No Income Tax Cash disallowance on Payment made to Farmers: ITAT

The Income Tax Appellate Tribunal Kolkata recently looked into a case about whether a rice mill could make large cash payments to buy paddy.

The business Sree Bishnu Rice Mill bought paddy from farmers through agents. Because these farmers were in rural areas, they were paid in cash. These payments added up to Rs. 14.08 crore.

The Assessing Officer originally blocked these expenses.

He argued that under Section 40A(3) any payment over a certain limit should be made by cheque or bank transfer, not cash. Later a senior tax official tried to reopen the case using Section 263 claiming the first officer did not investigate enough.

The main question was whether these cash payments were allowed under special tax rules. Specifically Rule 6DD(e) and Rule 6DD(k) allow cash payments if they are for agricultural products or if they are made through agents who must pay the producers in cash.

The Tribunal decided in favour of the rice mill. They found that the Assessing Officer had already looked at the facts and made a valid decision.

The Tribunal explained that since the money was used to buy paddy, which is agricultural produce, the cash payments were legal under the exceptions.

They ruled that the senior official could not cancel the original order just because they had a different opinion. Because the rules were followed, the tax deduction was allowed and the rice mill did not have to pay the extra tax.