Cash land payments through an agent did not justify section 40A(3) disallowance where recipients were identifiable farmers.

Cash payments for land purchases routed through an agent to identifiable small farmers were held not to justify disallowance under section 40A(3) where the record included agreements, affidavits, vouchers and ryotwari passbooks supporting the payments. The materials showed that the recipients were identifiable and that the agent had been engaged to procure the lands and disburse the amounts. As the genuineness of the payments was not in dispute and the factual basis for invoking section 40A(3) was not established, the addition was deleted.

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Issues: Whether disallowance under section 40A(3) of the Income-tax Act, 1961 was justified when cash payments for land purchases were made through an agent to identifiable farmers and the assessee claimed the payments fell within the exception under Rule 6DD.

Analysis: The payments were supported by agreements, affidavits, vouchers, ryotwari passbooks and other materials showing that the land owners were small farmers, that the receipts were identifiable, and that the cash was routed through an agent who was engaged to procure the lands and disburse the amounts. The finding of direct payment by the assessee to the land owners was not supported by enquiry into the agent or the recipients. On the materials on record, the genuineness of the payments was not in dispute, and the factual basis for applying section 40A(3) was not established.

Conclusion: Disallowance under section 40A(3) was not sustainable and the addition was deleted, in favour of the assessee.

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