HIGH COURT OF ALLAHABAD

IT Appeal No. 207 of 2013

SUNIL AMBWANI AND SURYA PRAKASH KESARWANI, JJ.

Dhananjay Awasthi for the Appellant.

1. We have heard Shri Dhananjay Awasthi, learned counsel for the revenue.

2. This appeal under Section 260A of the Income Tax Act, 1961 arises out of the judgment/ order dated 11.1.2013 passed by the Income Tax Appellate Tribunal, Agra Bench, Agra in I.T.A. No.319/Agra/2009 for the assessment year 2006-07.

3. The revenue has preferred the appeal on the following substantial questions of law:—

4. It is submitted by Shri Dhananjay Awasthi that A.O. had rejected the contention that CBDT Circular No.34 dated 5.3.1970 had made it clear that the payments to 'Arahtiya' are not exempt from the provisions of Section 40A (3). According to the A.O. Rule 6-DD was not applicable to the case. The assessee could easily have made payments through cheques as local cheques are cleared either on the same day or latest by next day. The sellers were having bank accounts and so the assessee's contention that it was not having any option but to make payment in cash, was not correct.

5. We have examined the order passed by the A.O., CIT (A) and the ITAT. The assessee is engaged in the trading of foodgrains. He filed returns of income at Rs.1,95,376/- on 31.7.2006. The assessee had traded food grains, both on its own account as well as on account of its principals on commission basis (kachcha Arahtiya). The total purchases made during the year was Rs.8,26,04,408/- out of which purchases made on its own behalf on trading account is to the extent of Rs.5,17,96,824/- and rest Rs.3,08,07,584/- on behalf of the principals. All the purchases were made from 'Khair Mandi', which is the place for first arrival of food grains. The purchases were made by way of cash payments exceeding Rs.20,000/-. The A.O. held that purchases made on behalf of other parties did not attract Section 40A (3), as only commission had been shown in the Profit & Loss Account. However, purchases made on its own trading account i.e. Rs.5,17,96,824/- attracted disallowance under Section 40A (3).

6. The ITAT found that Section 40A (3) is not attracted in view of Rule 2 (6) DD (e) (k) in as much as purchases were made from farmers. Rule 6-DD is by way of exemption under Section 40A (3) and provides that no disallowance under sub-section (3) of Section 40A shall be made and no payments 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 date otherwise than by an account payee cheques drawn on a bank or account payee bank draft exceeds Rs.20,000/-in the cases and circumstances specified namely:—

"(e) Where the payment is made for the purchase of—

7. The ITAT considered the nature of business and found that the assessee acts as per Mandi Samiti Rules. There was no dispute that 'kachcha Arahtiya' are agents in true sense as they mediate between farmers on the one hand and purchasers (wholesellers) 'pucca Arahtiya' on the other hand. All statutory forms namely Form 6A for purchase and Form 9A for sale have to be maintained in accordance with the Rules made under U.P. Krishi Utpadan Mandi Adhiniyam, 1964. 'Kachcha Arahtiya' in order to facilitate sale of agricultural products, which farmers bring to the Mandi take exemption from the 'pucca Arahtiya'. The case of the assessee was found to be squarely covered by Rules 6DD (k) of the new Income Tax Rules.

8. The ITAT has found that CIT (A) has rightly taken into consideration the Board's Circular No.452, which clearly flows light on the functioning of 'kachcha Arahtiya' and 'pucca Arahtiya'. 'Kachcha Arahtiya' also filed their affidavits acknowledging that cash payments were made at their insistence as they did not make any bank accounts. The old Circular No.32 applied before the Rules were made. The ITAT further recorded findings that in the absence of proper banking facilities the assessee was under business expediency to make cash payment to the 'kachcha Arahtiya'. Certain payments were made directly to the farmers as well as on bank holidays. The CIT (A), therefore, rightly deleted additions. The assessee's reliance on Circular No.220 dated 31.5.1977 in which certain conditions have been laid down for making cash payments and some of the conditions are that when payments are made on bank holidays and the seller had refused to accept the payment by way of cross cheques, the commission agent is required to pay cash in turn to the persons from whom he purchased the goods. All these persons from whom the goods were purchased were farmers, who had purchased these goods. 'Kachcha Arahtiya' obtained the agricultural produce from the farmers and have arranged to make sales to the 'pucca Arahtiya'. Since 'kachcha Arahtiya' insisted for cash payment from the assessee for making cash payments to the farmers, therefore, sub-rule (e) of Rule 6DD would also apply. Reliance placed on the order of the ITAT, Vishakhapatnam Bench in the case of ACIT, Venkatadri Oils Ltd. v. Penamaluru [IT Appeal No.422 of 2007 dated 19-8-2010] and decision of Delhi High Court in the case of R.C. Goel v. CIT [2013] 213 Taxman 305/29 taxmann.com 406 was also found to be appropriate.

9. We have examined the facts of the case. It was found that the assessee was maintaining all the books of account and also accounts on all statutory forms required under the U.P. Krishi Utpadan Mandi Adhiniyam, 1962. Rule 6DD (e) and (k) of the Income Tax Rules are clearly attracted in this case as the purchases were made in the present case in commission agency business from the farmers. Whenever purchases were made through commission agents 'kachcha Arahtiya' payment was made in cash to make such payments to the farmers. Rule 6DD (e) is applicable as exemption where the payment is made for the purchase of agricultural produce from purchaser. Rule 6DD (k) is attracted, where the payment is made by any person through agent, who is required to make payment in cash for goods or services on behalf of such persons. The payments, therefore, could not have been disallowed on the ground of the violation of Section 40A (3) of the Act.

10. In our view no question of law as framed much less any substantial question of law arise for consideration of the Court.