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Cash purchases

manik (ca in practice) (420 Points)

21 June 2012

we are purchasing rice bran from market for producing oil from it, my question is whether we can purchase it in cash exceeding rs.20000, whether it is considered as agricultural product for exemption or not

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15 Replies

Prateek Agarwal (Sr. Executive - Finance & Accounts) (1732 Points)
Replied 21 June 2012

It is a raw material for you. I dont think cash purchase above Rs 20000 is allowable in this case.

Nothing as of sorts is mentioned in Rule 6DD, hence, not allowable.

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Ankit (Articles) (390 Points)
Replied 21 June 2012

1. if ur business is related to this then I am fully agree with Mr. pratik that it is not allowable to u ...

2. whether u go for agricultural purpose then there are certain conditions that u have made ur purchase from such farmers or dealers of reral areas that they cannot open a bank account then in that case it is allowable to u ...

Choice is all yours ....

Regards,

Ankit

@*CS Siddharth Bumb. * (B.Com, CA Final, CS ) (5270 Points)
Replied 21 June 2012

Originally posted by : Prateek Agarwal
	It is a raw material for you. I dont think cash purchase above Rs 20000 is allowable in this case. Nothing as of sorts is mentioned in Rule 6DD, hence, not allowable.

CA Sankalp Patwa (CA) (193 Points)
Replied 21 June 2012

In your case Mr. Manik cash payments will be disallowed if amount is exceeding Rs.20000/-.

Kindly refer the below information

As per Rule 6DD :-

f) where the payment is made for the purchase of—

(i) agricultural or forest produce ; or

(ii) the produce of animal husbandry (including hides and skins) or dairy or poultry farming ; or

(iii) fish or fish products ; or

(iv) the products of horticulture or apiculture,

to the cultivator, grower or producer of such articles, produce or products;

Reading the above it is very clear that contention of CBDT is to give such an allowance to those entrepreneurs who are in a 100 % agriculture or related activities.

But ur concern is making oil from rice barn which will be counted as a manufacturing business.

If your entity is not covered under the definition of manufacturer given by CBEC then you can claim it to be an agricultural activity

But still my opinion would go for disallowing the same.

Kindly Wait for Expert's Comments.

No offence to other replies

1 Like

KRISHNAPRASAD IYER (B.Com , CA Final) (657 Points)
Replied 21 June 2012

Originally posted by : Prateek Agarwal

It is a raw material for you. I dont think cash purchase above Rs 20000 is allowable in this case.

Nothing as of sorts is mentioned in Rule 6DD, hence, not allowable.

agreed

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CA Sankalp Patwa (CA) (193 Points)
Replied 21 June 2012

In your case Mr. Manik cash payments will be disallowed if amount is exceeding Rs.20000/-.

Kindly refer the below information

As per Rule 6DD :-

f) where the payment is made for the purchase of—

(i) agricultural or forest produce ; or

(ii) the produce of animal husbandry (including hides and skins) or dairy or poultry farming ; or

(iii) fish or fish products ; or

(iv) the products of horticulture or apiculture,

to the cultivator, grower or producer of such articles, produce or products;

Reading the above it is very clear that contention of CBDT is to give such anallowance to those entrepreneurs who are in a 100 % agriculture or related activities.

But ur concern is making oil from rice barn which will be counted as amanufacturing business.

If your entity is not covered under the definition of manufacturer given by CBEC then you can claim it to be an agricultural activity

But still my opinion would go for disallowing the same.

Kindly Wait for Expert's Comments.

No offence to other replies

Monith Agarwal (MR.) (117 Points)
Replied 21 June 2012

in short , it will e disallowed

Manjunatha M K (Manager - Accounts) (318 Points)
Replied 21 June 2012

Dear Manik,

If you purchase from market (if the seller is not Grower of rice bran), then disallowed.

If you purchase from Grower it will not be disallowed.

A.K.Agrawal (Investments & Finance) (132 Points)
Replied 21 June 2012

I started purchasing land plots by A/C PAYEE instrument payment. Stamps & registration each is above 20000/- & accepted only in cash. For its improvement, I shall get its boundry wall constructed for its after sale as a part of my regular business. But labour, contrator, material supplier all accept only cash even if more than 20,000/- Whether will it be allowed by IT Dept. If no what is the way out ?

CA Sankalp Patwa (CA) (193 Points)
Replied 22 June 2012

Mr. A.K. Agrawal, your situation seems to be very complicated as you are bound to pay such expenditure in cash.

Please consider the below given Decision

ITO should adopt practical and not a technical approach - The ITO should take a practical approach to problems and strike a balance between the direction of law and hardship to the assessee. He should not enmesh himself in technicalities. After all, the object is not to deprive the assessee of the deduction which he is otherwise entitled to claim - Girdharilal Goenka v. CIT (supra).

The contention of the department behind section 40A(3) is to avoid usage of black money and not to hinder the growth of business.

In your case your problem is very genuine and thats why i think that expenditures shall be allowed.

In my opinion I have two way outs :-

1. Stop purchasing from them (practically not possible).

2. Take a written representation from them that they will accept payment only in cash along with the reasons for the same.( you know how to do it)

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rudram77 (Assitant Accounts Manager) (166 Points)
Replied 23 June 2012

Hope you can do cash purchase with URD(unregister dealer) on issuing cheque in the name of supplier with out account pay.

Dipesh Dedhia (Owner) (56 Points)
Replied 25 June 2012

Hi all,

i want to ask whether its applicable to Medical field also.

When major operations or emergency operations are done, hospital take cash in advance as a deposit.

Goverment allows and how its been under goverment acts.

Regards,

Dipesh Dedhia

CA Sankalp Patwa (CA) (193 Points)
Replied 25 June 2012

The same response for you also Mr. Deepesh which I have given to Mr. A. K. Agrawal,

genuine expenditure can not be disallowed mere due to the reason of a technical language of law.

Sudhir Wani (Accountant) (32 Points)
Replied 04 December 2012

I am a bussiness man. I have purchase a land Rs. 125000 in Cash & Registry in Registrar Office. i am treat this land stock in trade in Balnace Sheet. Can this entry will be disallowable U/s 40 of Excess cah payment above Rs. 20000. plz explain them