TaxTMI 
TaxTMI 
2019 (12) TMI 436
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....ion Ltd. (KSBCL) and also does the business of trading in Maize as Proprietor M/S. Mandara Traders. In AY 2013-14, the Assessee purchased Maize (an Agricultural Produce) from the following parties (Unregistered dealers) of the value of Rs. 1,59,63,655/- for which the payments were made in cash in excess of Rs. 20,000/-: 5. Under the provisions of Sec.40A(3) of the Act, if expenditure is claimed as a deduction in computing income from business and if such expenditure in excess of Rs. 20,000/- are paid in cash then the said expenditure will not be allowed as deduction in computing income from business. The relevant provisions of Sec.40A(3) of the Act reads as follows: "Section 40A: Expenses or payments not deductible in certain circumstances. (1) The provisions of this section shall have effect notwithstanding anything to the contrary contained in any other provision of this Act relating to the computation of income under the head "Profits and gains of business or profession". (3) Where the assessee incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a....
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.... Maize agricultural produce to the cultivator of the produce and hence no disallowance can be made u/s.40A(3) of the Act read with Rule 6DD(e) of the Rules. The Assessee also filed the names and village of each of the persons to whom payments were made and the bills evidencing sale of the produce to each of the Agriculturist. The Assessee pointed out that under Section 65(2A) of the Karnataka APMC (Regulation)Act, 1966, agricultural produce cannot be moved unless market fee on such produce is paid. The said regulation reads thus: "[(2A) The market fee payable under this section shall be realized as follows, namely:- (i) if the produce is sold through a commission agent, the commission agent [shall] realize the market fee from the purchaser and shall be liable to pay the same to the committee; [(ia) if the produce is sold by an importer to the purchaser, the importer shall realize the market fee from the purchaser and shall be liable to pay the same to the committee; ] (ii) if the produce is purchased directly by a trader from a producer, the trader shall be liable to pay the market fee to the committee; (iii) if the produce is purchased ....
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.... all his suppliers have the patience and the persistence to make multiple visits to the assessee's premises on a day to day basis to collect small amounts which is due to them, despite their personal and business related pre-occupations. The assessee is portraying a very unusual scenario and business practice just to cover up some actual transactions which have happened and have a direct bearing on the assessee by way of a additional tax. As discussed above herein, In reality, it appears that the assessee has made cash payments to these suppliers in excess of the amount prescribed and has attracted the provision of section 40A(3) of the Act. As an afterthought, and with a view to avoid disallowances and incidence of taxation under the aforesaid provisions, the assessee has created and planted this alibi. 11. It is pertinent to bring on records, herein, that for the AN 2013-14, assessment u/s 143(3) in the case had resulted in findings which lead to disallowances under the provisions of section 40A(3). The assessment has resulted in disallowances of purchases as the payments were made in excess of the limits allowed under the Act. To avoid a repetition....
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.... the disallowance under Section 40A(3) by observing that as the payment was made for agricultural produces, as per the aforesaid provision, it was open for the assessee to make the payment in cash above Rs. 20,000/. The Tribunal confirmed the order of the CIT(A). On further appeal by the Revenue, the Hon'ble Gujarat High Court held as follows: "4. It is required to be noted and it is not in dispute that the assessee is engaged in the business as a Commission Agent for purchase/sale of food-grain/agricultural produces and is also holding licence issued by the Agricultural Produce Market Committee. In the Books of Accounts, the assessee has shown the amount of Rs. 2,83,55,337/- paid to various farmers. However, as the payments were exceeding Rs. 20,000/- in cash, the A.O. made the disallowance under Section 40A(3) of the Act. However, considering Rule 6DD(e)(i) of the Income Tax Rules, 1962, and when the payment was made by cash exceeding Rs. 20,000/-, it was permissible if the same was paid for purchase of agricultural produces. It is required to be noted that in the present case, in the Books of Accounts, the said payment was shown to be paid to various farmers and even th....
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.... Court observed that the provision has been enacted as one of the measures for countering evasion of tax. It was found from experience, that deductions were being claimed for payment made from unaccounted money in the computation of business or professional income. This provision was enacted to enable the assessing authority to ascertain whether the payment was genuine or whether it was out of the income from undisclosed sources. The Hon'ble Supreme Court referred to Rule 6DD(j) of the Rules as it existed prior to its modification with effect from assessment year 1996-97, which contained, in clause (j), a general exception which involved a scrutiny of the unavoidable circumstances and the impracticability of payment by crossed cheque or bank draft. Clause (j) before the amendment stood as under : "Clause (j) : In any other case where the assessee satisfies the Assessing Officer that the payment could not be made by crossed cheque on a bank or by a crossed bank draft- (1) due to exceptional or unavoidable circumstances, or (2) because payment in the manner aforesaid was not practicable, or would have caused genuine difficulty to the payee, having regard to the nature of the....
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....ers for which a reasonable explanation was also given, no addition could be made u/s.40A(3) of the Act. Respectfully following the aforesaid decision, we hold that the disallowance made u/s.40A(3) of the Act deserves to be deleted and the same is hereby deleted. 17. There is one additional issue to be decided in Assessee's appeal for AY 2014-15 viz., disallowance of interest expenses u/s.36(1)(iii) of the Act. The facts in this regard are that the Assessee also indulged in purchase and sale of shares during the relevant previous year and those purchase and sale of shares and commodities and resultant gain were admittedly to be regarded as "Speculative Transactions" and "Speculation Income". The Assessee had in fact earned speculative income and had claimed set off of this year's speculative business income against the brought forward speculative loss of the previous years. The AO also noticed that the source of funds for the Speculative business was from the loan A/c of the assessee with Dhuc Bank. The interest on account of this loan debited to the Profit & Loss account was Rs. 27,14,720. The AO was of the view that since the borrowed loans on which interest was paid were u....
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....in shares and commodities and the amount of interest debited is at Rs. 2,44,956. It is also not correct to say that the said interest expenditure was incurred for earning non taxable income. Income derived from dealing in such shares is liable to tax as speculative income and for this year Rs. 1181506/- is declared in the return of income as Speculative Income. Hence the said interest is an admissible expenditure and provisions of section 14A are not applicable." 19. The CIT(A) did not consider any of the above pleas but proceeded to uphold the order of the AO, observing as follows: 5b. I have perused the submissions and case laws relied upon by the appellant. The appellant is only diverting attention. As can be seed from the extract of his written submission, he is referring to section 14A whereas the AO has not used that section Therefore, his submissions are misplaced. The AO has only disallowed a portion of interest claimed stating that the same is used-for non-business purpose. The appellant has chosen to make use of the opportunity provided and has not cared to file details. In the absence of the same, the order of the AO is confirmed. In view of the above, I am c....