Tribunal allows appeal, deletes Rs. 62,06,269 addition under Income Tax Act. Cash payments for poultry feeds deemed genuine.

The Tribunal partly allowed the appeal by deleting the addition of Rs. 62,06,269 under Section 40A(3) of the Income Tax Act, 1961. The disallowance under Section 40(a)(ia) was dismissed as not pressed. The Tribunal found the cash payments made by the assessee for purchasing poultry feeds to be genuine and directly deposited in the supplier's bank account, thus ruling that Section 40A(3) was not applicable in this case.

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Issues Involved:
1. Addition under Section 40A(3) of the Income Tax Act, 1961.
2. Disallowance under Section 40(a)(ia) of the Income Tax Act, 1961.

Detailed Analysis:

1. Addition under Section 40A(3) of the Income Tax Act, 1961:
The primary issue in this appeal was whether the addition of Rs. 62,06,269/- under Section 40A(3) of the Income Tax Act, 1961, was justified. The assessee, a proprietor of M/s Basanti Distributors engaged in retail trading of poultry feeds, made cash payments exceeding Rs. 20,000/- to M/s Pickme Feeds. The Assessing Officer (AO) disallowed this amount under Section 40A(3) as the payments were made in cash, which was confirmed by the CIT(A).

The assessee argued that the poultry feeds are agricultural produce and thus fall under the exceptions provided in Rule 6DD(e)(i) and (ii) of the Income Tax Rules, 1962. The assessee also contended that due to swine flu, cash payments were necessary for uninterrupted supply and were made as per the supplier's directions. The supplier had mandated cash payments for timely supply, and the payments were directly deposited in the supplier's bank account, which the revenue did not dispute.

The Tribunal found that the payments were genuine and the assessee had no control over the transactions as the supplier collected payments directly from the assessee's customers. The Tribunal disagreed with the assessee's argument that the payment was made to an agent under Rule 6DD(k) but agreed that the purchase of poultry feeds falls under the exceptions in Rule 6DD(e). The Tribunal noted the pressing emergency for cash payments due to the slow clearance of cheques in the cooperative bank.

The Tribunal emphasized that the genuineness of the payments was not doubted and that the primary object of Section 40A(3) was to curb tax evasion and inculcate banking habits. The Tribunal cited several judicial precedents, including the Supreme Court's decision in Attar Singh Gurmukh Singh vs ITO, which upheld that genuine and bona fide transactions are not taken out of the sweep of Section 40A(3).

The Tribunal concluded that since the payments were genuine and directly deposited in the supplier's bank account, Section 40A(3) was not applicable. The Tribunal deleted the addition of Rs. 62,06,269/-.

2. Disallowance under Section 40(a)(ia) of the Income Tax Act, 1961:
The second issue raised by the assessee regarding disallowance under Section 40(a)(ia) was not pressed by the Learned AR during the hearing. Consequently, this ground was dismissed as not pressed.

Conclusion:
The appeal was partly allowed. The Tribunal deleted the addition of Rs. 62,06,269/- under Section 40A(3) of the Income Tax Act, 1961, while the disallowance under Section 40(a)(ia) was dismissed as not pressed.

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