ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-1(1), RAIPUR, RAIPUR vs. MURLI KUMAR AGRAWAL (HUF), RAIPUR

At the very outset of hearing of the appeal, it was submitted by the Ld. Departmental Representative (for short ‘DR’) that the present appeal involves a delay of 29 days. The Ld. DR submitted that the delay involved in filing of the appeal had occasioned due to various time barring matters which were pending in their office, shortage of staff, tracking of orders received from NFAC. The Ld. DR in support of his aforesaid contention has filed an application dated 30.08.2022 seeking condonation of delay, which reads as under:

Per contra, the Ld. Authorized Representative (for short ‘AR’) did not seriously object to the seeking of condonation of delay in filing of the present appeal by the revenue appellant.

On a perusal of the condonation application, we find that the delay of 29 days involved in filing of the present appeal had occasioned due to the fact that there were various time barring matters which were at the relevant point of time pending with the department, shortage of staff and delay in tracking of orders received from NFAC etc. Considering the aforesaid facts, we are of the view that as the delay of 29 days involved in filing of the present appeal had occasioned due to bonafide reasons on the part of the revenue, thus, the same in all fairness merits to be condoned.

Succinctly stated, the assessee-HUF which is engaged in the business of manufacturing of rice had filed its return of income for A.Y. 2013-14 on 27.09.2013, declaring an income of Rs.34,25,250/-. Subsequently, the case of the assessee was selected for scrutiny assessment u/s. 143(2) of the Act.

During the course of the assessment proceedings, it was observed by the A.O that the assessee had made cash payments towards purchase of rice in excess of the prescribed limit of Rs.20,000/- as contemplated in Section 40A(3) of the Act, as under:

Aggrieved the assessee carried the matter in appeal before the CIT(Appeals). Observing, that the assessee on account of business expediency of running rice mill had to purchase paddy, i.e., raw material which was an agricultural produce, against which, it had to make payment towards purchase consideration to the farmer/agents in rural areas in cash as insisted by them, the CIT(Appeals) was

The revenue being aggrieved with the order of the CIT(Appeals) has carried the matter in appeal before us.

We have heard the ld. Authorized Representatives of both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by the Ld. AR to drive home his contentions.

Admittedly, it is a matter of fact borne from record that the assessee HUF had made cash purchases of rice aggregating to Rs.2,09,35,340/-. As the

On appeal, the CIT(Appeals) had vacated the disallowance of Rs.2,09,35,340/- made by the A.O u/s.40A(3) of the Act apparently for two reasons, viz. (i) that as the A.O had not doubted the genuineness of the purchase transaction; hence there was no justification for him to have disallowed the purchase expenditure u/s.40A(3) of the Act; and (ii) that as the assessee had purchased paddy, a raw material used for manufacturing of rice, and also agricultural produce from the farmers/agents in the rural areas who had insisted for cash payments as majority of such persons did not have any bank account, therefore, the A.O could not have triggered the provisions of Section 40A(3) of the Act.

Shri B. Subramanyam, Ld. Authorized Representative (for short ‘AR’) for the assessee at the threshold of hearing of the appeal submitted that in the course of proceedings before the CIT(Appeals), the assessee had submitted that the rigors of provisions of Section 40A(3) of the Act could not have been triggered by the A.O for disallowing any part of expenditure that was incurred by the assessee towards purchase of rice for the reason that the same were saved by exceptions carved out in Rule 6DD(k) and Rule 6DD(j) of the Income Tax Rules, 1962. In sum and substance, it was the claim of the Ld. AR that as the assessee had made payments to the agents who had carried out purchases on its behalf and made the payments

On a specific query by the Bench as to whether the bifurcated details of the cash purchases in the backdrop of the specific instances where such cash payments were saved by the exceptions carved out in Rule 6DD (k)(j) furnished before the CIT(Appeals), the Ld. AR in all fairness answered in the negative.

We have thoughtfully considered the issue in hand and are unable to concur with the view taken by the CIT(Appeals) that disallowance u/s. 40A(3) of the Act by the A.O of the cash purchases of rice could not be sustained and was liable to be vacated for the reasons, viz., (i) that the A.O had failed to consider the business expediency of the assessee for making cash payments towards purchase of paddy, i.e., a raw material, an agricultural produce used for manufacturing of rice; (ii) that the assessee was constrained to make cash payments for purchase of goods to the farmers/agents in the rural area as they would insist for cash payments as majority of them would not have a bank account; and (iii) that now when the A.O had not doubted genuineness of the purchase transactions, therefore, there was no justification for him to make disallowance u/s. 40A(3) of the Act.

Apropos observation of the CIT(Appeals) that now when the A.O had not doubted the genuineness of the purchases transaction; therefore, he could not have disallowed any part of the assessee’s claim for deduction of purchase, u/s.40A(3) of the Act, we are unable to persuade ourselves to concur with the same. Our aforesaid view is fortified by the judgment of the Hon’ble High Court of Punjab & Haryana in the case of Gurdas Garg Vs. Commissioner of Income Tax, Bathinda (2015) 63 taxmann.com 289 (P&H), we find that though the Hon’ble High Court had observed that as the genuineness of the transaction made in cash was not disbelieved by the department therefore, the same could not have been disallowed u/s. 40A(3) of the Act, but thereafter, at Para 15 of its judgment, it had categorically observed that while arriving at the aforesaid conclusion, it had wrongly referred to the pre-amended Rule 6DD. Accordingly, the Hon’ble High Court had observed that Rule 6DD had, thereafter, been amended vide Notification dated 10.10.2018 by the Ministry of Finance (Department of Revenue), CBDT. Backed by the aforesaid facts, the Hon’ble High Court observed that as it had pronounced the judgment in the open court, it was not open for it to examine the effect of the amendment to Rule 6DD. Accordingly, the Hon’ble High Court in the aforesaid case, had admittedly observed that while disposing off the appeal for A.Y.2009-10, it had by mistake referred to the earlier pre-amended provision, i.e., that appliable up to 10.10.2008.

We, thus, in terms of our aforesaid observations, are unable to persuade ourselves to concur with the claim of the Ld. AR that as the genuineness of the

As regards the observation of the CIT(Appeals) that the A.O had failed to consider the business expediency of the assessee for making cash payments towards purchase of paddy, i.e., an agricultural produce used in manufacturing of rice, the same in our considered view is based on perverse observation. As observed by us hereinabove, the assessee had purchased rice of Rs.2,09,35,340/- and not paddy from the farmers/agents. Apart from that, we are unable to concur with the view taken by the CIT(Appeals) who had failed to appreciate that the only set of exceptions to the applicability of Section 40A(3) of the Act are carved out in Rule 6DD of the Income Tax Rules, 1962. Also, we are of the view that in case it was the claim of the assessee that it had made certain purchases of raw material,

Backed by our aforesaid observations, we are unable to persuade ourselves to subscribe to the view taken by the CIT(Appeals) who had summarily accepted the claim of the assessee that no disallowance u/s. 40A(3) r.w. Rule 6DD was called for in assessee’s hands as regards the cash payments of Rs.2,09,35,340/- that were made by him for purchase of rice during the year under consideration. We, thus, in terms of our aforesaid observations, in all fairness, restore the matter to the file of the CIT(Appeals) with a direction to him to re-adjudicate the same after calling for the requisite details from the assessee company and verifying the

Grounds of appeal Nos. 2 & 3 being general in nature are dismissed as not pressed.

In the result, appeal of the revenue is allowed for statistical purposes in terms of our aforesaid observations. Order pronounced in open court on 11th day of December, 2023. Sd/- Sd/- ARUN KHODPIA RAVISH SOOD (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) रायपुर/ RAIPUR ; �दनांक / Dated : 11th December, 2023 SB आदेश क� ��त�ल�प अ�े�षत / Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant. 2. ��यथ� / The Respondent. 3. The CIT(Appeals)-1, Raipur (C.G.) 4. The Pr. CIT, Raipur-1 (C.G) 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, रायपुर ब�च, रायपुर / DR, ITAT, Raipur Bench, Raipur. गाड� फ़ाइल / Guard File. 6. आदेशानुसार / BY ORDER, // True Copy // �नजी स�चव / Private Secretary आयकर अपील�य अ�धकरण, रायपुर / ITAT, Raipur.