BANDU MANIKRAO HATWAR,NERUL vs. INCOME TAX OFFICER, WARD 28(1)(2), VASHI, NAVI MUMBAI

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ITA 3124/MUM/2026Status: DisposedITAT Mumbai14 August 2026AY 2012-1315 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that payments made for the purchase of agricultural produce to agents appointed by the Krushi Utpana Bazar Samitee are covered under Rule 6DD(e) and (k) of the Income Tax Rules, 1962. Therefore, the disallowance under Section 40A(3) was not justified.

What were the facts?

The assessee, a wholesale fruit merchant, made cash payments for agricultural produce. The Assessing Officer disallowed these payments under Section 40A(3) as they exceeded the prescribed limit. The CIT(A) sustained this disallowance.

What were the issues?

Whether cash payments made for the purchase of agricultural produce to agents of a market committee are eligible for exemption under Rule 6DD of the Income Tax Rules, 1962, thereby not attracting disallowance under Section 40A(3).

Which sections of the Income-tax Act were involved?

Section 40A(3)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, MUMBAI

Before: SHRI CHALLA NAGENDRA PRASAD & SHRI MAKARAND VASANT MAHADEOKAR

Pronounced: 14/08/2026

PER SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER: This appeal is filed by the assessee against the order of the learned Commissioner of Income Tax (Appeals)-NFAC, Delhi, dated 07.01.2022 for the assessment year 2012-13 in sustaining the disallowance made u/s 40A(3) of the Act.

2.

This appeal is filed with a delay of 14 days for which the assessee has filed a condonation application along with an affidavit, requesting for condonation of delay. Considering the affidavit and the reasons, we condone the delay in filing the appeal of the assessee.

3.

Coming to the merits of the case, we observe that the assessee is a wholesale fruit merchant, filed the return of income on 30.09.2012, declaring income of Rs. 5,26,612/-. The assessment was completed u/s 143(3) on 23.03.2015, determining the income of the assessee at Rs. 65,76,850/-. While computing the income, the Assessing Officer disallowed certain cash payments made by the assessee to his sundry creditors, invoking the provisions of section 40A(3) of the Act.

4.

On appeal, the Ld. CIT(A) sustained the additions, observing that the assessee failed to produce cogent and verifiable evidence to establish the identity, status and constraints of the persons to whom cash payments were allegedly made.

5.

Before us, the Ld. Counsel for the assessee submitted that the Assessee is a wholesaler fruit merchant having business of trading in fruits which is an agricultural product, and the Assessee is buying fruits from agriculturists from small villages and selling the same to the semi- wholesalers and/or retailers in local market and/or exporters. The Assessee is carrying on business of seasonal fruits, particularly Musk Melon, Watermelon, and such other seasonal fruits. The Assessee is purchasing the fruits from various States from the agriculturists. The purchases were made by the Assessee from the agriculturists, 2 cultivators, growers or producers and ultimately sold the same in the local market as well as mainly to two exporters. Since the Assessee is selling the goods to the exporters which require a better and export- worth quality which are to be purchased by the Assessee from various agriculturists, cultivators, growers producers, the Assessee is required to visit personally as well as through family members or confidential persons who themselves visit personally and having personal touch with such suppliers and sometimes, the Assessee is upfront making cash payments or sometimes they required to pay money in the next visit when the Assessee is making further purchases. The agriculturists, farmers, as well as such cultivators are not located in the city area, and they are not having any Bank account and also, they are uneducated and not able to understand the Banking transaction system. The Ld. Counsel submitted that the Assessee supplies fruits to the exporters and the same is done on a credit basis. The moment the Assessee receives monies from the purchasers, thereafter the Assessee will make payment to the suppliers.

6.

Ld. Counsel submitted that it can be interpreted from the above that the Assessee has carried out the business in a specific pattern where Sundry Debtors are almost equal to Sundry Creditors. The Assessee has carried out such business and modus operandi for the last several years. The Ld. Counsel for the Assessee submits that the Assessee has already provided sufficient details along with evidence in support of his purchases of fruits and their subsequent sales. It is submitted that the learned Assessing Officer has not disputed the sales made by the 3 Assessee and duly accepted the sales made by the Assessee and therefore, it is well established principle of law that without purchases, sales cannot be effected and therefore question of making entire addition under section 40A(3A) is totally unjustified and bad in law, and the same has to be considered as high pitch assessment and same has been passed by the learned Assessing Officer without application of mind and learned Assessing Officer was not justified in making such a huge addition under Section 40A(3A) and proviso thereat, without disproving such evidence.

7.

Ld. Counsel submitted that during the Assessment proceedings, the Assessee had submitted all details regarding Name, PAN and Address of creditors as far as possible and available with the Assessee along with details of payments made to them and the learned Assessing Officer has not disputed or rejected the same. The said details are again attached herewith for your perusal. Moreover, the learned Assessing Officer also did not bother to issue summons to any one of the parties to cross-verify that the said persons were in fact uneducated farmers, located in villages, and were not having Bank Accounts and sometimes, despite having Bank accounts, they did not operate the same. The onus lies on the learned Assessing Officer which he did not discharge and proceeded during the course of Assessment Proceedings to make such additions.

8.

The Ld. Counsel submitted that the Assessee was forced to make cash payments to such farmers, agriculturists, cultivators, producers of fruits, suppliers and the same is within the purview of Rule 6DD(e) of the Income Tax Rules, 1962. The Assessee also submits that nature of business of the Assessee is unique as stated hereinabove and there are judicial pronouncements wherein it was held that payment to agriculturists, farmers, cultivators are covered under the exemption Rule 6DD(e) of the said Rules. The Assessee relies upon decision in the case of (a) Al-Noor Exports Ita No. 89/Delhi/2001, (b) Paremraj Cold Storage Private Limited Mumbai and (c) Deputy Commissioner of Income Tax Versus Hind Industries Limited. It was held that any payment made in cash towards the purchase of agricultural products is allowed.

9.

Without prejudice to the above, it is submitted that in the Assessee's own case for the Assessment Year 2009-10, the ITAT, Mumbai Bench was pleased to allow the Assessee's appeal and looking the huge turnover in that particular year, the ITAT has restricted the addition on an estimate and ad-hoc basis of approximately Rs. 20,00,000/- against Rs. 2,80,28,300/- addition sustained by the CIT(Appeals). A copy of the order of the ITAT is attached herewith for your perusal. Without prejudice and reserving our right to proceed with alternative remedies, from the foregoing, the Assessee hereby prays to consider the addition proportionately on the basis of Turnover of cash payments on the basis of ITAT order and restricting the addition to the tune of Rs. 3,50,000/- subject to non-levy of any penalty and other penal actions thereon.

10.

On the other hand, the Ld. DR supported the orders of the authorities below.

11.

Heard rival submissions. The contention of the assessee was that he is a fruit merchant and procures agricultural products from agriculturists, from small villages and sells them to semi-wholesale dealers or retailers in the local market and exports. The assessee is carrying on the business of seasonal fruits, particularly musk melon, watermelon and such other seasonal fruits. These fruits were purchased by the assessee from various states and from various agriculturists. It was the contention of the assessee that these products were purchased by the assessee from various agriculturists in various villages, where there are no banking facilities and the Assessee was forced to make cash payments to such farmers, agriculturists, cultivators, producers of fruits and suppliers, and therefore, the same is within the purview of Rule 6DD(e) of the Rules. It is also the submission of the Ld. Counsel for the assessee that the assessee had, in fact, submitted all the details regarding the name, PAN and address of creditors, as far as possible and available with the assessee, along with the details of payments to them and the Assessing Officer did not dispute or reject the details furnished. It is also the contention of the assessee that the Assessing Officer did not make any sort of inquiries, though the assessee had furnished the details of creditors. Neither summons were issued nor details were called for from the creditors. The assessee also placed reliance on the decision of the Tribunal, ITAT, Pune Bench, in the case of ITO vs. Pradeep Vishandas Bhagwani in ITA No.992/PN/2012 dated 30.09.2013 and submitted that on identical facts, the Tribunal, considering various decisions, held that disallowance u/s 40A(3) is unwarranted, and the payments made by the assessee are covered under the exceptions provided under Rule 6DD(e) of the Rules. The assessee also placed reliance on the decision of the Delhi Tribunal in the case of DCIT vs. Hind Industries Ltd.

12.

We observe that, more or less, identical issue came up for consideration before the Pune Bench in the case of ITO vs. Pradip Vishandas Bhagwani, (supra), and the Tribunal, considering various decisions, held that the assessee, who is engaged in the business of trading in fruits, i.e., pomegranate and grapes, made certain payments in cash through Nashik Krushi Utpana Bazar Samitee in purchasing agricultural products as commission agent and the payments made by him are covered under Rule 6DD(k) of the Act, observing as under:

“2. Facts of the case, in brief, are that the assessee 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 Officer observed that in this case Banking Cash Transaction Tax (BCTT) enquiry was conducted by the Investigation Wing, Nashik and the assessee in his statement recorded u/s.131 during the course of enquiry has stated that he has made cash purchases from the following parties .. Sr.No. Name of the party Amount paid 1 M/s. Maruti Krupa Fruit Company ₹36,96,897/- Prop. Hetal Singada 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 during 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 explain as to why addition should not be made for violation of provisions of section 40A(3) of the Income Tax Act on account of cash payments exceeding Rs.20,000/-. In response to the same the assessee replied as under :

"7. In response to the above, the assessee vide letter 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 utpanna Bazar Samitee in which agriculturist come to sale their agricultural 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. Commission agent manages auction for sale of agricultural product, Mr. 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 present at the time of action of his agricultural product, if he is not satisfied with the price quoted by purchasers in auction, he has right not to sale goods at that time, and possession of the agricultural product is with farmer/agriculturist at the time of auction and right to sale is also with the agriculturist at the time of action, hence commission agent does not have any ownership of agricultural production which are cam to him for sale in auction, after purchase of fruits in auction Mr. Pradeep Bhagwani has to pay the purchase amount to commission agent per rules and regulations of Nashik Krushi utpanna Bazar Samitee and then commission agent pays to agriculturist, therefore it can be seen from the above that the commission agent does not have any right to sale agricultural product as per his will but has to sale goods by auction system as per the directions of agriculture and as per the rules and regulations of Nashik Krushi utpana Bazar Samitee. Commission agents role in Krushi utpana Bazar Samitee is just to manage the auction of agriculture produce and recover the amount from purchaser and paid to agriculturalist. Agriculturist have all therights of sale or not sale, and at what price to sale, possession is also with the agriculturist at the time of auction, therefore purchases made by Mr. Pradeep Bhagwani are directly from agriculture and not from commission agents as appointed by Krushi utpana Bazar Samitee. Thus Mr. Pradeep Bhagwani buys agriculture produce form agriculture produce from agriculturist, only payment is made though the commission agent as appointed by the Nashik Krushi 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 submitted as under, the contents of the letter are reproduced below: "As per letter dated 18-11-2011 Mr. Pradeep Bhagwani has stated the fact of purchases of agricultural product made by him, further your assessee would like to draw your attention to the payment of cash made by him to agents and some of the judgments of Honourable ITAT and Honourable High Courts in which the expenses incurred 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 assessee 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 would not be possible for him to produce agriculture produce from market as per his business smoothly he had to make payment in cash. As well as 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 seen 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 Honourable High Court of Allahabad that the expenses which are paid in compelling situation or are paid on account of business consideration cannot be disallowed even though the payment is made by cash exceeding the limit as per section 40A(3)." 3. However, the Assessing Officer was not satisfied with the explanation given by the assessee. He observed that the assessee is purchasing fruits from the parties who are located in Nashik and the assessee's 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 assessee's case is also not covered by any of the exceptions mentioned in Rule 6DD of the Income Tax Rules,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 same arguments as made before the Assessing Officer. It was submitted that the parties referred to by the Assessing Officer are the Registered 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 have been made to the farmers and hence the case of the assessee is covered 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 brought to the notice of the Ld.CIT(A) to the proposition that the assessee's 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 Officer who reiterated his contentions in the assessment order that the assessee had made direct payment to fruit and vegetable merchants for purchase of agricultural produce and they have not charged commission from the assessee. The assessee in his counter comment submitted that as per the procedure of Krishi Utpana Bazar Samittee at Nashik 9 and all other places in Maharastra, the agricultural produce is sold by the farmers in auction to the traders through authorised agents of Krishi Utpana Bazar Samittee. The assessee clarified that as per Sale Patti of Krishi Utpana Bazar Samittee the commission, hamali etc. is charged to the farmers. It was further submitted that the facts of the assessee's case were similar to those of the cases for which decisions were relied upon and cashpayment is covered by Rule 6DD(e) and Rule 6DD(k) r.w.s. 40A(3) of the Income Tax Act. It was accordingly submitted that 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 case, 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 the 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 appellant is supported by the bills of the agents and sale patties of the agricultural 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 covered 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) of 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, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeding Rs. 20,000/- in the cases and circumstances specified here under, namely: (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 services on behalf of such person." In the case under appeal, the appellant has purchased agricultural produce from farmer and hence the cash payments are covered by clause (e) of Rule 6DD. Further, the appellant has purchased agricultural produce through the agents and hence payments made to agents are covered by clause (k) of Rule 6DD. Further, the contention of the appellant that the payments made through agents are also covered by exception and are to be treated as payments made to farmers for purchasing the agricultural produce is supported by the ratio laid down by the following decisions: i) DCIT vs. Hind Industries Ltd. (2009) 120 TTJ (Del) 505, ii) DCIT Vs. Allied Leather Finishers (P) Ltd. (2009) 32 SOT 549 (Luck). iii) Gamdiwala Dairy Vs. ACIT (2011) 136 TTJ 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 they were traders is rebutted by the appellant by pointing out that as per the procedure of KUBS and sale patties of KUBS, the commission, hamali etc. are charged by the agents to the farmers, whose agricultural produce was 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 addition 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. is directed accordingly." 6.1 Aggrieved with such order of the CIT(A) the Revenue is in appeal before us with the following grounds : "1. On the facts and in the circumstances of the case, and in law the learned CIT (A)-1, 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 order of the Assessing Officer ITO Ward 1(1), Nashik, for addition under section 143 (3) of the Income Tax Act, 1961. 4. It is therefore prayed that the order of the learned CIT (A) be vacated and that of the Assessing Officer ITO Ward 1 (1), Nashik, be restored. 5. The appellant craves leave to add, amend and alter any ground (s) of appeal."

7.

The Ld. Departmental Representative heavily relied on the order of the Assessing Officer. 7.1 The Ld. Counsel for the assessee on the other hand referred to para 3 of the assessment order and drew the attention of the Bench to the modus-operandi of the assessee which was submitted before the Assessing Officer vide letter dt. 18- 11-2011 and letter 02-12-2011. He submitted that no such disallowance was made in the case of the assessee either in the preceding assessment years or succeeding assessment years and the disallowance was made only for the impugned assessment year u/s.40A(3). Referring to the provisions 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 agricultural 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 the 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 required to pay to the cultivator, indirectly the assessee paid for purchase of agricultural produce to cultivator through agent and thus the combined reading of clause (f) and (k) of Rule 6DD would take away transaction in question from clutches of section 40A(3). Referring to the decision of the Ahmedabad Bench of the Tribunal in the case of Gamidiwala Dairy Vs. ACIT reported in 136 TTJ (Ahd)UO 33 he drew the attention 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 purchases of milk from different entities located at different places Assessee and the producers of milk mutually agreed upon the arrangement that the producers of milk in particular village collectively selected any one of them to look after the collection of milk from the farmers and in turn supplying the milk to the assessee and the assessees agreed to make payment to the farmers for the milk old by them through such mutually agreed upon persons amongst the said farmers of each village - Assessee produced confirmation from various persons stating that they were collecting the milk from the farmers and supplied it to the assessee - Assessee is thus making the purchases directly from the producers and accordingly falls in the exceptions under r.6DD(f). Disallowance not justified" He accordingly submitted that the order of the Ld. CIT(A) be upheld. 8. We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. There is no dispute 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 impugned order. We find the Assessing Officer disallowed 20% of the above 12 payment u/s.40A(3) on the ground that the transaction of the assessee with the above parties cannot be considered as exception as envisaged in proviso 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 the assessee has purchased the agricultural produce through Krushi utpana Bazar Samitee and the cash payments were made to farmers through the authorized agents of the Krushi utpana Bazar Samitee which is supported by the bills of the agents and sale patties of the agricultural produce purchased by the assessee. According to him the payment made to the agents are covered by clause (k) of Rule 6DD. 8.1 It is the grievance of the revenue that the exceptions 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 agriculturists directly and that the assessee has not paid any commission to those agents. It is the case of the Ld. Counsel for the assessee that the payments have been made to persons who have been appointed by the Krushi utpana BazarSamitee as authorized agents and that they have earned 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 that he has to buy fruits in auction as managed by commission agents at Nashik Krushi utpana Bazar Samitee and not directly from agriculturists. It was also submitted that such commission agents were appointed by the Nashik Krushi utpana Bazar Samitee as per Rule and Regulation of Nashik Krushi utpana Bazar Samitee. This submission of the assessee was never controverted by the AO as false or untrue. Similarly, the submission of the Ld. Counsel for the assessee that no such disallowance was made u/s.40A(3) either in the preceding 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 purchase of agricultural produce. The payment is made to the agent operating at the market yard. As per the regulation of trade in agricultural produce, market yards are set up and the State RMC Act also regulates such business. Thus for purchase and sale of agricultural produce, the transaction can 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 cultivator or grower but also of the persons purchasing the agricultural produce. Clause (f) of Rule 6DD provides that where the payment is made for the purchase 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 made by any person to his agent who is required to make payment in cash for goods, 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 required to make payment to the 13 cultivator, indirectly, the assessee has paid 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 take away the transaction from the clutches of Section 40A(3). From the bills produced by the assessee to the assessing officer it was submitted that the assessee apart from paying price of the products also pays commission to the payee. Thus, the payee has become the agent of assessee also. Such agent is required to pay the cultivator in cash. Accordingly, there is no violation 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 made payments for purchase of agricultural produce to the agents appointed by the Krushi Utpana Bazar Samitee and since no disallowance u/s.40(3) has been made in the preceding or subsequent assessment years, 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 uphold the same and the grounds raised by the Revenue are dismissed.” 13. In the case of the assessee, who is a fruit merchant, is buying agricultural produce directly from the farmers and, therefore, is covered under Rule 6DD(e) of the Act. Thus, respectfully following the said decision, we direct the Assessing Officer to delete the disallowance made u/s 40A(3) of the Act.

14.

In the result, the appeal of the assessee is allowed.

Order pronounced in the open court on 14/08/2026

Sd/- Sd/- MAKARAND VASANT MAHADEOKAR CHALLA NAGENDRA PRASAD ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Dated: 14/08/2026 Prabhat Copy to: BANDU MANIKRAO HATWAR, RH-90/91 NERUL WEST ,NERUL NODE-III 1 S.O NAVIMUMBAI, THANE-400706, MAHARASHTRA INCOME TAX OFFICER, WARD 28(1)(2), INCOME TAX BUILDING, VASHI 2 RAILWAY STATION, VASHI, NAVI MUMBAI, THANE-400703, MAHARASHTRA 3 THE PCIT / CIT, 4 THE D.R., ITAT, MUMBAI BENCH 5 GUARD FILE

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