The Chennai Bench of Income Tax Appellate Tribunal (ITAT) has deleted the disallowance in respect of cash payment to suppliers as per rice trading practice holding that rice is an agricultural produce.
The assessee, Shivaji Hi-Tek Foods Pvt. Ltd which was engaged in purchases rice from various states and repacks the same in its own containers. The assessee purchased rice and made cash payments. The majority of these transactions have been confirmed by the suppliers of the assessee. Then the assessing officer found that the assessee had made purchases from various parties and made cash payment in excess of Rs.20,000/- per day which was a violation of the provisions of Sec.40A(3) of the Income Tax Act 1961, and AO invoked the disallowance under Section 40A(3) of the Income Tax Act..
Section 40A (3) of the Income Tax Act 1961, deals with the disallowance in case of payment of more than 20,000 on a single day.
Anand Babunath, on behalf of the assessee submitted that the assessee was new to suppliers and the suppliers insisted immediate payment before delivery of rice. Under these circumstances, the assessee had no option but to follow the existing rice trading practice to carry on its business. He further submitted that as per Rule 6DD, the payment made for the purchase of agricultural produce to the cultivator would not fall within the mischief of Sec. 40A (3).
ARV Sreenivasan, on behalf of the revenue, noted that the rule refers to agricultural ‘produce’ and not to agricultural ‘product’ and therefore, the claim could not be accepted since the rice could not be termed as agricultural ‘produce’.
Mahavir Singh, (Vice President) and Manoj Kumar Aggarwal, (Accountant Member) dismissed the petition ,observing that the Tamil Nadu Agricultural Produce Marketing (Regulation) Act, 1987 specifies ‘Rice in all forms’ as agricultural produce under Cereals. The same would support the case of the assessee in terms of Rule 6DD(e)(i). The Bench dismissed the petition.
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