ITO, Wd.1(1), Nashik V. Shri Pradip Vishandas Bhagwani, Nashik

ITA 992/PUN/2012

• Counselvise Citation: 99224514 RSA 2012
• Duration Of Justice: 1 year(s) 4 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 10-09-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 17-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RA J IV HARIT
• Keywords: Business expenditure
• Section: 40A(3); 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO. 992/PN/2012 (ASSESSMENT YEAR 2009-10) ITO WARD-1(1), NASHIK .. APPELLANT VS. PRADEEP VISHANDAS BHAGWANI, HARI KRUPA BUNGLOW, VADALA PATHARDI ROAD, INDIRA NAGAR, NASHIK-422009 .. RESPONDENT PAN NO. AFFPB 1796J APPELLANT BY : SHRI RAJIV HARIT RESPONDENT BY : SHRI NIKHIL PATHAK DATE OF HEARING : 10-09-2013 DATE OF PRONOUNCEMENT : 30-09-2013 ORDER PER R.K. PANDA, AM : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER DATED 14-03-2012 OF THE CIT(A)-I, NASHIK RELATING T O ASSESSMENT YEAR 2009-10. 2. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE IS AN INDIVIDUAL AND IS ENGAGED IN THE BUSINESS OF TRADING IN FRUITS, I. E. POMEGRANATES & GRAPES. THE ASSESSEE FILED HIS RETURN OF INCOME ON 29-09-2009 DECLARING TOTAL INCOME OF RS.4,38,610/-. THE ASSESSING OFFIC ER OBSERVED THAT IN THIS CASE BANKING CASH TRANSACTION TAX (BCTT) ENQU IRY WAS CONDUCTED BY THE INVESTIGATION WING, NASHIK AND THE ASSESSEE IN HIS STATEMENT RECORDED U/S.131 DURING THE COURSE OF ENQUIRY HAS S TATED THAT HE HAS MADE CASH PURCHASES FROM THE FOLLOWING PARTIES : 2 SR.NO. NAME OF THE PARTY AMOUNT PAID 1 M/S. MARUTI KRUPA FRUIT COMPANY PROP. HETAL SINGADA ` 36,96,897/- 2 M/S. MAA SHERAWALI FRUIT COMPANY ` 10,83,161/- 3 M/S. JAI MATADI FRUIT COMPANY ` 19,38,520/- 4 M/S. YASHWANT FRUIT COMPANY ` 19,21,940/- ` 86,40,518/- 2.1 THE ASSESSING OFFICER NOTED THAT THE ASSESSEE D URING THE IMPUGNED ASSESSMENT YEAR HAS SHOWN TURNOVER AT RS.5 ,36,74,732/- ON WHICH HE HAS SHOWN GP @ 2.93% AND NET PROFIT AT RS. 5,63,518/- WHICH WORKS OUT TO 1.04%. HE ASKED THE ASSESSEE TO EXPLA IN AS TO WHY ADDITION SHOULD NOT BE MADE FOR VIOLATION OF PROVIS IONS OF SECTION 40A(3) OF THE INCOME TAX ACT ON ACCOUNT OF CASH PAY MENTS EXCEEDING RS.20,000/-. IN RESPONSE TO THE SAME THE ASSESSEE REPLIED AS UNDER : 7. IN RESPONSE TO THE ABOVE, THE ASSESSEE VIDE LET TER DATED 18.11.2011 HAS SUBMITTED AS UNDER, THE CONTENTS OF THE LETTER ARE REPRODUCED BELOW:- 'PRADEEP BHAGWANI IS ENGAGED IN WHOLESALE TRADING IN FRUITS. HIS SOME OF THE PURCHASES ARE FROM NASHIK KRUSHI UTPANN A BAZAR SAMITEE IN WHICH AGRICULTURIST COME TO SALE THEIR A GRICULTURAL PRODUCT. THE AGRICULTURIST WHO COMES TO SALE HIS PRODUCT IN KRUSHI UTPANA BAZAR SAMITEE HAS TO SALE HIS PRODUCT THROUGH COMMISSION AGENT AS APPOINTED BY KRUSHI UTPANA BAZAR SAMITEE. COMMISSIO N AGENT MANAGES AUCTION FOR SALE OF AGRICULTURAL PRODUCT, M R. PRADEEP BHAGWANI HAS TO BUY FRUITS IN AUCTION AS MANAGED BY COMMISSION AGENT AT NASHIK KRUSHI UTPANA BAZAR SAMITEE AND NOT DIRECTLY FROM AGRICULTURIST. AGRICULTURIST HIMSELF KEEP HIS PRESE NT AT THE TIME OF ACTION OF HIS AGRICULTURAL PRODUCT, IF HE IS NOT SA TISFIED WITH THE PRICE QUOTED BY PURCHASERS IN AUCTION, HE HAS RIGHT NOT T O SALE GOODS AT THAT TIME, AND POSSESSION OF THE AGRICULTURAL PRODUCT IS WITH FARMER/AGRICULTURIST AT THE TIME OF AUCTION AND RIG HT TO SALE IS ALSO WITH THE AGRICULTURIST AT THE TIME OF ACTION, HENCE COMMISSION AGENT DOES NOT HAVE ANY OWNERSHIP OF AGRICULTURAL PRODUCT ION WHICH ARE CAM TO HIM FOR SALE IN AUCTION, AFTER PURCHASE OF F RUITS IN AUCTION MR. PRADEEP BHAGWANI HAS TO PAY THE PURCHASE AMOUNT TO COMMISSION AGENT PER RULES AND REGULATIONS OF NASHI K KRUSHI UTPANNA BAZAR SAMITEE AND THEN COMMISSION AGENT PAYS TO AGR ICULTURIST, THEREFORE IT CAN BE SEEN FROM THE ABOVE THAT THE CO MMISSION AGENT DOES NOT HAVE ANY RIGHT TO SALE AGRICULTURAL PRODUC T AS PER HIS WILL BUT HAS TO SALE GOODS BY AUCTION SYSTEM AS PER THE DIRE CTIONS OF AGRICULTURE AND AS PER THE RULES AND REGULATIONS OF NASHIK KRUSHI UTPANA BAZAR SAMITEE. C OMMISSION AGENTS ROLE IN KRUSHI UTPANA BAZAR SAMITE E IS JUST TO MANAGE THE AUCTION OF AGRICULTURE PRODUCE AND RECOV ER THE AMOUNT FROM PURCHASER AND PAID TO AGRICULTURALIST. AGRICU LTURIST HAVE ALL THE 3 RIGHTS OF SALE OR NOT SALE, AND AT WHAT PRICE TO SA LE, POSSESSION IS ALSO WITH THE AGRICULTURIST AT THE TIME OF AUCTION, THER EFORE PURCHASES MADE BY MR. PRADEEP BHAGWANI ARE DIRECTLY FROM AGRI CULTURE AND NOT FROM COMMISSION AGENTS AS APPOINTED BY KRUSHI UTPAN A BAZAR SAMITEE. THUS MR. PRADEEP BHAGWANI BUYS AGRICULTURE PRODUCE FORM AGRICULTURE PRODUCE FROM AGRICULTURIST, ONLY PAYMEN T IS MADE THOUGH THE COMMISSION AGENT AS APPOINTED BY THE NASHIK KRU SHI UTPANA BAZAR SAMITEE AS PER RULE AND REGULATIONS OF NASHIK KRUSHI UTPANA SAMITEE. HENCE ALL THE PAYMENT EXCEEDING RS.20,000/ - MADE MR. PRADEEP BHAGWANI OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE OR ACCOUNT PAYEE DEMAND DRAFT HAVE AN EXCEPTION UNDER RULE 6DD (E) ' 8. FURTHER ASSESSEE VIDE LETTER DATED 02-12-2011 SU BMITTED AS UNDER, THE CONTENTS OF THE LETTER ARE REPRODUCED BELOW : AS PER LETTER DATED 18-11-2011 MR. PRADEEP BHAGWAN I HAS STATED THE FACT OF PURCHASES OF AGRICULTURAL PRODUCT MADE BY H IM, FURTHER YOUR ASSESSEE WOULD LIKE TO DRAW YOUR ATTENTION TO THE P AYMENT OF CASH MADE BY HIM TO AGENTS AND SOME OF THE JUDGMENTS OF HONOU RABLE ITAT AND HONOURABLE HIGH COURTS IN WHICH THE EXPENSES INCURR ED IN CASH EXCEEDING THE LIMIT AS PROVIDED IN SEC.40A(3) OF THE I.T.ACT 1961 ARE ALLOWED AS BUSINESS EXPENSES, IN CONNECTION WITH THAT YOUR ASS ESSEE WOULD LIKE TO MENTIONED HERE THAT HE HAD TO MAKE PAYMENT IN CASH AS DEMANDED BY THE AGENTS AS BUSINESS NECESSITY, ARE NECESSARY FOR HIM TO MAKE PAYMENT TO AGENTS AS PER THEIR REQUIREMENT, OTHERWISE IT WO ULD NOT BE POSSIBLE FOR HIM TO PRODUCE AGRICULTURE PRODUCE FROM MARKET AS P ER HIS BUSINESS SMOOTHLY HE HAD TO MAKE PAYMENT IN CASH. AS WELL A S HE HAS MADE ALL THE PAYMENT BY WITHDRAWING CASH FROM BANK ACCOUNTS, IT CAN BE SEEN FROM THE ABOVE FACT THAT IT WAS POSSIBLE FOR HIM TO MAKE PAYMENT IS MADE BUT DUE TO AGENTS REQUIREMENT AND PRESSURE FROM THEM TO MAKE PAYMENT IN CASH HELD TO MAKE PAYMENT IN CASH. SO IT CAN BE SE EN FROM THE ABOVE SITUATION ITSELF THAT HE HAD BEEN COMPELLED BY THE AGENT TO MAKE THEM PAYMENT IN CASH AND HENCE THE PAYMENT IN CASH MADE BY HIM FROM BUSINESS EXPEDIENCY AND TO RUN BUSINESS SMOOTHLY. IT CAN BE SEEN FROM THE JUDGMENTS OF HONOURABLE ITAT KOLKATA AND HONOUR ABLE HIGH COURT OF ALLAHABAD THAT THE EXPENSES WHICH ARE PAID IN COMPE LLING SITUATION OR ARE PAID ON ACCOUNT OF BUSINESS CONSIDERATION CANNOT BE DISALLOWED EVEN THOUGH THE PAYMENT IS MADE BY CASH EXCEEDING THE LI MIT AS PER SECTION 40A(3). 3. HOWEVER, THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE EXPLANATION GIVEN BY THE ASSESSEE. HE OBSERVED THA T THE ASSESSEE IS PURCHASING FRUITS FROM THE PARTIES WHO ARE LOCATED IN NASHIK AND THE ASSESSEES TRANSACTION WITH THOSE PARTIES CANNOT BE CONSIDERED AS EXCEPTION AS ENVISAGED IN PROVISO TO SUB-SECTION (3 ) OF SECTION 40A OF THE INCOME TAX ACT. FURTHER, THE ASSESSEES CASE I S ALSO NOT COVERED BY ANY OF THE EXCEPTIONS MENTIONED IN RULE 6DD OF THE INCOME TAX RULES, 4 1962. IN VIEW OF THE ABOVE, THE ASSESSING OFFICER MADE ADDITION OF RS.86,46,518/- US/.40A(3) OF THE INCOME TAX ACT. 4. BEFORE THE CIT(A) THE ASSESSEE REITERATED THE SA ME ARGUMENTS AS MADE BEFORE THE ASSESSING OFFICER. IT WAS SUBMITTE D THAT THE PARTIES REFERRED TO BY THE ASSESSING OFFICER ARE THE REGIST ERED AGENTS OF KRISHI UTPANNA BAZAR SAMITTEE AND THE AGRICULTURAL PRODUCE HAS BEEN PURCHASED BY THE ASSESSEE FROM THE FARMERS THROUGH THE ABOVE- MENTIONED AGENTS THROUGH WHOM ALL CASH PAYMENTS HAV E BEEN MADE TO THE FARMERS AND HENCE THE CASE OF THE ASSESSEE IS C OVERED BY EXCEPTIONS PROVIDED IN RULE 6DD(E) AND ALSO RULE 6DD(K) OF THE INCOME TAX RULES R.W.S.40A(3). VARIOUS DECISIONS WERE ALSO BR OUGHT TO THE NOTICE OF THE LD.CIT(A) TO THE PROPOSITION THAT THE ASSESS EES CASE FALLS UNDER THE EXCEPTIONS TO RULE 6DD. 5. BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE THE LD.CIT(A) CALLED FOR A REMAND REPORT FROM THE ASSESSING OFFIC ER WHO REITERATED HIS CONTENTIONS IN THE ASSESSMENT ORDER THAT THE ASSESS EE HAD MADE DIRECT PAYMENT TO FRUIT AND VEGETABLE MERCHANTS FOR PURCHA SE OF AGRICULTURAL PRODUCE AND THEY HAVE NOT CHARGED COMMISSION FROM T HE ASSESSEE. THE ASSESSEE IN HIS COUNTER COMMENT SUBMITTED THAT AS P ER THE PROCEDURE OF KRISHI UTPANA BAZAR SAMITTEE AT NASHIK AND ALL OTHE R PLACES IN MAHARASTRA, THE AGRICULTURAL PRODUCE IS SOLD BY THE FARMERS IN AUCTION TO THE TRADERS THROUGH AUTHORISED AGENTS OF KRISHI UTP ANA BAZAR SAMITTEE. THE ASSESSEE CLARIFIED THAT AS PER SALE PATTI OF KR ISHI UTPANA BAZAR SAMITTEE THE COMMISSION, HAMALI ETC. IS CHARGED TO THE FARMERS. IT WAS FURTHER SUBMITTED THAT THE FACTS OF THE ASSESSEES CASE WERE SIMILAR TO THOSE OF THE CASES FOR WHICH DECISIONS WERE RELIED UPON AND CASH 5 PAYMENT IS COVERED BY RULE 6DD(E) AND RULE 6DD(K) R .W.S. 40A(3) OF THE INCOME TAX ACT. IT WAS ACCORDINGLY SUBMITTED T HAT THE ASSESSING OFFICER IS NOT JUSTIFIED IN MAKING THE DISALLOWANCE U/.S.40A(3). 6. BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE THE LD.CIT(A) DELETED THE ADDITION MADE BY THE ASSESSING OFFICER U/S.40A(3) BY OBSERVING AS UNDER : 8. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE C ASE, THE ASSESSMENT ORDER AND THE RIVAL CONTENTIONS. ON PERUSAL OF THE SAME, IT HAS BEEN NOTICED THAT THE A.O. HAS DISALLOWED THE CASH PAYMENTS U/S. 40A(3) STATING THAT THE ASSESSEE HAS PURCHASED GOODS FROM THE 4 PARTIES BY MAKING CASH PAYMENTS. THE APPELLANT ON THE OTHER HAND POINTED OUT THAT TH E PURCHASES OF AGRICULTURAL PRODUCE, HAVE BEEN MADE THROUGH KRISHI UTPANNA BAZAR SAMITTEE (KUBS) AND THE CASH PAYMENTS WERE MADE TO FARMERS THROUGH THE AUTHORIZED AGENTS OF THE KUBS. THIS CLAIM OF THE AP PELLANT IS SUPPORTED BY THE BILLS OF THE AGENTS AND SALE PATTIES OF THE AGR ICULTURAL PRODUCE PURCHASED BY THE APPELLANT. THE SAID 4 PARTIES REFERRED TO BY THE A.O. HAVE ONLY EARNED COMMISSION ON THESE TRANSACTIONS. THE APPELLANT HAS ALSO POINTED OUT THE PROCEDURE OF SALE/PURCHASE OF AGRICULTURAL PRODUCE IN KUBS. THE APPELLANT HAS SUBMITTED THAT THE SAID CASH PAYMENTS ARE COVER ED BY EXCEPTIONS MENTIONED IN RULE 6DD(E) AND (K) R.W.S. 40A(3). THE SAID RULES ARE EXTRACTED BELOW: RULE 6DD - NO DISALLOWANCE UNDER SUB-SECTION (3) O F SECTION 40A SHALL BE MADE AND, NO PAYMENT SHALL BE DEEMED TO BE 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, OT HERWISE THAN BY AN ACCOUNT PAYEE CHEQUE DRAWN ON A BANK OR ACCOUNT PAY EE BANK DRAFT, EXCEEDING RS. 20,000/- IN THE CASES AND CIRCUMSTANC ES SPECIFIED HERE UNDER, NAMELY: (A)............................. . (E) WHERE THE PAYMENT IS MADE FOR THE PURCHASE OF (I) AGRICULTURAL OR FOREST PRODUCE; OR .. .......... (F)........................ (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.' IN THE CASE UNDER APPEAL, THE APPELLANT HAS PURCHAS ED AGRICULTURAL PRODUCE FROM FARMER AND HENCE THE CASH PAYMENTS ARE COVERED BY CLAUSE (E) OF RULE 6DD. FURTHER, THE APPELLANT HAS PURCHASED AGRICUL TURAL PRODUCE THROUGH THE AGENTS AND HENCE PAYMENTS MADE TO AGENTS ARE COVERE D BY CLAUSE (K) OF RULE 6DD. FURTHER, THE CONTENTION OF THE APPELLA NT THAT THE PAYMENTS MADE THROUGH AGENTS ARE ALSO COVERED BY EXCEPTION A ND ARE TO BE TREATED AS PAYMENTS MADE TO FARMERS FOR PURCHASING THE AGRICUL TURAL PRODUCE IS SUPPORTED BY THE RATIO LAID DOWN BY THE FOLLOWING D ECISIONS: 6 I) DCIT VS. HIND INDUSTRIES LTD. (2009) 120 TTJ (DE L) 505, II) DCIT VS. ALLIED LEATHER FINISHERS (P) LTD. (2009) 32 SOT 549 (LUCK). III) GAMDIWALA DAIRY VS. ACIT (2011) 136 T TJ 33 (U.O.). AS REGARDS THE CONTENTION OF THE A.O. THAT THE SAID AGENTS HAVE NOT CHARGED ANY COMMISSION TO THE APPELLANT AND HENCE T HEY WERE TRADERS IS REBUTTED BY THE APPELLANT BY POINTING OUT THAT AS P ER THE PROCEDURE OF KUBS AND SALE PATTIES OF KUBS, THE COMMISSION, HAMALI ET C. ARE CHARGED BY THE AGENTS TO THE FARMERS, WHOSE AGRICULTURAL PRODUCE W AS SOLD THROUGH THEM. IN VIEW OF THE ABOVE FACTS AND DISCUSSION, I AM OF THE CONSIDERED VIEW THAT THE A.O. IS NOT JUSTIFIED IN MAKING ADDIT ION OF RS.86,50,518/- ON ACCOUNT OF DISALLOWANCE U/S. 40A(3) OF THE ACT. THE ADDITION OF RS.86,50,518/- IS, THEREFORE, DELETED. THE A.O. I S DIRECTED ACCORDINGLY. 6.1 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE REV ENUE IS IN APPEAL BEFORE US WITH THE FOLLOWING GROUNDS : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, AND IN LAW THE LEARNED CIT (A)-I, NASHIK ERRED IN DELETING THE ADDITION AT RS.86,50,518/- ON ACCOUNT OF DISALLOWANCE OF EXPENDITURE UNDER SECTION 40A(3) OF THE INCOME TAX ACT, 1961, FOR A.Y. 2009-10 MADE UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961. 2. ON THE FACTS AND CIRCUMSTANCE OF THE CASE, THE LEARNED CIT(A) ERRED IN HOLDING THAT RULE 6DD WHICH LAYS DOWN EXCEPTION TO SECTION 40A(3) OF THE IT ACT 1961, IS APPLICABLE TO THIS CASE. 3. THE LEARNED CIT (A) OUGHT TO HAVE UPHELD THE ORD ER OF THE ASSESSING OFFICER ITO WARD 1(1), NASHIK, FOR ADDITION UNDER SECTION 1 43 (3) OF THE INCOME TAX ACT, 1961. 4. IT IS THEREFORE PRAYED THAT THE ORDER OF THE LEA RNED CIT (A) BE VACATED AND THAT OF THE ASSESSING OFFICER ITO WARD 1 (1), NASHI K, BE RESTORED. 5. THE APPELLANT CRAVES LEAVE TO ADD, AMEND AND AL TER ANY GROUND (S) OF APPEAL. 7. THE LD DEPARTMENTAL REPRESENTATIVE HEAVILY RELIE D ON THE ORDER OF THE ASSESSING OFFICER. 7.1 THE LD. COUNSEL FOR THE ASSESSEE ON THE OTHER H AND REFERRED TO PARA 3 OF THE ASSESSMENT ORDER AND DREW THE ATTENTI ON OF THE BENCH TO THE MODUS-OPERANDI OF THE ASSESSEE WHICH WAS SUBMITTED BEFORE THE ASSESSING OFFICER VIDE LETTER DT. 18-11-2011 AND LE TTER 02-12-2011. HE 7 SUBMITTED THAT NO SUCH DISALLOWANCE WAS MADE IN THE CASE OF THE ASSESSEE EITHER IN THE PRECEDING ASSESSMENT YEARS O R SUCCEEDING ASSESSMENT YEARS AND THE DISALLOWANCE WAS MADE ONLY FOR THE IMPUGNED ASSESSMENT YEAR U/S.40A(3). REFERRING TO THE PROVI SIONS OF RULE 6DD HE SUBMITTED THAT THE ASSESSEE IN THE INSTANT CASE HAS MADE THE PAYMENT TO THE AGENTS FOR PURCHASE OF FRUITS WHICH ARE AGRICUL TURAL PRODUCE. FURTHER, THE PURCHASES HAVE BEEN MADE THROUGH KRUSHI UTPANA BAZAR SAMITEE AND THE CASH PAYMENTS WERE MADE TO FARMERS THROUGH THE AUTHORIZED AGENTS OF THE KRUSHI UTPANA BAZAR SAMITEE. REFERRING TO T HE DECISION OF BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF SRI RENUKESWARA RICE MILLS VS. ITO REPORTED IN 93 ITD 263 (BANGALORE) HE SUBMITTED THAT WHEN THE ASSESSEE MAKES CASH PAYMENT TO AGENT WHICH IS LICENSED TO OPERATE IN MARKET YARD AND WHICH IN TURN WAS REQUIR ED TO PAY TO THE CULTIVATOR, INDIRECTLY THE ASSESSEE PAID FOR PURCHA SE OF AGRICULTURAL PRODUCE TO CULTIVATOR THROUGH AGENT AND THUS THE CO MBINED READING OF CLAUSE (F) AND (K) OF RULE 6DD WOULD TAKE AWAY TRAN SACTION IN QUESTION FROM CLUTCHES OF SECTION 40A(3). REFERRING TO THE DECISION OF THE AHMEDABAD BENCH OF THE TRIBUNAL IN THE CASE OF GAMI DIWALA DAIRY VS. ACIT REPORTED IN 136 TTJ (AHD)UO 33 HE DREW THE ATT ENTION OF THE BENCH TO THE HEADNOTE WHICH IS AS UNDER: BUSINESS EXPENDITURE DISALLOWANCE UNDER S.40A(3) EXCEPTIONAL AND UNAVOIDABLE CIRCUMSTANCES UNDER R.6DD(F) ASSESSEE WAS FOUND MAKING PAYMENT IN CASH IN EXCESS OF RS.20,000/- FOR PURCHA SES OF MILK FROM DIFFERENT ENTITIES LOCATED AT DIFFERENT PLACES - ASSESSEE AND THE PRODUCERS OF MILK MUTUALLY AGREED UPON THE ARRANGEMENT THAT THE PRODU CERS OF MILK IN PARTICULAR VILLAGE COLLECTIVELY SELECTED ANY ONE OF THEM TO LOOK AFTER THE COLLECTION OF MILK FROM THE FARMERS AND IN TURN SUP PLYING THE MILK TO THE ASSESSEE AND THE ASSESSEES AGREED TO MAKE PAYMENT T O THE FARMERS FOR THE MILK OLD BY THEM THROUGH SUCH MUTUALLY AGREED UPON PERSONS AMONGST THE SAID FARMERS OF EACH VILLAGE - ASSESSEE PRODUCED C ONFIRMATION FROM VARIOUS PERSONS STATING THAT THEY WERE COLLECTING THE MILK FROM THE FARMERS AND SUPPLIED IT TO THE ASSESSEE - ASSESSEE IS THUS MAK ING THE PURCHASES DIRECTLY 8 FROM THE PRODUCERS AND ACCORDINGLY FALLS IN THE EXC EPTIONS UNDER R.6DD(F). DISALLOWANCE NOT JUSTIFIED HE ACCORDINGLY SUBMITTED THAT THE ORDER OF THE LD.C IT(A) BE UPHELD. 8. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAV E ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. THERE IS NO DISP UTE TO THE FACT THAT THE ASSESSEE IN THE INSTANT CASE HAS MADE PAYMENT OF RS .86,40,518/- IN CASH TO THE 4 PARTIES MENTIONED AT PARA 2 OF THE IMPUGNE D ORDER. WE FIND THE ASSESSING OFFICER DISALLOWED 20% OF THE ABOVE PAYME NT U/S.40A(3) ON THE GROUND THAT THE TRANSACTION OF THE ASSESSEE WIT H THE ABOVE PARTIES CANNOT BE CONSIDERED AS EXCEPTION AS ENVISAGED IN P ROVISO TO SUB-SECTION (3) OF SECTION 40A OR EXCEPTIONS MENTIONED IN RULE 6DD. WE FIND THE LD.CIT(A) DELETED THE ADDITION ON THE GROUND THAT T HE ASSESSEE HAS PURCHASED THE AGRICULTURAL PRODUCE THROUGH KRUSHI U TPANA BAZAR SAMITEE AND THE CASH PAYMENTS WERE MADE TO FARMERS THROUGH THE AUTHORIZED AGENTS OF THE KRUSHI UTPANA BAZAR SAMITE E WHICH IS SUPPORTED BY THE BILLS OF THE AGENTS AND SALE PATTI ES OF THE AGRICULTURAL PRODUCE PURCHASED BY THE ASSESSEE. ACCORDING TO HI M THE PAYMENT MADE TO THE AGENTS ARE COVERED BY CLAUSE (K) OF RUL E 6DD. 8.1 IT IS THE GRIEVANCE OF THE REVENUE THAT THE EXC EPTIONS TO RULE 6DD ARE NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE SINCE THE ASSESSEE HAS MADE PAYMENT TO THE TRADERS AND NOT TO THE AGRICULT URISTS DIRECTLY AND THAT THE ASSESSEE HAS NOT PAID ANY COMMISSION TO TH OSE AGENTS. IT IS THE CASE OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE P AYMENTS HAVE BEEN MADE TO PERSONS WHO HAVE BEEN APPOINTED BY THE KRUS HI UTPANA BAZAR 9 SAMITEE AS AUTHORIZED AGENTS AND THAT THEY HAVE EAR NED COMMISSION DIRECTLY FROM THE FARMERS. 8.2 WE FIND THE ASSESSEE VIDE LETTER DT. 18-11-2011 AND LETTER DATED 02-12-2011 HAS CATEGORICALLY STATED BEFORE THE AO T HAT HE HAS TO BUY FRUITS IN AUCTION AS MANAGED BY COMMISSION AGENTS A T NASHIK KRUSHI UTPANA BAZAR SAMITEE AND NOT DIRECTLY FROM AGRICULT URISTS. IT WAS ALSO SUBMITTED THAT SUCH COMMISSION AGENTS WERE APPOINTE D BY THE NASHIK KRUSHI UTPANA BAZAR SAMITEE AS PER RULE AND REGULAT ION OF NASHIK KRUSHI UTPANA BAZAR SAMITEE. THIS SUBMISSION OF TH E ASSESSEE WAS NEVER CONTROVERTED BY THE AO AS FALSE OR UNTRUE. S IMILARLY, THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT NO SUCH DISALLOWANCE WAS MADE U/S.40A(3) EITHER IN THE PREC EDING OR SUCCEEDING ASSESSMENT YEARS IN CASE OF THE ASSESSEE ALSO COULD NOT BE CONTROVERTED BY THE LD. DEPARTMENTAL REPRESENTATIVE. 8.3 WE FIND THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF SRI RENUKESWARA RICE MILLS VS. ITO (SUPRA) AT PARA 7 OF THE ORDER HAS HELD AS UNDER : 7. IT IS SEEN THAT THE PAYMENT IS MADE FOR PURCHA SE OF AGRICULTURAL PRODUCE. THE PAYMENT IS MADE TO THE AGENT OPERATING AT THE MARKET YARD. AS PER THE REGULATION OF TRADE IN AGRICULTURAL PROD UCE, MARKET YARDS ARE SET UP AND THE STATE RMC ACT ALSO REGULATES SUCH BUSINE SS. THUS FOR PURCHASE AND SALE OF AGRICULTURAL PRODUCE, THE TRANSACTION C AN BE ONLY THROUGH DEALERS AND AGENTS LICENSED TO OPERATE IN THE MARKET YARD. THUS, THE PERSON OPERATING THERE, IS NOT ONLY THE AGENT OF THE CULTI VATOR OR GROWER BUT ALSO OF THE PERSONS PURCHASING THE AGRICULTURAL PRODUCE. CL AUSE (F) OF RULE 6DD PROVIDES THAT WHERE THE PAYMENT IS MADE FOR THE PUR CHASE OF AGRICULTURAL PRODUCE TO THE CULTIVATOR, SECTION 40A(3) WILL NOT APPLY. SIMILARLY, CLAUSE (K) OF RULE 6 DD PROVIDES THAT WHERE THE PAYMENT IS MAD E BY ANY PERSON TO HIS AGENT WHO IS REQUIRED TO MAKE PAYMENT IN CASH FOR G OODS, SECTION 40A(3) WILL NOT APPLY. SINCE THE ASSESSEE HAS PAID THE SUM TO HIS AGENT WHO IS THE PAYEE IN THE PRESENT CASE, AND WHO IN HIS TURN IS R EQUIRED TO MAKE PAYMENT TO THE CULTIVATOR, INDIRECTLY, THE ASSESSEE HAS PAI D FOR THE PURCHASE OF AGRICULTURAL PRODUCE TO THE CULTIVATOR THROUGH THE AGENT. THUS, A COMBINED READING OF CLAUSES (F) AND (1) OF RULE 6DD WILL TAK E AWAY THE TRANSACTION FROM THE CLUTCHES OF SECTION 40A(3). FROM THE BILLS PRODUCED BY THE ASSESSEE 10 TO THE ASSESSING OFFICER IT WAS SUBMITTED THAT THE ASSESSEE APART FROM PAYING PRICE OF THE PRODUCTS ALSO PAYS COMMISSION TO THE P AYEE. THUS, THE PAYEE HAS BECOME THE AGENT OF ASSESSEE ALSO. SUCH AGENT I S REQUIRED TO PAY THE CULTIVATOR IN CASH. ACCORDINGLY, THERE IS NO VIOLAT ION OF SECTION 40A(3). WE ACCORDINGLY DELETE THE DISALLOWANCE OF RS.2,04,000/ - IN RESPECT OF PAYMENT MADE TO KP. 8.4 SINCE THE ASSESSEE IN THE INSTANT CASE HAS MAD E PAYMENTS FOR PURCHASE OF AGRICULTURAL PRODUCE TO THE AGENTS APPO INTED BY THE KRUSHI UTPANA BAZAR SAMITEE AND SINCE NO DISALLOWANCE U/S. 40(3) HAS BEEN MADE IN THE PRECEDING OR SUBSEQUENT ASSESSMENT YEAR S, THEREFORE, RESPECTFULLY FOLLOWING THE DECISION CITED ABOVE, WE FIND NO INFIRMITY IN THE ORDER OF THE CIT(A) DELETING THE ADDITION MADE BY THE AO U/S.40A(3) OF THE INCOME TAX ACT. WE ACCORDINGLY U PHOLD THE SAME AND THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED . 9. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS THE 30 TH DAY OF SEPTEMBER 2013 SD/- SD/- (SHAILENDRA KUMAR YADAV (R.K. PANDA) JUDICIAL MEMBER ACCOUNT ANT MEMBER PUNE DATED: 30 TH SEPTEMBER 2013 SATISH COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. DEPARTMENT 3. CIT(A)-I, NASHIK 4 CIT-I, NASHIK 5. THE D.R, B PUNE BENCH 6. 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