S. 40A(3) — Cash payment exceeding prescribed limits — S. 40A(3) read with Rule 6DD — Purchases in cash towards supplies of carcass in business of processing and export of meat and meat products — Allowable under clause (l) of Rule 6DD — Also as per claus

Dy. CIT v.
Hind Industries Ltd.

A.Y. : 2003-04. Dated : 26-9-2008

 

S. 40A(3) — Cash payment exceeding prescribed limits — S.
40A(3) read with Rule 6DD — Purchases in cash towards supplies of carcass in
business of processing and export of meat and meat products — Allowable under
clause (l) of Rule 6DD — Also as per clause (f) of Rule 6DD and, therefore, no
disallowance could be made u/s.40A(3).

The assessee-company was engaged in the business of
processing and export of meat and meat products. The assessee had made all the
purchases in cash and had regularly withdrawn huge cash from bank and
ostensibly made payments for supplies of carcass. The Assessing Officer was of
the view that the payments made in cash would be hit by provisions of S.
40A(3). On appeal, the Commissioner (Appeals) opined that since the payments
had been made to agents in respect of purchases of carcass, there was no room
to interpret clause (f) of Rule 6DD in favour of the assessee. However, so far
as the assessee’s claim for exclusion under clause (l) of Rule 6DD was
concerned, the Commissioner (Appeals) held that payments in cash to agents for
purchases of products of animal husbandry could not be disallowed u/s.40A(3).

 

On the Revenue’s appeal, the ITAT held that :

(1) The AO had disallowed the claim of the assessee in
view of the decision of the Allahabad High Court in the case of CIT v.
Pehlaj Raj Daryanmal, (1991) 190 ITR 242. The decision by the Allahabad
High Court was rendered in 1991 whereas clause (l) was inserted by the IT
Amendment Rules in the year 1995. Therefore, the ratio of the decision of
the Allahabad High Court would not be applicable to the facts of the instant
case.

(2) The contention of the department, that there was no
agent, did not sound good because the AO himself had disallowed the payments
for the reason that they were not made directly to producers/cultivators but
through intermediaries or agents.

(3) Though the Commissioner (Appeals) had rejected the
claim under clause (f), yet, in view of Rule 27 of the Income-tax (Appellate
Tribunal) Rules, 1963, the claim of the assessee was allowable as per clause
(f) of Rule 6DD.

Accordingly, the order of the Commissioner (Appeals) was to
be confirmed.