2019 (7) TMI 1995 - AT - Income Tax

Appellant wins appeal on cash payment additions under Income Tax Act, Chennai Tribunal ruling

The Tribunal ruled in favor of the appellant, deleting the addition made under section 40A(3) of the Income Tax Act for cash payments exceeding Rs. 20,000 ... Disallowance u/s 40A(3) towards payments made in cash exceeding ₹.20,000/- - purchase of raw skins from various suppliers - AO held that the assessee had not made any direct purchases from the butchers but had purchased from other established traders and therefore did not accept the assessee’s claim of exemption under Rule 6DD(f) and also rejected the claim of exemption under Rule 6DD which exempts payments made to agents on behalf of the buyers for the reason that the said parties from whom the assessee purchased were not agents, but were traders themselves - HELD THAT:- The remand report of AO was received by the CIT(A) on 02.08.2018, wherein, we find that the AO has reiterated what was available in the assessment order and nothing more than that after retention of the additional evidences, surprisingly, for nearly eight years and the reason for that may be best known to him. On perusal of the remand report, as reproduced in the appellate order, the only contention of AO is that the suppliers from whom the assessee had purchased hides and they are not butchers. Even though it was purchased from those suppliers, those suppliers would have purchased from the butchers only and there is no other go and nothing is prevented the supplier to function as an agent for supplying the hides to the assessee. Generally, the suppliers/ exporters of finished leather purchase the raw material from the butchers on cash basis and to safeguard them, the Legislature intended to make a provision under Rule 6DD(k) that “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”. There is no hard and fast rule that the agent should not be a supplier. In view of the above facts, we delete the addition made u/s 40A(3) of the Act. Appeal filed by the assessee is allowed. Issues:1. Disallowance made under section 40A(3) of the Income Tax Act, 1961 for cash payments exceeding Rs. 20,000 for raw materials.Analysis:1. The appellant's appeal was against the disallowance made under section 40A(3) of the Act for cash payments exceeding Rs. 20,000 for raw materials purchased. The assessment was reopened after a survey revealed cash payments of Rs. 99,50,546 for raw materials, violating the provisions of section 40A(3). The Assessing Officer determined the income at Rs. 22,73,612 after disallowances, which was confirmed by the CIT(A).2. The appellant argued that payments were made in cash to butchers for raw skin, exempt under Rule 6DD(k) as payments to agents for goods or services. The appellant contended that butchers preferred cash over cheques. The appellant sought deletion of the disallowance, while the Department supported the lower authorities' decisions.3. The Tribunal noted the appellant's business of manufacturing and exporting finished leather. The issue revolved around disallowance of cash purchases exceeding Rs. 20,000 for raw skins. The Assessing Officer rejected the appellant's claim under Rule 6DD(f) and 6DD, stating the suppliers were traders, not agents. The CIT(A) sought verification from the Assessing Officer, who reiterated the initial findings after eight years. The Tribunal found that the suppliers could function as agents, allowing the appellant's claim under Rule 6DD(k) for cash payments to agents.4. The Tribunal, based on the facts presented, deleted the addition made under section 40A(3) of the Act, ruling in favor of the appellant. The appeal was allowed, and the order was pronounced on July 19, 2019, in Chennai.