Case Law Details
Brief of the Case
ITAT Delhi held in the case of ITO vs. M/s Pranay Towers that as per the supreme court judgment of Attar Singh Grumukh Singh Vs ITO (SC)191 lTR 667, it is crystal clear that the terms of Section 40A(3) are not absolute and that the genuine and bonafide transactions are not taken out of the sweep and it is open to the assessee to furnish to the satisfaction of the AO, the circumstances under which the payment in the manner prescribed u/s 40A(3) was not practicable or would have caused to the genuine difficulty to the payee. In the present case, the seller of the potatoes insisted for cash payments because he doubted the credibility of the assessee who required the purchases to be made for smooth running of its business. The purchases were made through the agent Sh. S.K. Tiwari who procured the potatoes from M/s R.A. Traders and this fact was not doubted by the AO. The cash payments were made by the assessee to the agent who in turn made the purchases in cash for the assessee and charged the commission for the said transaction which has been accepted as genuine. Therefore, the transaction relating to the purchases of potatoes amounting to Rs.1,17,12,000/- was clearly covered by the exception laid down in Rule 6DD(k) of the I.T. Rules, 1962 and was outside the purview of the provisions of Section 40A(3).
Facts of the Case
The assessee filed the return of income electronically on 14.10.2010 declaring an income of Rs.1,59,770/- which was processed u/s 143(1) of the Act. Later on, the case was selected for scrutiny. During the course of assessment proceedings, the AO noticed that the assessee had made purchases amounting to Rs.1,20,00,000/- of potatoes in cash from sundry parties. The AO requisitioned the information u/s 133(6) of the Act from M/s R.A. Traders, C-87, Avantika, Moradabad which revealed that the assessee was involved in purchase of 12,200 bags of potatoes @ 960/- per bag in cash for Rs.1,17,12,000/-. The AO also requisitioned the copy of ledger and cash book on the dates of transactions from M/s R.A. Traders and thereafter asked the assessee to furnish the reason as to why the payments could not be considered as payments in contravention contained u/s 40A (3).
The assessee submitted that the transaction was covered within the norms of Rule 6DD(k) of the I.T. Rules, 1962, as the payment was made through an agent. The AO observed that the Rule 6DD(k) was to facilitate the assessee that if the transaction between the assessee and the other party was within Rules, same would hold true and in norms between the agent of the assessee and the other party too but, if any, transaction between the assessee and the third party was in contravention of the provisions of Section 40A(3), the same transaction could not be said to be within norms if the same was done between the agent of the assessee and the third party. He accordingly disallowed the purchases of Rs.1,20,00,000/- u/s 40A(3) and added the same to the income of the assessee.
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