TaxTMI 
TaxTMI 
TaxTMI 
2008 (9) TMI 412
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....sh from bank and ostensibly made payments to suppliers of carcass. Carcass is meat of buffalo/goat from which skin has been removed. Thereafter, after processing, the assessee supplies the product to various countries. It was noticed by the AO that every month huge purchases are made from khurja, Meerut, Hapur, Aligarh, Bulandsahar, Mainpur, Etah, Etawah, Kasganj, Shahjahanpur, Rai Bareilly, Agra, etc. etc. Total purchases made during the year are shown at Rs. 50,12,93,139. The AO was of the view that in view of the decision of Hon'ble Supreme Court in the case of Attar Singh Gurmukh Singh vs. ITO (1991) 97 CTR (SC) 251 : (1991) 191 ITR 667 (SC), the payments will be hit by provisions of s. 40A(3). The assessee was asked to justify such payments and show cause why s. 40A(3) be not applied. In reply the assessee, vide letter dt.17th Oct., 2000, submitted as under: "7(a) No disallowance under sub-s.(3) of s. 40A shall be made where any payment in a sum exceeding twenty thousand rupees is made otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft in the cases and circumstances specified hereunder, namely; (f) Where the payment is made for the purchase of- (i....
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....and various unforeseen complexities in dealing with illiterate persons. It was explained that assessee maintains the account in the names of persons who are agents of the butchers as well the assessee. The agent in turn makes the payment to other persons in the group. It was explained that certain transactions had been excluded from the applicability of the provisions of s. 40A(3). The second proviso to s. 40A(3) states that no disallowance under s. 40A(3) shall be made where any payment in a sum exceeding Rs. 20,000 is made otherwise by a crossed cheque drawn by a bank and under such circumstances as may be prescribed having regard to the nature and extent of banking facility available, consideration of business expediency and other relevant factors. It was stated that under cl. (f) of r. 6DD. it has been made to exclude the following transactions of purchases from the applicability of s. 40A(3): (i) agricultural or forest produce; (ii) the produce of animal husbandry (includes hides and skins) or dairy or poultry farming: (iii) fish or fish products; or (iv) the products of horticulture or apiculture. 7. It was further explained that r. 6DD(1) excludes payments made to agent....
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.... of the produce of animal husbandry and hence it should be exempted from the application of s. 40A(3), the provisions of r. 6DD(f)(ii) would only apply in such cases where the payments are made to the cultivator, grower or producer of such articles, produce or products. Since the AO had stated and the appellant also admits the payments have been made to agents in respect of purchase of carcass, there is no room to interpret cl. (f) of r. 6DD in favour of the appellant. In fact CBDT in Circular No. 4 of 2006, dt. 29th March, 2006 while clarifying the meaning of the expression 'the produce of animal husbandry used in sub-cl. (ii) of cl. (f) of r. 6DD has stated that the exemption will not be available on the payment for the purchase of live stock, meat, hides and skins from person who is not proved to be the producer of these goods and is only a trader, broker or any other middle man by whatever name called. The rigours of the said circular has been diluted in a further Circular No. 8 of 2006, dt. 6th Oct., 2006 whereby it has been stated that any person by whatever name called, who buys animals from the farmers, slaughters and then sells the raw meat carcasses to the meat processing....
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.... that where the payment is made by any person to his agent who is required to pay payment in cash for goods, s. 40A(3) will not apply. Since the assessee has paid the sum to his agent who is the payee in the present case, and in his turn is required to make payment to the cultivator, indirectly the assessee has paid for the purchase of agricultural produce to the cultivator through the agent. Thus a combined reading of cls. (f) and (l) of r. 6DD will take away the transaction from the clutches of s. 40A(3). The case before Tribunal Bangalore concerned an assessee engaged in the purchase of agricultural produce. The case under appeal in this proceeding concerns an assessee engaged in the purchase of products of animal husbandry. The nature of both activities are referred to within the narration in cl. (f) of r. 6DD. For the reasons in the earlier part of this order, and also the clarification of the Board in Circular No. 4 of 2006, dt.29th March, 2006and Circular No. 8 of 2006, dt.6th Oct., 2006, it is held that the appellant cannot be covered within cl. (f) of r. 6DD. However, insofar as its claim for exclusion from applicability of s. 40A(3) r/w cl. (1) of r. 6DD is concerne....
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....n made earlier. It was first time, the AO has made the disallowance under s. 40A(3). It was further explained that animal produces have been purchased from the small butchers who come in group from various places and payments have been made through their leader to save the paper work and other formalities. It was further explained that cls. (f), (g), (l) are applicable on the facts of the present case. Therefore, no disallowance can be made under s. 40A(3). It was further submitted that assessee maintains regular books of account. All the purchases made are recorded in the regular books of account. Amounts have been withdrawn from its regular bank account and then have been utilized for the purpose of purchases made during the year from various places through identified agents. It was further explained that under the Contract Act, there is no compulsion to make commission payments to any agent. There are so many reasons that agents do work and do not charge commission from the suppliers or from the buyers. In the present case in fact the butchers come into a group and they choose one agent among themselves who participate in the supply of meat and thereafter accept the payment on h....
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....t to raise the claim in view of cl. (f) of r. 6DD. It was further submitted that cl. (f) is clearly applicable, therefore, it cannot be ignored. Since CIT(A) has decided the issue in favour of the assessee, therefore, it was not agitated by the assessee before the Tribunal. However, as stated above. as per r. 27 of the ITAT Rules, assessee has a right to raise? at the time of arguments and, therefore, it is raised now. 13. We have heard rival submissions and considered them carefully. We have also perused the material along with various case laws on which our attention was drawn. After considering and perusing the relevant material, we find that the Department cannot succeed in its appeal. 13.1 Before the AO it was explained that assessee's case falls under cls. (f) and (l) of r. 6DD and therefore the provision of s. 40A(3) is not attracted. However, the AO following the decision of Hon'ble Allahabad High Court in case of Pehlaj Rai Daryanmal, held that cl. (l) was not on statute at the relevant point of time and therefore exclusionary cl. (l) is not applicable on the facts of the present case. However, nothing has been stated by learned AO in respect to cl. (f). By observing tha....
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....icable as facts are similar. 13.4 The contention of the Department that there was no agent, does not sound good because the AO himself disallowed the payments for the reason that they are not made direct to producers/cultivators but through intermediaries/agents. This fact has been recorded by the AO in para 9 of his order as under: "9. In conclusion it is an admitted fact that payments are made in cash daily, to the agents known to assessee in big towns with adequate banking facilities. Assessee's, case does not fall in exclusionary conditions. Submissions do not have merit as the rights of r. 6DD(j) is not relaxed when payments are not made to producer/grower but to an intermediate party." 13.5 From these observations of the AO it is clear that the payments were made through intermediary agents and therefore, as stated above, the ratio of the decision of Bangalore Bench of the Tribunal in the case of Sri Renukeswara Rice Mills is squarely applicable on the facts of the present case. 13.6 Even otherwise we note that as per cl. (f) of r. 6DD, no disallowance can be made under s. 40A(3). Though CIT(A) has rejected the claim under cl. (f), however, in view of r. 27 of the ITAT Ru....
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....ove, in view of r. 27 of ITAT Rules, the assessee can raise/support his claim. 13.11 The ratios of decisions of the Hon'ble Supreme Court and that of Hon'ble Gauhati High Court, discussed above, are also in support of the case of the assessee. Clause (f)(ii), reproduced somewhere above in this order, is also very clear by which it has been provided that no disallowance can be made under s. 40A(3) if the payments are made on account of purchase of animal produce including hide and skin. Undisputedly, the payments are made in respect of animal produce. Therefore, as per cl. (f)(ii) the claim of the assessee is also allowable. 13.12 We further note that the issue is also covered by the decision of the Tribunal Delhi Bench 'B' dt. 26th Oct., 2004 in ITA No. 89/Del/2001 in case of Jt. CIT vs. Al Noor Exports for asst. yr. 1997-98. Copy of the order is placed on record. In this case also AO made addition of Rs. 62,09,049 under s. 40A(3) on account of payment made in cash for purchase of animal produce. CIT(A) deleted the disallowance in view of cl. (f)(ii) of r. 6DD of IT Rules. On second appeal, by the Department, the Tribunal confirmed the order of the CIT(A). Findings of the Tribuna....