TaxTMI 
TaxTMI 
2012 (8) TMI 283
X X X X Extracts X X X X
X X X X Extracts X X X X
....ly stated, facts of the case are that the assessee is engaged in the business of purchasing milks, and after processing, selling the milk and milk products. During the assessment year 2004-05, the assessee purchased milk, for which payment to the tune of Rs. 23.78 crores, were made in cash, for the assessment year 2004-05. Similarly, for the assessment year 2005-06, the payment to the tune of Rs. 42,25,796 were made towards purchase of milk, were made in cash. Considering the fact the impugned payments are made in cash and applicability of the provisions of S.40A(3) of the Act, the AO proceeded to disallow 20% of the said cash payments and made additions of Rs. 4,75,70,440 for the assessment year 2004-05 and of Rs. 8,45,159 for the assessment year 2005-06 and these additions are the subject matter of dispute in the appeals before us. The reasons given by the assessing officer for making the above addition for assessment year 2004-05, as contained in paras 4.3 and 4.4. of his impugned order, read as under- "4.3 The vouchers furnished were verified. From the vouchers, it is noticed that payments have been made to some persons who in turn has split payment to various persons.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d report dated 18.7.2007, copy of which was made available to assessee for comments. In response, the assessee's counsel filed written submissions detailing the mechanism of the purchase of milk and making of the payment to the village representatives/agents and emphasizing the fact that the assessee is covered by exceptions to Rule 6D vide clause (g), (f) and (l) of the I.T. Rules, 1962. As per the said submissions of the assessee before the CIT(A), the case of the assessee is covered under Rule 6DD(f), as the payments in question were made to the producers of dairy milk indirectly through the village representative/ agent, which is a deemed contract payment to the producers of milk. Without prejudice, the assessee invoked the provisions of clause (l) of Rule 6DD stating that the payments in question are made to the agent who is in turn required to make payment in cash for goods on behalf of the purchaser of milk. Further, the learned counsel also mentioned that the village representative is an agent who receives commission for the services rendered. On hearing the assessee and after getting the remand report from the lower authority, the CIT(A) admitted the additional evidences f....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f the case. In the present case, although there is no agency agreement in writing between the assessee company and the milk representatives working at the collection centres, their conduct and function in procurement of milk and disbursement of amounts to the vendors can be considered as the Act of an agent in the broader sense. - Both the company as well as the representatives (payees) confirmed before thee assessing officer that the representatives were acting as the agents of the company at the milk collection centre, for which they have also been provided incentives on the transactions. - In the circumstances the representatives to whom cash payments were made by the assessee company for the financial year 2003-04, have to be considered as agents of the assessee company, who is required to make payments in cash for goods(milk) to the cattle owners on behalf of the assessee. Accordingly, the payments made to them would be covered by the exception provided in clause (l) of Rule 6DD of the Income-tax Rules. - The Additional Commissioner has himself agreed that the assessee company had recognized the agents who had been elected by the farmers. The fact re....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s. 20,000 each made by the assessee in cash on purchase of milk, is clearly in violation of the provisions of S.40A(3) of the Act. He submitted that there was no principal-agent relationship between the assessee and the recipient of the amounts in question. He accordingly submitted that the impugned orders of the CIT(A) on this issue should be set aside and the disallowance made by the assessing officer for both the years should be restored. Further, he mentioned that there exists banking facilities at least in some of the locations and therefore, the order of the CIT(A) requires amendment. 9. Per contra, Ld counsel for the assessee explained the facts of the case sand mentioned that the assessee has representatives at various villages, who supply/sells milk to the assessee. For the administrative convenience of the milk producers of a village, it is done through a representative, who shall file an application of agency and forward the same to the assessee company for the purposes of facilitating payment of money collectively and for ensuring uniform quality of milk for its fat content. Ld counsel explained the provisions and applicability of exceptions provided in Rule 6DD of t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....age 51 of the paper/book. 11. We heard both sides and perused the orders of the lower authorities and have also gone through the various paper-books filed before us, besides the impugned orders of the lower authorities and other material on record. The system followed by the assessee for the purchase of milk, as corroborated during the factual field enquiries carried out by the Revenue authorities and recorded by the CIT(A) in para 4.2 of his impugned order for the assessment year 2004-05, involves (a) formation of a group of milk producers in a village selecting one of them as a representative/agent of their Milk Collection Centre -MCC; (b) The members in the group bring the milk to the Milk Collection Centre and the milk is tested in Fat percentage testing machine. The quantity of milk and the Fat percentage will be entered in the Milk Card/Book of the Member and the Register maintained in the Milk Collection Centre. (c) The rate of milk will be calculated as per the Fat percentage available in the milk. The average rate of milk is between Rs. 18/- to Rs. 19/- per litre. All the milk collected in the Milk Collection Centre is sent to the nearby milk chilling plant. (d) There, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of the IT Rules, 1962 when there exists banking facilities in each and every village in India. 13. Stand of the assessee: Per contra, the case of the assessee is that the payments in cash made to the producer of the milk even through the representatives are covered by the said clause (f) and this line of interpretation of the provisions have strength of the judgment of the Hon'ble High court of Gujarath at Ahmedabad in the case of CIT vs Gamdiwala Dairy 20 Taxmann 290 (Ahm) placed at page 51 of the paper book and others being the Bangalore Bench decision in the case of Renukeswara Rice Mills Vs ITO 93 ITD 263 (Bang) and Lucknow bench decision in the case of DCIT vs Allied Leather Finishers P Ltd (32 SOT 549), Delhi Bench decision in the case of Hind Industries Ltd (26 SOT 196). Further, in view of the above citation, the assessee is of the firm opinion that the 'representative' constitutes an agent in dual capacity in the scheme of milk collection centres narrated above ie for the assessee on one side and the milk producers on the other. Regarding the argument of the Ld DR on banking facilities, the assessee stand is that the milk producers are economically, educationally and s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....make payment in cash for goods or services on behalf of such person, such payments are outside the scope of the provisions of section 40A(3) of the Act. There is no bar on the said agent to work in dual capacity to the milk producers too. The representatives are admittedly the agents as evident from the confirmation letters filed by them before the lower authorities. Further, there is no dispute on the fact that the milk, for which the impugned payments are made by the assessee, is not a dairy produce. Nothing is brought onto the records by the assessee to show that the representatives/agents of MCC are not required to make payments in cash. As such the requirement of making the payments in cash to the producers of milk is much beyond the existence of Banking facilities in that village or nearby villages. The economic problems of milk producers are such that the Parliament/CBDT felt it necessary to incorporate milk producer should be free receive payments in cash. Of course, such exclusion from the rigour of the provisions of section 40A(3) of the Act, is subjected to certain conditions. The above interpretation has the strength of the decision of the Tribunal and the judgment of G....
X X X X Extracts X X X X
X X X X Extracts X X X X
....k and it was supplied to the assessee and, in turn, the assessee was making payments, which was to be handed over to the producers and they were handing over such amount to the respective milk producers. According to the farmers, the consideration paid for the same was collected by the president and it was handed over to the persons supplying the milk, in the ratio of the milk provided by each person. Thus, they had received the amount in the ratio of milk supplied in the name of dairy. These dairies were thus, only the facilitating stations for the producers of milk and the assessee was making purchases directly from the producers and, accordingly, fell in the exception. In view of the above facts and circumstances, the assessee's case was covered under the exceptions under section 40A(3), read with rule 6DD(f) of the Income-tax Rules, 1962, and therefore, the disallowance was not justified." 17. The above decision of the Ahmedabad Bench of the Tribunal has been confirmed on appeal by the Hon'ble Gujarat High Court in the case of CIT V/s. Gamdiwala Dairy, vide its CAV judgment dated 18.10.2011, in the following manner- "4. Entire issue has been dealt with extensively b....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... has been held in favour of the assessee and against the Revenue in the following manner: 5. It was noticed by the Tribunal that cash payment of Rs. 87,84,655/- was made to different persons for purchase of jaggery and since these purchases were in excess of Rs. 20,000/-, there was contravention of the provisions of Section 40A(3)and hence 20% of such cash purchases were added to the income of the assessee. The Tribunal was of the opinion that the Assessing Officer had specifically asked for the details of the purchase of jaggery and the proof of purchase as there was a direct purchase from various agriculturists. It also noted that the requisite material had been placed before the Assessing Officer with regard to the purchases of jaggery and copies of village form No.7/12 and 8A were also brought forth to prove the facts that they were purchased from the agriculturists. The Tribunal also noted that the same were duly covered under Rule 6DD(f)(i) of the Income Tax Rules and after due satisfaction, the Assessing Officer had allowed this amount and, therefore, the order of the Assessing Officer has been upheld by the Tribunal. Rule 6DD and sub-clause (f) of Rule 6DD are repr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....entical and as Court earlier had upheld the order of Tribunal in almost similar circumstances, in the present case as the Tribunal has dealt with the issue in accordance with the law, issue requires no interference." 18. In the case of Renukeswara Rice Mills V/s ITO(93 ITD 263), Tribunal of Bangalore Bench, which held as follows- "The payment was made for purchase of agricultural produce. The payment was made to the agent operating at the market yard. As per the regulation of trade in agricultural produce, market yards are set up and the State RMC Act also regulates such business. Thus, for purchase and sale of agricultural produce, the transaction can be only through dealers and agents licensed to operate in the market yard. Thus, the person operating there, is not only the agent of the cultivator or grower but also of the persons purchasing the agricultural produce. Clause (f) of rule 6DD provides that where the payment is made for the purchase of agricultural produce to the cultivator, section 40A(3) will not apply. Similarly, clause (l) of rule 6DD provides that where the payment is made by any person to his agent who is required to make payment in cash for goods, s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....equently, the impugned representative works for money, which is an essential fact in the overall scheme of milk collection and supply to the milk chilling centres of the assessee. 21. On perusal of paras 4.5 to 4.11 of the impugned order of the CIT(A), it is noticed in para 4.5 that the assessing officer made the impugned additions without examining the relevant evidences in detail. It was also noted that if the payments at the level of milk producers are considered, each payment never exceeded the specified sum of Rs. 20,000. There is, therefore, no violation of S.40A(3) of the Act. Violation arises only if the payments at the point of representative and not otherwise. It is also noticed in para 4.6 that it is a fact that the representative of milk collection centre functions in a dual capacity, both for the assessee as well as the milk supplier for incentives. Further, it is undisputed fact that the said representative filed confirmation letters before the assessing officer asserting that they are the agents of the company alongwith their duties and responsibilities towards suppliers of milk to. It is the requirement of these agents to make the payment in cash for goods, i.e. ....