Cash-payment disallowance under Section 40A(3) excluded where Rule 6DD/CBDT guidance shows payments to farmers were commission disbursements.

Application of the Rule 6DD exception and the CBDT Circular clarified that cash payments disbursed by a commission agent to cultivators for agricultural produce, evidenced by a valid mandi licence, mandi parchis, affidavits and contemporaneous books, do not attract the cash-payment disallowance under Section 40A(3); Revenue failed to rebut genuineness of the records, and therefore the addition under the cash-payment provision was found inapplicable and the appeal allowed in favour of the assessee.

---

---

Issues: Whether the addition of Rs. 1,90,36,240 under Section 40A(3) of the Income-tax Act, 1961 is justified, or whether the cash payments made to farmers fall within the exception provided by Rule 6DD and related administrative guidance (CBDT Circular No. 452 dated 17.03.1986).

Analysis: The assessee produced a valid mandi licence and contemporaneous records including mandi parchis showing seller (farmer), buyer, and commission, affidavits of farmers, cash book entries and revenue records evidencing agricultural land holdings. The Revenue did not produce evidence to disprove the genuineness of these documents. Applying Rule 6DD and the clarificatory CBDT Circular No. 452 dated 17.03.1986 (distinguishing kachha arhatia and pacca arhatia), the materials establish that the assessee acted as a commission agent who merely facilitated sale proceeds to cultivators and received commission, and that the impugned payments represented disbursements to farmers for their agricultural produce rather than payments attracting the cash-payment disallowance under Section 40A(3).

Conclusion: The addition under Section 40A(3) is not attracted; the appeal is allowed in favour of the assessee.

---