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Facts
The assessee, a dealer in fruits and imported items, declared an income of Rs.11,13,040 for AY 2019-20. The CPC made a disallowance of Rs.16,11,675 under section 40A(3) based on a tax auditor's observation of cash payments for fruit purchases.
Held
The Tribunal held that the disallowance made by the CPC was erroneous. Since the payments were for agricultural produce, they fell under the exceptions provided in Rule 6DD(e)(i) of the Income Tax Rules. The Tribunal also noted the lack of specific details and opportunity to the assessee.
Key Issues
Whether the disallowance of Rs. 16,11,675/- made under Section 40A(3) for cash payments for purchase of fruits is justified when the purchases fall under the exceptions of Rule 6DD.
Sections Cited
40A(3), 143(1)(a), 250, 6DD, 192
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, KOLKATA BENCHES “SMC”, KOLKATA
Before: DR.MANISH BORAD
Assessee by : Shri Sunil Surana, A.R. Revenue by : Shri Kapil Mondal, Addl. CIT Date of hearing : 25.11.2024 Date of pronouncement : 24 .01.2025 आदेश / ORDER PER DR. MANISH BORAD, ACCOUNTANT MEMBER :
The captioned appeal pertaining to Assessment Year 2019-20 at the instance of assessee is directed against the order dated 25.03.2024 passed by Addl./JCIT(A)-4, Chennai u/s.250 of the Income-tax Act, 1961 (in short ‘the Act’) which in turn is arising out of Intimation Order dated 02.06.2020 passed u/s. 143(1) of the Act.
The sole grievance of the assessee is that the ld.CIT(A) erred in confirming the disallowance of Rs.16,11,675/- made by CPC in its intimation u/s.143(1)(a) of the Act invoking section 40A(3) of the Act. Sidhartha Surana
Brief facts of the case are that the assessee is a dealer in Fruits and regular import Apple, Pear, Cashew etc. Income of Rs.11,13,040/- declared in the return for the A.Y. 2019-20 furnished on 31.10.2019. Books of accounts are regularly audited and the Audit Report has also been uploaded along with the ITR. Based on the observation of the Tax Auditor, CPC made an adjustment making disallowance u/s.40A(3) of the Act at Rs.16,11,675/-.
Aggrieved assessee preferred appeal before the ld.CIT(A). It was contended that the Tax Auditor has merely mentioned that there is cash payment of Rs.16,11,675/- during the year for purchase of fruits but there is no specific detail and that the CPC has made adjustment without giving any opportunity to the assessee, and even not considered that it was covid-19 period. It was also contended that in the Mandis, the fruits and vegetables are purchased in cash. Reference was also given to the exceptions mentioned in Rule 6DD of the Income Tax Rules, 1962. It was also submitted that the genuineness of the expenditure has not been disputed at any stage as they are part of regular business activity. It was further submitted that the assessee has registered dealer invoices, freight charges, weighted slips of the supplier and stock registers are also maintained and that actually no violation of section 40A(3) of the Act was made.
On the other hand, ld. Departmental Representative supported the orders of the lower authorities.
I have heard the rival contentions and perused the record placed before me. The only grievance of the assessee in this appeal is that the CIT(A) erred in confirming the Sidhartha Surana disallowance of Rs.16,11,675/- made by CPC u/s.40A(3) of the Act. The basis of the said adjustment was the ‘Note of the Tax Auditor in its Form No.3CD report’ and in the said note as observed in the impugned order also the Auditor has mentioned that as on 31.03.2019 payment for purchase of fruits at Rs.16,11,675/- was made. Section 40A(3) of the Act and Rule 6DD of Income Tax Rules having direct bearing to the issue in hand and which is relevant for adjudication read as under :
“Section 40A(3) of the Act : “(3) Where the assessee incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, or use of electronic clearing system through a bank account or through such other electronic mode as may be prescribed, exceeds ten thousand rupees, no deduction shall be allowed in respect of such expenditure.” Rule 6DD of the Income Tax Rules, 1963 “6DD. No disallowance under sub-section (3) of section 40A shall be made and no payment shall be deemed to be the profits and gains of business or profession under sub-section (3A) of section 40A where a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or [account payee bank draft or use of electronic clearing system through a bank account or through such other electronic mode as prescribed under rule 6ABBA, exceeds ten thousand rupees] in the cases and circumstances specified hereunder, namely :— (a) where the payment is made to— (i) the Reserve Bank of India or any banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949); (ii) the State Bank of India or any subsidiary bank as defined in section 2 of the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959); (iii) any co-operative bank or land mortgage bank; (iv) any primary agricultural credit society or any primary credit society as defined under section 56 of the Banking Regulation Act, 1949 (10 of 1949); (v) the Life Insurance Corporation of India established under section 3 of the Life Insurance Corporation Act, 1956 (31 of 1956); (b) where the payment is made to the Government and, under the rules framed by it, such payment is required to be made in legal tender; Sidhartha Surana
(c) where the payment is made by— (i) any letter of credit arrangements through a bank; (ii) a mail or telegraphic transfer through a bank; (iii) a book adjustment from any account in a bank to any other account in that or any other bank; (iv) a bill of exchange made payable only to a bank;
(v) [***] to (vii) Explanation.—For the purposes of this clause and clause (g), the term "bank" means any bank, banking company or society referred to in sub-clauses (i) to (iv) of clause (a) and includes any bank [not being a banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949), whether incorporated or not, which is established outside India; (d) where the payment is made by way of adjustment against the amount of any liability incurred by the payee for any goods supplied or services rendered by the assessee to such payee; (e) where the payment is made for the purchase of— (i) agricultural or forest produce; or (ii) the produce of animal husbandry (including livestock, meat, hides and skins) or dairy or poultry farming; or (iii) fish or fish products; or (iv) the products of horticulture or apiculture, to the cultivator, grower or producer of such articles, produce or products; (f) where the payment is made for the purchase of the products manufactured or processed without the aid of power in a cottage industry, to the producer of such products; (g) where the payment is made in a village or town, which on the date of such payment is not served by any bank, to any person who ordinarily resides, or is carrying on any business, profession or vocation, in any such village or town; (h) where any payment is made to an employee of the assessee or the heir of any such employee, on or in connection with the retirement, retrenchment, resignation, discharge or death of such employee, on account of gratuity, retrenchment compensation or similar terminal benefit and the aggregate of such sums payable to the employee or his heir does not exceed fifty thousand rupees; (i) where the payment is made by an assessee by way of salary to his employee after deducting the income-tax from salary in accordance with the provisions of section 192 of the Act, and when such employee— (i) is temporarily posted for a continuous period of fifteen days or more in a place other than his normal place of duty or on a ship; and (ii) does not maintain any account in any bank at such place or ship; Sidhartha Surana
(j) [***] (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; (l) where the payment is made by an authorised dealer or a money changer against purchase of foreign currency or travellers cheques in the normal course of his business.
Explanation.—For the purposes of this clause, the expressions "authorised dealer" or "money changer" means a person authorised as an authorised dealer or a money changer to deal in foreign currency or foreign exchange under any law for the time being in force.]
In the above referred provision and rules, I note that it refers to the expenditure incurred in respect of payment or aggregate of payments made to a person in a day. Usually it refers to the transaction incurred during a day with a person. In the instant case, the Auditor has just made a ‘General Remark’. It is not clear as to whether there is entry of 16,11,675/- of 31.03.2019 in the books or it is the total of various entries violating limit as provided u/s.40A(3) during the year. It is also an admitted fact that the said payment has been made for purchase of fruits. Rule 6DD provides exceptions in which the payment or aggregate of payments exceeding Rs.20,000/- may be made to a person in a day and the said exception under clause (6) of Rule 6DD provides that if the payments made for purchase of Agricultural or Forest produce, then assessee should not be visited with the provisions of section 40A(3) of the Act. Since the fruits and vegetables are part of the Agricultural or Forest Produce, prima-facie the case of the assessee falls in the exception provided in Rule 6DD(e)(i) of the Act and also in absence of any specific detail provided in Tax Audit Report for each of the transaction with a particular person, assessee should not be visited by such harsh provisions without being provided any opportunity. In view of the above discussion, I set aside Sidhartha Surana the impugned order and delete the disallowance of Rs.16,11,675/- and allow the Grounds of appeal raised by the assessee.
In the result, the appeal of the assesee is allowed.