Cash payments to a primary agricultural credit society fall within rule 6DD exception, defeating disallowance under section 40A(3).

Cash payments made to a primary agricultural credit society for purchase of paddy fell within the express exception in rule 6DD(a)(iv), so the bar under section 40A(3) of the Income-tax Act did not apply. The factual finding that the payments were made to co-operative societies brought the transactions within the exempted category, and no substantial error of law was shown in the challenged order. The disallowance under section 40A(3) was therefore not sustainable and was decided in favour of the assessee.

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Issues: Whether cash payments made for purchase of paddy from a primary agricultural credit society were exempt from disallowance under section 40A(3) of the Income-tax Act, 1961 by virtue of rule 6DD(a)(iv) of the Income-tax Rules.

Analysis: The cash payments were made to a primary agricultural credit society for procurement of paddy. Rule 6DD(a)(iv) excludes such payments from the bar contained in section 40A(3), and the factual finding that the payments were made to co-operative societies brought the case within that exemption. No substantial error of law was shown in the order under challenge.

Conclusion: The disallowance under section 40A(3) was not sustainable and the issue was decided in favour of the assessee.

Ratio Decidendi: Where cash payment is made to a primary agricultural credit society falling within the express exception in rule 6DD(a)(iv), disallowance under section 40A(3) cannot be made.

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