Disallowance us 40A(3) not applicable on cash purchases made from Mandi Samiti: ITAT

Disallowance us 40A(3) not applicable on cash purchases made from Mandi Samiti: ITAT In this matter, Appeal was filed with Income Tax Appellant Tribunal (ITAT) by revenue with regard to the deletion of disallowance u/s 40A(3 ) by the ld. CIT(A) held that the factum of purchase has been confirmed by the Mandi Samiti Officials. One of the Grounds for Appeal was: Whether in the circumstances of the case, the Ld. CIT( A) has erred on facts and in law in deleting the addition of Rs. 182,02,93 ,457/- without appreciating that in the light of incriminating material seized during search, the assessee has failed to discharge its onus to prove that the cash purchases were made from farmers and the benefit of Rule 6 DD(e) is available to it.

ITAT Order

Rule 6DD (e) states that the provisions of section 40A(3) will not apply where the payment is made for the purchase of agricultural produce, animal husbandry or dairy or poultry farming, fish or fish products to the cultivator, grower or producer of such articles. CBDT vide Circular no. 08/2006 dated 06 October, 2006 has provided for specific mechanism for verification of sellers in case of the produce of animal husbandry but no such circular has been issued in case of agricultural produce for fulfillment of condition under Rule 6 DD. No specific rule or provision of law as per the Income-tax has been brought on record by the assessing officer which required the assessee to collect any evidences to prove that the sellers were producer or cultivators. On perusal of Rule 6DD, specific Circular for animal husbandry and in the absence of any such conditions in case of agricultural produce and failure of the assessing officer to bring the relevant provision or rule requiring collection of evidences regarding sellers on record, I agree with the contention of the appellant that there is no specific requirement under the Income- tax Act or Rules to collect any evidences regarding the sellers in case of agricultural produce and furnishing of documentary evidence to show that paddy was purchased through Form No. 6 of Mandi Samiti would suffice as evidence to show that the appellant had purchased agricultural produce from cultivator, grower or producer of paddy. Further, on perusal of the Mandi Samiti Act and rules, it was observed that these did not require the buyer to obtain any evidence from the seller for his verification as producer / farmer. On perusal of section 2( p) of the Mandi Act and Rule 131 of the Mandi Rules, it was observed that the Director of the Mandi shall make enquiries from the Tehsildar regarding the produce/ ( as to whether he cultivates the land himself or engaged in producing agriculture produce or carrying on business as trader etc) to determine his status on receipt of a complaint in this behalf. Thus, it is evident from the provisions of Mandi Act that the appellant or the Mandi officials were not required to obtain all these documents at the time of transactions in the Mandi because then the Director would not need to make such inquiries from the Tehsildar but there would be a provision to verify the documents held by the Mandi Samiti or the buyer. This shows that the appellant was not required to obtain any documentary evidences regarding land area, cultivation etc. about the seller even under the provisions of Mandi Act. In view of discussion above, it is observed that the assessee is not required to collect any evidence from the seller to show that he is a farmer or producer once paddy has been purchased through Form No. 6. The status of the seller as farmer or trader is determined by the Mandi Samiti at the time of his entry and the assessee undertakes transactions on the basis of said determination. It is also clear from the provisions of Mandi Act that the authority to decide whether the seller is a farmer or not is solely in the domain of Director of the Mandi Samiti as per the relevant Act and not the Assessing Officer. It is also a settled law that when an authority has been designated for the purpose, then none else can decide the said issue. The assessing officer has not brought on record any case where any person claimed as farmer by the assessee has been declared otherwise by the Director of Mandi Samiti. In the absence of the any such adjudication, no adverse cognizance can be taken and the sellers declared as farmers by the assessee and confirmed by the Mandi Samiti officials has to be considered as conclusive proof of the fact that the purchases were made from farmers. The ld. CIT( A) deleted the addition made u/s 40A(3 ) considering the various judgments including PCIT Vs Keerthi Agro Mills (P.) Ltd. [2018] 95 taxmann. com 282 ( SC) and CIT Vs Sunil Kumar Agrawal [2013] 38 taxmann. com 386 (Allahabad) have upheld applicability of Rule 6 DD of Income Tax Rules for purchase of paddy. Principle of consistency is applicable considering the fact that the case of the appellant was completed u/ s 143(3 ) of Income Tax Act in earlier years prior to search where similar cash purchases had been made but no disallowance was made. Even in assessment order u/s 143(3) for A.Y.2017-18, similar cash purchases have been accepted by the Assessing Officer. In view of Mandi Samiti rules, all agricultural produce sold through Form No.6 constituted sale from producers and appellant was entitled to exception to Section 40A(3 ) provided in Rule 6 DD(e) of Income Tax Rules. Taking into consideration, the undisputed fact of purchases being made from Mandi Samiti, provisions of Mandi Samiti Act, 1964, provisions of Rule 6DD, Circular No. 8 of 2006 of CBDT and the judgments of various Hon’ble High Courts on the issue of disallowance u/ s 40 A(3), applicability of the provisions of Rules 6DD for purchase of paddy, we decline to interfere with the order of the ld. CIT( A) on this issue. To Read Judgement Download PDF Given Below: