Bishnu Rice Mill Vs ACIT (ITAT Kolkata)
The appeal concerned the disallowance of ₹14,08,50,854 under Section 40A(3) of the Income-tax Act in respect of cash payments exceeding ₹20,000 made for the purchase of paddy. The assessee, engaged in the business of operating a rice mill and producing rice and rice bran from paddy, challenged the order of the Commissioner of Income Tax (Appeals), which had confirmed the addition.
During scrutiny assessment, the Assessing Officer observed that the assessee had made cash payments aggregating to ₹14,08,50,854 to certain parties in excess of the prescribed limit. These parties included individuals who received payments through cash and bearer cheques for procuring paddy. The Assessing Officer treated them as suppliers and disallowed the payments under Section 40A(3).
The assessee explained that these persons were not suppliers but mediators, agents, or Kaccha Arahtias engaged in collecting paddy from farmers on behalf of the assessee. The assessee furnished consolidated statements, weighment certificates, names of farmers, quantity of paddy purchased, purchase prices, and details of commission payments known as “Jalpan.” It was submitted that the agents collected paddy from farmers and distributed cash payments to them. According to the assessee, the transactions were covered by the exceptions contained in Rule 6DD(e) and Rule 6DD(k) because the purchases involved agricultural produce procured from cultivators through agents.
