C.B.D.T. IN CIRCULAR NO.452 DATED 17-03-1986. IT WOULD BE DESIRABLE TO REPRODUC E THIS CIRCULAR:- CIRCULAR/SECTION 44 AB OF THE INCOME-TAX ACT APPLICABILITY OF SECTION 44AB IN THE CASES OF COMMI SSION AGENTS, ARAHTIA, ETC. CLARIFICATION REGARDING 1. SECTION 44AB OF THE INCOME-TAX ACT, 1961, AS INS ERTED BY THE FINANCE ACT, 1984. CASTS AN OBLIGATION ON EVERY PER SON CARRYING ON BUSINESS TO GET HIS ACCOUNTS AUDITED, IF HIS TOTAL SALES, TURNOVER OR GROSS RECEIPTS, AS THE CASE MAY BE, EXCEED RS.40 LA KHS IN ANY PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR COMMENCING ON 1-4-1985 OR ANY SUBSEQUENT ASSESSMENT YEAR. 2. THE BOARD HAVE RECEIVED REPRESENTATIONS FROM VAR IOUS PERSONS, TRADE ASSOCIATIONS, ETC., TO CLARIFY WHETHER IN CAS ES WHERE AN AGENT EFFECTS SALES/TURNOVER ON BEHALF OF HIS PRINCIPLE, SUCH SALES/TURNOVER HAVE TO BE TREATED AS THE SALES/TURNOVER OF THE AGE NT FOR THE PURPOSE OF SECTION 44AB. 3. THE MATTER WAS EXAMINED IN CONSULTATION WITH THE MINISTRY OF LAW. THERE ARE VARIOUS TRADE PRACTICES PREVALENT IN THE COUNTRY IN REGARD TO AGENCY BUSINESS AND NO UNIFORM PATTERN IS FOLLOWED BY THE COMMISSION AGENTS, CONSIGNMENT AGENTS, BROKERS, KAC HHA ARAHTIA AND PACCA ARAHTIAS DEALING IN DIFFERENT COMMODITIES IN DIFFERENT PARTS OF COUNTRY. THE PRIMARY NECESSITY IN EACH INSTANCE IS TO ASCERTAIN WITH PRECISION WHAT ARE THE EXPRESS TERMS OF THE PARTICU LAR CONTACT UNDER CONSIDERATION. EACH TRANSACTION, THEREFORE, REQUIRE S TO BE EXAMINED WITH REFERENCE TO ITS TERM AND CONDITIONS AND NO HA RD AND FAST RULE CAN BE LAID DOWN AS TO WHETHER AGENT IS ACTING ONLY AS AN AGENT OR ALSO AS A PRINCIPAL. 4. THE BOARD IS ADVISED THAT SO FAR AS KACHHA ARAHT IA ARE CONCERNED, THE TURNOVER DOES NOT INCLUDE THE SALES EFFECTED ON BEHALF OF THE PRINCIPALS AND ONLY THE GROSS COMMISSION HAS TO BE CONSIDERED ITA NO. 319/AGRA/2009 15 FOR THE PURPOSE OF SECTION 44AB. BUT THE POSITION I S DIFFERENT WITH REGARD TO PACCA ARAHTIA. A PACCA ARAHTIA IS NOT, IN THE PROPER SENSE OF THE WORD, AN AGENT OR EVEN DEL CREDRE AGENT. THE RE LATION BETWEEN HIM AND HIS CONSTITUENT IS SUBSTANTIALLY THAT BETWEEN T HE TWO PRINCIPALS. ON THE BASIS OF VARIOUS COURT PRONOUNCEMENTS FOLLOWING PRINCIPALS OF DISTINCTIONS CAN BE LAID DOWN BETWEEN A KACHHA ARAH TIA AND A PACCA ARAHTIA: (I). A KACHHA ARAHTIA ACTS ONLY AS AN AGENT TO HIS CONSTITUENT AND NEVER ACT AS A PRINCIPAL. A PACCA ARAHTIA, ON THE O THER HAND, IS ENTITLED TO SUBSTITUTE HIS OWN GOODS ON HIS PERSONA L ACCOUNTS AND THUS HE ACTS AS A PRINCIPAL AS REGARDS HIS CONSTITUENT; (II). A KACHHA ARAHTIA BRINGS A PRIVITY OF CONTRACT BETWEEN HIS CONSTITUENT AND THE THIRD PARTY SO THAT EACH BECOME S LIABLE TO THE OTHER. THE PACCA ARAHTIA, ON THE OTHER HAND, MAKES HIMSELF LIABLE PERSON UPON THE CONTRACT NOT ONLY TO THE THIRD PART Y BUT ALSO TO HIS CONSTITUENT; (III). THOUGH THE KACHHA ARAHTIA DOES NOT COMMUNICA TE THE NAME OF HIS CONSTITUENT TO THE THIRD PARTY, HE DOES COMMUNI CATE THE NAME OF THE THIRD PARTY TO THE CONSTITUENT. IN OTHER WORDS, HE IS AN AGENT FOR AN UNNAMED PRINCIPAL. THE PACCA ARAHTIA, ON THE OTHER HAND, DOES NOT INFORM HIS CONSTITUENT AS TO THE THIRD PARTY WITH W HOM HE HAD ENTERED INTO A CONTRACT ON HIS BEHALF. (IV). THE REMUNERATION OF KUCHHA ARAHTIA CONSISTS S OLELY OF COMMISSION AND HE IS NOT INTERESTED IN THE PROFITS AND LOSSES MADE BY HIS CONSTITUENT AS IS NOT THE CASE WITH THE PACCA A RAHTIA; (V). THE KACHHA ARAHTIA, UNLIKE THE PACCA ARAHTIA, DOES NOT HAVE ANY DOMINION OVER THE GOODS; (VI). THE KACHHA ARAHTIA HAS NO PERSONAL INTEREST O F HIS OWN WHEN HE ENTERS INTO A TRANSACTION AND HIS INTEREST IS LIMIT ED TO THE COMMISSION AGENCYS CHARGES AND CERTAIN OUT OF POCKET EXPENSES WHERE AS A PACCA ARAHTIA HAS A PERSONAL INTEREST OF HIS OWN WHEN HE ENTERS INTO A TRANSACTION; ITA NO. 319/AGRA/2009 16 (VII). IN THE EVENT OF ANY LOSS, THE KACHHA ARAHTIA IS ENTITLED TO BE INDEMNIFIED BY HIS PRINCIPAL AS IS NOT THE CASE WIT H PACCA ARAHTIA. 5. THE ABOVE DISTINCTION BETWEEN A KACHHA ARAHTIA A ND PACCA ARAHTIA MAY ALSO BE RELEVANT FOR DETERMINING THE AP PLICABILITY OF SECTION 44AB IN CASE OF OTHER TYPES OF AGENTS. IN T HE CASE OF AGENTS WHOSE POSITION IS SIMILAR TO THAT OF KACHHA ARAHTIA , THE TURNOVER IS ONLY THE COMMISSION AND DOES NOT INCLUDE THE SALES ON BEHALF OF THE PRINCIPALS. IN THE CASE AGENTS OF THE TYPE OF PACCA ARAHTIA, ON THE OTHER HAND, THE TOTAL SALES TURNOVER OF THE BUSINES S SHOULD BE TAKEN INTO CONSIDERATION FOR DETERMINING THE APPLICABILIT Y OF THE PROVISIONS OF SECTION 44AB.(ALL THE EMPHASIS SUPPLIED BY THE UNDERSIGNED) THE ABOVE DISCUSSION OF TWO TYPES OF ARAHTIA IS VER Y RELEVANT FOR OUR PRESENT CASE. IN THE PRESENT CASE, THE ASSESSEE IS CERTAINLY A PACCA ARAHTIA/WHOLESALER, WHILE KUCHHA ARAHTIA TO WHOM CA SH PAYMENTS HAVE BEEN MADE BY THE ASSESSEE FOR THE IMPUGNED PUR CHASES, ARE DEL CREDRE AGENTS WHO ARE ACTING AS AGENT, NOT ONLY FOR THE FARMERS, BUT, ALSO FOR THE PACCA ARAHTIAS/WHOLESALERS LIKE THE AS SESSEE; THEY RECEIVE COMMISSION FROM THE ASSESSEE FOR SUCH KIND OF MEDIA TING SERVICES AND THEY ARE BRINGING PRIVITY OF CONTRACT BETWEEN THE F ARMERS AND THE ASSESSEE SO THAT EACH BECOMES LIABLE TO THE OTHER; THEY ARE COMMUNICATING NAME OF THE ASSESSEE TO THE FARMERS A ND THUS THEY ARE ACTING AS AN ASSESSEES AGENT ALSO. THUS I HOLD THAT THE ASSESSEES CASE, SUPPORTED BY THE RATIO OF ABOVE REFERRED JUDICIAL PRONOUNCEMENTS, IS COVERED BY EXE MPTION CLAUSE (1) OF RULE 6DD. 7.6. I FIND IT WORTHWHILE TO MAKE A FURTHER IMPORTA NT CLARIFICATION. THE CIRCULAR NO.34 IS DATED ON 05-03-1970, WHILE CL AUSE (1), ALONG WITH CLAUSE (J) AND (K) OF RULE 6DD WERE BROUGHT MU CH AFTERWARDS, VIZ. WITH EFFECT FROM 11-02-95, NOTIFICATION NO.509 46 (E) DATED 01-12- 1995; (1996) 217 ITR (ST) 2, 3. THUS NOT ONLY CIRCULAR NO. 34 IS NOT SO RELEVANT TO THE PRESENT SCENARIO (WHERE THERE IS CRUCIAL DISTINCTION BETWEE N NOMENCLATURE AND ROLE KUCHHA ARAHTIA AND PACCA ARAHTIA), BUT ALSO TH E SAME IS OF MUCH EARLIER PERIOD WHEN CLAUSE (1) WAS NOT THERE. THE A SSESSEES CASE IS ITA NO. 319/AGRA/2009 17 MORE IN TUNE WITH CLAUSE (1) OF RULE 6DD WHICH HAS COME INTO STATUTE IN 1995. 7.7. BEFORE I PART I WOULD MAKE CERTAIN COMMENTS RE GARDING A.OS COMMENTS ON BANKING FACILITIES. IT IS TRUE THAT THERE ARE CERTAIN BANK BRANCHES IN KHAIR TOWN. BUT IT IS ALSO TRUE THAT THE A.OS POINT WOULD HAVE BEEN MORE VALID IF SUCH BANKING FACILITIES WERE AVAILABLE WITHIN THE MANDI PREMISES ITSELF. I FIND SUBSTANTIAL FORCE, ATLEAST ON MORAL GROUND, IN APPELLANTS PLEADINGS THAT PRESENCE OF 2 3 SMALL BANK BRANCHE S IN KHAIR TOWN CANNOT BE SUFFICIENT TO MEET THE REQUIREMENTS OF LA RGE CASH WITHDRAWALS, IN CASE OF KACHHA ARAHTIA ARE FORCED T O ACCEPT PAYMENTS VIDE CHEQUE/DRAFT. THIS MORAL AND SOCIAL ANGLE IS MORE FORCEFUL IF WE ALSO CONSIDER THE RISKY SITUATION IF THESE KACHHA ARAHTIA/PACCA ARAHT IA/FARMERS ARE TO CARRY CASH TO AND FRO. KHAIR TOWN AND THE MANDI PR EMISES. THIS IS ALSO MORE IMPORTANT TO UNDERSTAND THAT IF K UCHHA ARAHTIAS WERE TO ACCEPT CHEQUE/DRAFT; IT WOULD RATHER BE A W ELCOME SITUATION FOR THE ASSESSEE ALSO!! THE ASSESSEE IS CARRYING AS H AND IS CORRESPONDINGLY RUNNING EVERY DAY RISK, AND IN FACT , HAS TO TAKE SAFETY MEASURES. ALL THESE CAN BE EASILY AVOIDED, IN CASE KUCHHA ARAHTIA DO NOT INSIST ON CASH PAYMENTS. THUS, PAYMENT IN CASH CAN NOT BE VOLUNTARY ACTION OF THE APPELLANT; IT HAS TO BE AN UNFORTUNATE NECESSITY BECAUSE OF PREVAILING CUSTOMS, BANKING FACILITIES, AND PECULIAR FACTS AND CIRCUMSTANCES LEADING TO INSISTENCE BY THE KUCH HA ARAHTIAS. THE ABOVE DISCUSSION STRENGTHENS THE VIEW THAT RIGO RS OF 40A (3) ARE NOT VISITED ON THE ASSESSEE ALSO, ON THE GROUND THA T TO SOME EXTENT, IF NOT IN FULL TECHNICAL SENSE; EVEN CLAUSE (H) APPLIE S TO APPELLANTS CASE. HOWEVER THIS IS AN ADDED ARGUMENT ONLY; THE APPELLA NTS CASE IS BEING FAVOURABLY DECIDED BY THE APPLICATION OF CLAUSES (1 ) & (F) OF RULE 6DD. IN ANY CASE IT SUPPORTS THE CONTENTION THAT ASSESSE E IS FORCED TO MAKE CASH PAYMENTS TO KUCHHA ARAHTIA, WHO ARE REQUIRED T O MAKE THE PAYMENT IN CASH. ITA NO. 319/AGRA/2009 18 THIS CAN ALSO BE CONSTRUCTED AS A SOCIAL AND ECONOM IC PLEA ON BEHALF OF WHOLESALERS LIKE THE ASSESSEE, TO THE RELEVANT A UTHORITIES/AGENCIES, FOR SETTING UP VIGOROUS FACILITIES WITHIN THE MANDI PREMISES ITSELF SO THAT BANKING PRACTICES SPREAD OVER, OBVIATING THE N EED FOR CASH TRANSACTIONS. ONCE BANKING PRACTICES ARE AVAILABLE IN REQUISITE WAY AND EXTENT, INSIDE THE MANDI PREMISES ITSELF; THEN WE CAN VISUALIZE THE FAVOURABLE ATTITUDE OF KUCHHA ARAHTIA IN ACCEPTING CHEQUES/DRAFTS, BECAUSE THEY CAN THEN ENCASH SUCH CHEQUES/DRAFTS WI THIN THE PREMISES ITSELF, AND PAY TO FARMERS. PROBABLY THE FARMERS WO ULD ALSO DEVELOP AN ATTITUDE PREFERRING BANK ACCOUNTS AND BANKING TR ANSACTIONS. 7.7 THE A.O HAS CHALLENGED THIS AFFIRMATION AND HAS POINTED OUT THAT THESE KUCHHA ARAHTIAS ARE FILING THEIR RETURNS AND ARE ALSO ACCEPTING REFUND CHEQUES, WHICH IMPLIES THAT THEY A RE HAVING BANK ACCOUNTS. ON THIS, THE ASSESSEE HAS CLARIFIED THAT THE PROPRI ETORS/PARTNERS OF CERTAIN KUCHHA ARAHTIA MAY BE HAVING BANK ACCOUNTS IN THEIR INDIVIDUAL NAMES, BUT THE BUSINESS DEALINGS OF KUCH HA ARAHTI ARE IN THE NAME AND STYLE OF THEIR PROPRIETARY CONCERN; AN D THE BILLS ISSUED BY THEM TO THE ASSESSEE ARE IN THE NAME OF SUCH CON CERNS, AND THERE IS NO BANK ACCOUNT IN THE NAME OF SUCH PROPRIETARY CON CERNS. A CHART OF VARIOUS KUCHHA ARAHTIA HAVING NAMES OF THEIR PROPRI ETARY CONCERNS VIS--VIS NAMES OF THE CONCERN INDIVIDUALS, CLARIFI ES THIS POINT. THIS ASPECT ALSO GOES IN FAVOUR OF APPELLANT. 7.8. LASTLY, I OBSERVED THAT ALTHOUGH THE A.O. HAS MADE A DISTINCTION BETWEEN PURCHASES MADE BY THE ASSESSEE AS COMMISSIO N AGENT VIS-- VIS AS WHOLESALER, BUT, FOR THE ISSUE UNDER CONSIDE RATION I.E. DISALLOWANCE U/S 40A (3); I OPINE THAT THE A.O.S O PINION IS NOT CORRECT. THE MODUS OPERANDI OF PURCHASES IS EXACTLY THE SAME, IN BOTH THE TYPES OF TRANSACTIONS. HENCE, FROM THE VIEW POI NT OF SECTION40A (3), THE TWO TYPES OF TRANSACTIONS NEED NOT TO BE D ISTINGUISHED. SUCH DISTINCTION, CAN BE RELEVANT FOR THE PAYMENTS MADE BY OTHER PRINCIPALS, WHO HAVE MADE PURCHASES FROM THE ASSESS EE, AND CONSEQUENTLY, FOR ANY SUCH APPLICABILITY U/S 40A (3 ) IN THEIR HANDS; BUT ARE IRRELEVANT AS FAR AS APPELLANTS CASE IS CO NCERNED. ITA NO. 319/AGRA/2009 19 AS FAR AS PURCHASES MADE BY THE ASSESSEE ARE CONCER NED; ALL PURCHASES HAVE BEEN MADE FROM KUCHHA ARAHTIA THROUG H THE SAME SET UP AS NARRATED ABOVE. SO THE A.O.S VIEW OF BIFURCATING TOTAL PURCHASES I NTO TWO TYPES ONE ACTING AS COMMISSION AGENT AND THE OTHER ACTING AS TRADER IS OF NO RELEVANCE AS FAR AS APPLICABILITY OF SECTION 40A (3 ) IS CONCERNED. 8. IN VIEW OF THE ABOVE DISCUSSION, I FINALLY HOLD THAT ASSESSEES CASH PURCHASES MADE FROM KHAIR MANDI (OF FIRST ARR IVALS), ARE FAVOURABLY COVERED BY CLAUSE (1), OF RULE 6DD; FURT HER SUPPORTED BY CLAUSES (F) AND (H) OF RULE 6DD, AND, THUS, ARE EXE MPT FROM THE RIGOURS OF DISALLOWANCE AS ENVISAGED U/S 40A (3)OF THE I.T. ACT. 9. IN RESULT, THE APPEAL IS ALLOWED. 4. THE LD. DR RELIED UPON THE ORDER OF THE AO AND R EFERRED TO PAGES 17 & 18 OF THE ORDER OF THE AO WHERE THE DETAILS OF PAYMENTS M ADE IN CASH IN VIOLATION OF SECTION 40A(3) HAVE BEEN MENTIONED. THE LD. DR SUBM ITTED THAT THE ASSESSEE HAD MADE PURCHASES ON TRADING ACCOUNT ON HIS BEHALF IN CASH, THEREFORE, THE PROVISIONS OF SECTION 40A(3) ARE APPLICABLE. NO EVIDENCE WAS P RODUCED IN SUPPORT OF THE CONTENTIONS RAISED BEFORE THE AO. THE PAYMENTS ARE NOT MADE TO GROWERS OF AGRICULTURAL PRODUCE BUT TO THE KACHCHA ARAHTIAS, W HO WERE NOT AGENTS OF THE ASSESSEE AND ARE NOT IN NEED OF CASH PAYMENT. FURTH ER, BANKING FACILITIES ARE AVAILABLE IN THE CITY. THEREFORE, LD. CIT(A) SHOULD NOT HAVE DELETED THE ADDITION. ITA NO. 319/AGRA/2009 20 5. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSES SEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND SUBMITTED THA T IT IS NOT IN DISPUTE THAT THE ASSESSEE ACTED AS PUCCA ARAHTIA AND MADE PAYMENT TO KACHCHA ARAHTIA, WHO ARRANGED AGRICULTURAL PRODUCE ON BEHALF OF THE ASSE SSEE, WHO GOT COMMISSION. HE HAS SUBMITTED THAT KACHCHA ARAHTIA IS AGENT OF THE ASSESSEE IN BETWEEN GROWERS OF THE AGRICULTURAL PRODUCE. HE HAS SUBMITTED THAT RUL E 6DD (E) ALSO APPLIES IN THE CASE OF THE ASSESSEE. HE HAS SUBMITTED THAT CIRCULA R NO. 34 DO NOT APPLY IN THE CASE OF ASSESSEE BECAUSE IT DID NOT SPEAK OF KACHCHA ARA HTIA. CIRCULAR NO. 452 HAS BEEN CORRECTLY APPLIED BY THE LD. CIT(A) FOR THE PURPOSE OF DELETING THE ADDITION. PROPER BANKING FACILITIES ARE NOT AVAILABLE IN KHAIR TOWN. HE HAS SUBMITTED THAT THERE WERE MANY TIMES CHANGES IN RULE 6DD AND NOW THE RELEVANT PROVISIONS OF RULE, I.E., 6DD(E) (J) & (K) OF THE IT RULES WOULD APPLY IN THE CASE OF ASSESSEE AS HAVE BEEN CONSIDERED BY THE LD. CIT(A). HE HAS RELIED UPON TH E ORDER OF THE ITAT, VASHAKHAPATNAM BENCH IN THE CASE OF ACIT CIRCLE 1(1 ) VENKATADARI OILS LTD. VS. PENAMALURU, ITA NO. 422/2007 DATED 19.08.2010, IN W HICH IN IDENTICAL FACTS, THE TRIBUNAL HELD THAT PAYMENTS MADE TO COMMISSION AGEN TS WHO WERE THE REPRESENTATIVES OF THE FARMERS ARE COVERED BY EXCEP TION UNDER CLAUSE (F) OF RULE 6DD AND HENCE, THE AO WAS DIRECTED TO DELETE THE AD DITION U/S. 40A(3) OF THE IT ACT. HE HAS ALSO RELIED UPON THE UNREPORTED DECISIO N OF HONBLE DELHI HIGH COURT IN THE CASE OF R.C. GOEL VS. CIT IN ITA NO. 636/201 2 DATED 04.12.2012, IN WHICH ITA NO. 319/AGRA/2009 21 ON IDENTICAL FACTS, THE APPEAL OF THE ASSESSEE HAS BEEN ALLOWED. FINDINGS OF THE HONBLE HIGH COURT IN PARA 8 TO 11 OF THE ORDER ARE REPRODUCED AS UNDER : 8. THE PROVISO WHICH WAS INTRODUCED IN THE YEAR 19 99 HAS REMAINED CONSTANT EXCEPT IN THE YEAR 2005 WHEN SUB-SECTION (3A) WAS INTRODUCED BY THE PARLIAMENT. HOWEVER, RULE 6DD WHICH WAS INTRODUCED AND HAS BEEN EXISTING ON THE STATUTE FOR THE NEARLY TWO DECADES HAS BEEN AMENDED FROM TIME TO TIME. RULE 6D D (K) TO THE EXTENT IT IS RELEVANT READS AS FOLLOWS: - 6DD. NO DISALLOWANCE UNDER SUB-SECTION (3) OF SECT ION 40A SHALL BE MADE AND NO PAYMENT SHALL BE DEEMED TO BE THE PROFITS AND GAINS OF BUSINESS OR PROFESSION UNDER SUB-SECTI ON (3A) OF SECTION 40A WHERE PAYMENT OR AGGREGATE OF PAYMENTS MADE TO A PERSON IN A DAY', OTHERWISE THAN BY AN ACCOUNT PA YEE CHEQUE DRAWN ON A BANK OR ACCOUNT PAYEE BANK DRAFT, EXCEED S TWENTY THOUSAND RUPEES ILL L/IT:' CASES AND CIRCUMSTANCES SPECIFIED HEREUNDER, NAMELY: - XXX XXX XXX (K) WHERE THE PAYMENT IS MADE BY ANY PERSON TO HIS AGENT WHO IS REQUIRED TO MAKE PAYMENT IN CASH FOR GOODS OR SE RVICES ON BEHALF' OF SUCH PERSONS. ' 9. IN THE PRESENT CASE, THE PREVIOUSLY NOTED DISCUS SION WOULD REVEAL THAT THE ASSESSEE ENGAGES ITSELF IN EXECUTIN G CATERING CONTRACTS FOR RAILWAYS IN RESPECT OF TWO TRAINS. IN THOSE TRA INS, ITS PERSONNEL ARE DEPLOYED FOR SALE OF SMALL ARTICLES OF DAILY NECESS ITY AND USE TO THE PASSENGERS, PER FORCE, THE PAYMENTS RECEIVED BY THE M ARE NECESSARILY IN CASH, THESE AMOUNTS ARE COLLECTED AND IN TURN HA NDED OVER TO THE ASSESSEE. THE ASSESSEE IN TERMS OF ITS CONTRACT IS BOUND TO MAINTAIN CONSTANT SUPPLIES IN THE TRAINS AND ENSURE THAT AT NO POINT IN TIME CAN THE PASSENGERS BE DEPRIVED OF THESE ARTICLES (WHICH ARE FOOD ARTICLES, SOFT DRINKS AND OTHER ITEMS NECESSARY FOR TRAVEL). IN THE COURSE OF SUCH TRANSACTIONS, IT SOURCES THESE ARTICLES FROM M/S SH RUTI ENTERPRISES. APPARENTLY, THAT CONCERN IS ALSO A SMALL TIME ONE A ND INSISTS NIL CASH PAYMENTS FOR ENSURING CONTINUITY AND TIMELY SUPPLIE S. WHILST, THE COURT IS CONSCIOUS AND DOES NOT IN ANY MANNER WISH TO COMMENT ITA NO. 319/AGRA/2009 22 ADVERSELY ON THE LARGER PUBLIC INTEREST ELEMENT EMB EDDED IN SECTION 40A AND THE UNDERLYING PRINCIPLE, AT THE SAME TIME, THE COURT ALSO NOTES THAT THE PROVISO SEEKS TO RELIEVE TO A CERTAI N EXTENT, THE MEASURE OF HARDSHIP WHICH MIGHT BE IMPOSED UPON SMALL BUSIN ESSES AND PROFESSIONALS WHO ARE ENGAGED IN ACTIVITIES AND ARE DEPENDENT ENTIRELY ON TIMELY CASH FLOW. IT IS IN SUCH CASES T HAT RULE 6DD - WHICH WAS FORMULATED AS A PROVISO TO SECTION 40A (3) - ST EPS IN TO AID SUCH ASSESSEES AND CONCERNS. IN THIS CONTEXT, THE STATUT ORY MANDATE IN SECTION 6DD (K), AT LEAST IN THE CIRCUMSTANCES OF T HE CASE, HAS TO BE SO CONSTRUED AS TO MEAN THAT BUT FOR THE CASH PAYMENT, THE ASSESSEE WOULD HAVE BEEN DEPRIVED THE BENEFIT OF SUPPLIES IT SELF. THIS COURT CLARIFIES THAT THE INTERPRETATION OF THE EXPRESSION 'WHO IS REQUIRED TO MAKE PAYMENT IN CASH' HAVING REGARD TO THE CIRCUMST ANCES OF THE CASE IS FACT DEPENDENT, AT LEAST IN THE PRESENT CASE. TH E CONSEQUENCE OF INSTANCES OF PAYMENT THROUGH ACCOUNT PAYEE CHEQUES IN SMALL BUSINESS WHICH ARE DEPENDENT ON SUCH SUPPLIES WOULD BE TO COMPLETELY STIFLE, IF NOT STOP, THE BUSINESS ACTIVI TIES. IT IS IN THAT SENSE THAT THE EXPRESSION ''REQUIRED'' WOULD HAVE TO BE C ONSTRUED. 10. IN VIEW OF THE ABOVE DISCUSSION, THIS COURT IS OF THE OPINION THAT HAVING REGARD TO THE PECULIAR FACTS AND CIRCUMSTANC ES, THE TRIBUNAL AND THE LOWER AUTHORITIES ADOPTED AN UNDULY NARROW AND TECHNICAL INTERPRETATION OF RULE 6DD(K), THE BENEFIT OF WHICH THE ASSESSEE CLEARLY WAS ENTITLED TO. THE QUESTION OF LAW IS ACC ORDINGLY ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 11. THE APPEAL ITA 636/2012 IS ACCORDINGLY ALLO WED. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND THE MATERIAL AVAILABLE ON RECORD. RULE 6DD OF THE IT RULES, AS NOW APPLICABLE , PROVIDES THE CASES AND CIRCUMSTANCES IN WHICH THE PAYMENT OR AGGREGATE OF PAYMENTS EXCEEDING TWENTY THOUSAND RUPEES MAY BE MADE TO A PERSON IN A DAY, O THERWISE THAN BY ACCOUNT PAYEE CHEQUES DRAWN ON A BANK OR ACCOUNT PAYEE BANK DRAFT. IT PROVIDES THAT NO DISALLOWANCE U/S. 40A(3) SHALL BE MADE AND NO PAYME NTS SHALL BE DEEMED TO BE THE ITA NO. 319/AGRA/2009 23 PROFITS AND GAINS OF BUSINESS OR PROFESSION U/S. 40 A(3) WHERE ANY PAYMENT IN A SUM EXCEEDING TWENTY THOUSAND RUPEES IS MADE OTHERWISE THAN BY A ACCOUNT PAYEE CHEQUES DRAWN ON A BANK OR ACCOUNT PAYEE DRAFT IN T HE CASES AND CIRCUMSTANCES SPECIFIED THEREIN, NAMELY (E) WHERE THE PAYMENT IS MADE FOR THE PURCHASE OF (I) AGRICULTURAL OR FOREST PRODUCE; OR (II) THE PRODUCE OF ANIMAL HUSBANDRY (INCLUDING L IVESTOCK, 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 ARTIC LES, PRODUCE OR PRODUCTS; (J) WHERE THE PAYMENT WAS REQUIRED TO BE MADE ON A DAY ON WHICH THE BANKS WERE CLOSED EITHER ON ACCOUNT OF HOLIDAY OR S TRIKE; (K) WHERE THE PAYMENT IS MADE BY ANY PERSON TO HIS AGENT WHO IS REQUIRED TO MAKE PAYMENT IN CASH FOR GOODS OR SERVI CES ON BEHALF OF SUCH PERSON; 6.1 THE LD. CIT(A) CONSIDERED THE ISSUE IN DETAIL I N THE LIGHT OF EXCEPTIONS PROVIDED UNDER RULE 6DD IN ORDER TO GRANT RELIEF TO THE ASSESSEE FOR VIOLATION OF SECTION 40A(3) OF THE IT ACT. THE FINDING OF FACT R ECORDED BY THE LD. CIT(A) TO THE EFFECT THAT THE ASSESSEE WAS A PAKKA ARAHTIA AND MA DE PURCHASES FROM KACHCHA ARAHTIAS HAVE NOT BEEN DISPUTED BY THE LD. DR DURIN G THE COURSE OF ARGUMENTS. IT IS ITA NO. 319/AGRA/2009 24 ALSO NOT IN DISPUTE THAT THE ASSESSEE ACTED AS PER KRISHI UTPADAN MANDI SAMITI RULES. THEREFORE, IT IS NOT IN DISPUTE THAT KACHCHA ARAHTIA ARE AGENTS IN ITS TRUE SENSES I.E., IT MEDIATES BETWEEN TWO CONSTITUENTS , I.E., ON ONE SIDE THERE ARE FARMERS AND ON THE OTHER THERE ARE PURCHASERS (WHOL E SELLERS /PAKKA ARAHTIAS). ALL STATUTORY FORMS HAVE BEEN MAINTAINED TO SUPPORT THE FINDINGS OF THE LD. CIT(A) THAT THE ASSESSEE ACTED AS PAKKA ARAHTIA AND MADE PURCHA SES OF AGRICULTURAL PRODUCE THROUGH KACHCHA ARAHTIAS. THE KACHCHA ARAHTIAS IN O RDER TO FACILITATE THE SALE OF AGRICULTURAL PRODUCE WHICH FARMERS BROUGHT TO THE M ANDI HAS TAKEN COMMISSION FROM THE PAKKA ARAHTIA, I.E., THE ASSESSEE. THEREFO RE, THE CASE OF THE ASSESSEE IS SQUARELY COVERED BY RULE 6DD(K) OF THE IT RULES (NE W). THE CASE OF THE ASSESSEE WAS, THEREFORE, RIGHTLY CONSIDERED BY THE LD. CIT(A ) IN THE LIGHT OF DECISIONS OF ITAT, BANGALORE BENCH IN THE CASE OF RENUKESHWARA R ICE MILLS VS. ITO (SUPRA). THE LD. CIT(A), THEREFORE, RIGHTLY CONSIDERED ANOTH ER ASPECT THAT THE CASE OF THE ASSESSEE WOULD ALSO BE COVERED BY ANOTHER SUB-PROVI SION OF RULE 6DD BECAUSE THE PAYMENTS ARE MADE FOR PURCHASE OF AGRICULTURAL PROD UCE. THE CIRCULAR NO. 34 OF BOARD IS NOT APPLICABLE BECAUSE IT DID NOT DEAL WIT H KACHCHA ARAHTIA AND IN TURN THE LD. CIT(A) RIGHTLY TAKEN INTO CONSIDERATION BOA RDS CIRCULAR NO. 452 WHICH CLEARLY THROW LIGHT ON THE FUNCTIONING OF KACHCHA A RAHTIA AND PAKKA ARAHTIA. THE KACHCHA ARAHTIAS HAVE ALSO FILED THEIR AFFIDAVITS A CKNOWLEDGING THAT CASH PAYMENTS WERE MADE AT THEIR INSISTENCE AS THEY DID NOT MAINTAIN ANY BANK ACCOUNTS ITA NO. 319/AGRA/2009 25 AS WELL AS FARMERS HAVE NOT MAINTAINED BANK ACCOUNT S AND IN TURN KACHCHA ARAHTIA HAS TO MAKE PAYMENTS TO THE FARMERS IN CASH. FURTHE R, THE OLD CIRCULAR NO. 34 WAS APPLIED BEFORE THE ABOVE RULES HAVE BEEN INSERTED I N THE IT RULES. THUS, IT IS ALSO CLEAR THAT IN THE ABSENCE OF PROPER BANKING FACILIT IES, THE ASSESSEE WAS UNDER BUSINESS EXPEDIENCY TO MAKE CASH PAYMENT TO THE KAC HCHA ARAHTIAS. CERTAIN PAYMENTS WERE MADE DIRECTLY TO THE FARMERS AS WELL AS ON BANK HOLIDAYS. THEREFORE, IT WOULD ALSO SUPPORT THE FINDING OF THE LD. CIT(A) IN DELETING THE ADDITION. FURTHER, THE ASSESSEE HAS RELIED UPON THE BOARDS CIRCULAR NO. 220 DATED 31.05.1977, IN WHICH CERTAIN CONDITIONS HAVE BEEN L AID DOWN FOR MAKING CASH PAYMENTS AND SOME OF THE CONDITIONS ARE THAT WHEN P AYMENTS ARE MADE ON BANK HOLIDAY AND THE SELLER HAS REFUSED TO ACCEPT THE PA YMENT BY WAY OF CROSSED CHEQUES / DRAFT. FURTHER, THE SELLER, ACTING AS A COMMISSIO N AGENT IS REQUIRED TO PAY CASH IN TURN TO THE PERSONS FROM WHOM HE PURCHASED THE GOOD S. THIS CIRCULAR WOULD ALSO APPLY IN FAVOUR OF THE ASSESSEE BECAUSE IN THE FACT S AND CIRCUMSTANCES OF THE CASE, IT IS CLEAR THAT KACHCHA ARAHTIA OBTAINED THE AGRIC ULTURAL PRODUCE FROM THE FARMERS AND HAVE ARRANGED TO MAKE SALES TO THE ASSESSEE BEI NG PAKKA ARAHTIA. SINCE KACHCHA ARAHTIA INSISTED FOR CASH PAYMENT FROM THE ASSESSEE FOR MAKING CASH PAYMENTS TO THE FARMERS, THEREFORE, SUB-RULE (E) OF RULE 6DD WOULD ALSO APPLY IN THE CASE OF THE ASSESSEE. THE LD. COUNSEL FOR THE A SSESSEE HAS ALSO RELIED UPON THE ORDER OF THE ITAT, VISHAKHAPATNAM BENCH IN THE CASE OF VENKATADRI OILS LTD. ITA NO. 319/AGRA/2009 26 (SUPRA) IN WHICH SIMILAR FACTS HAVE BEEN CONSIDERED AND THE DEPARTMENTAL APPEAL HAS BEEN DISMISSED. THE LD. COUNSEL FOR THE ASSESSE E RELIED UPON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF R.C. GOEL ( SUPRA) WHICH ALSO CLEARLY SUPPORTS THE FINDINGS OF THE LD. CIT(A). CONSIDERIN G THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE VIEW THAT THE CASE OF THE A SSESSEE IS CLEARLY COVERED BY EXCEPTIONS PROVIDED UNDER RULE 6DD OF THE IT RULES, AS NOTED ABOVE. THEREFORE, THE LD. CIT(A) ON PROPER APPRECIATION OF FACTS AND MATERIAL ON RECORD RIGHTLY DELETED THE ADDITION. WE, THEREFORE, DO NOT FIND AN Y JUSTIFICATION TO INTERFERE WITH THE ORDER OF THE LD. CIT(A). THE SAME IS CONFIRMED AND THE DEPARTMENTAL APPEAL IS DISMISSED. 7. IN THE RESULT, THE DEPARTMENTAL APPEAL IS DISMIS SED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (A.L. GEHLOT) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER *AKS/- COPY OF THE ORDER FORWARDED TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A), CONCERNED BY ORDER 4. CIT, CONCERNED 5. DR, ITAT, AGRA 6. GUARD FILE SR. PRIVATE SECRETARY TRUE COPY