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Income Tax Appellate Tribunal, MUMBAI BENCH “D”, MUMBAI
Before: SHRI C.N. PRASAD, HONBLE & SHRI RAJESH KUMAR, HONBLE
O R D E R PER C.N. PRASAD (JM) 1. This appeal is filed by the Revenue against the order of the Ld. Commissioner of Income-tax (Appeals)– 32, Mumbai [hereinafter for short “Ld.CIT(A)”] dated 28.04.2017 for the A.Y.2009-10.
The only issue in the appeal of the Revenue is in respect of deletion of disallowance made u/s. 40A(3) r.w. Rule 6DD of I.T. Rules.
2 ITA.NO.4862/MUM/2017 (A.Y: 2009-10) Mr. Mehmood Khan Haji Babu Khan 3. Briefly stated the facts are that, the assessee is an individual engaged in the business of trading and wholesaler in chicken and poultry under the proprietary name M/s. Royal Chicken Centre, filed return of income on 26.08.2009 declaring income of Rs. 5,08,365/-. The assessment was completed on 23.12.2011 u/s. 143(3) of the Act determining the income at ₹.6,79,859/-. Subsequently the assessment was reopened by issue of notice u/s. 148 of the Act and the assessment was completed u/s. 144 r.w.s 147 of the Act on 23.03.2016. In the course of the re-assessment proceedings the Assessing Officer noticed that assessee has made huge cash payments as well as cheque payments to the parties from whom assessee makes purchases. Assessee was required to explain in respect of cash payments as to why such payments should not be treated as bad in contravention to section 40A(3) of the Act. The assessee explained that it falls under exception under sub clause (e) of Rule 6DD of the I.T. Rules. Assessee placed his reliance on the CBDT Circular No. 8 of 2006 dated 06.10.2006 and Circular No. 4 of 2006 dated 29.03.2006 and also the decisions of the Hon'ble Supreme Court in the case of CIT v. M/s. Venkateshwara Hatcheries (P) Limited [237 ITR 174] and Beejay Hatcheries.
The Assessing Officer on analyzing the circulars observed that the benefit of Rule 6DD shall be available to the person subject to furnishing
3 ITA.NO.4862/MUM/2017 (A.Y: 2009-10) Mr. Mehmood Khan Haji Babu Khan the declaration from the person receiving the payment that he is a producer of meat, confirmation that the payment otherwise than by an account payee cheque or account payee bank draft, was made on his insistence and further confirmation from a veterinary doctor certifying that the person specified in the certificate is producer of meat and that slaughtering was done under his supervision. The Assessing Officer observed that the circular mandates for assessee to furnish the declaration from the person receiving the payment that he is a producer of “product of the animal husbandry” “meat”. Therefore, the Assessing Officer observed that the condition stipulated in Circular have not been complied by the assessee, the confirmation does not state that the assessee is a producer of meat and that slaughtering was done under veterinary doctor supervision. Therefore, he concluded that neither the assessee nor the supplier are not under the purview of the circular and therefore the assessee cannot be given benefit of the above circular. On appeal the Ld.CIT(A) deleted the disallowance made u/s. 40A by the Assessing Officer.
Ld. DR vehemently supported the order of the Assessing Officer.
Ld. Counsel for the assessee strongly placed reliance on the order of the Ld.CIT(A). He also submitted that the cash payments made by the 4 ITA.NO.4862/MUM/2017 (A.Y: 2009-10) Mr. Mehmood Khan Haji Babu Khan assessee has been accepted in earlier assessment years and also in the subsequent assessment years except the year under consideration, and no such disallowance was made in any of the assessment years. Ld. Counsel for the assessee submits that the assessee squarely falls under the exception provided under sub clause (e) of Rule 6DD of I.T. Rules since the payment is made for the purchase of poultry farming and therefore the Ld.CIT(A) rightly deleted the disallowance. Ld. Counsel for the assessee placed reliance on the decision of the Mumbai Bench in the case of Hybro Foods (P.) Ltd., v. ITO [115 ITD 73].
We have heard the rival submissions and perused the orders of the authorities below. The Ld.CIT(A) had considered the submissions of the assessee and the evidences on record and arrived at a conclusion that the payments made by the assessee for purchasing of chicks to the producers of the chicks comes under the exception provided under Rule 6DD(e) of I.T. Rules and no disallowance is called for u/s. 40A(3) of the Act. Ld.CIT(A) also found that the circular which was relied by the Assessing Officer does not apply to the assessee who is in the business of purchase of poultry farming but the same applies to animal husbandry which is different from poultry farming. Ld.CIT(A) also observed that the confirmation given by the suppliers which were also produced before the Assessing Officer, confirmations, supports the purchases made by the 5 ITA.NO.4862/MUM/2017 (A.Y: 2009-10) Mr. Mehmood Khan Haji Babu Khan assessee from those suppliers who produce the birds in their poultry farms. The Ld.CIT(A) also observed that the suppliers who are the poultry producers insisted on cash payments and all the suppliers are owning poultry farming and are in the business of producing chicken and poultry products, and in the circumstances the payments made to poultry farming are covered by the exception given in Rule 6DD(e)(ii) of I.T. Rules.
8. We also find that on identical facts the Mumbai Bench of ITAT in the case of Hybro Foods (P.) Ltd., v. ITO (supra) held as under: - “6. Rival submissions of the authorities have been considered carefully in the light of case laws and the relevant provisions. In order to appreciate the controversy, it would be appropriate to refer to the relevant provisions of Section 40A(3) as under: (3) Where the assessee incurs any expenditure in respect of which payment is made, after such date (not being later than the 31st day of March. 1969)as may be specified in this behalf by the Central Government by notification in the Official Gazette, in a sum exceeding [[twenty] thousand] rupees otherwise than by [ an account payee cheque drawn on a bank or account payee bank draft], [twenty percent of such expenditure shall not be allowed as a deduction]: Provided... Provided further that no disallowance under this sub-section shall be made where any payment in a sum exceeding [[twenty] thousand] rupees is made otherwise than by [an account payee cheque drawn on a bank or account payee draft], in such cases and under such circumstances as may be prescribed, having regard to the nature and extent of banking facilities available, considerations of business expediency and other relevant factors.] 6 ITA.NO.4862/MUM/2017 (A.Y: 2009-10) Mr. Mehmood Khan Haji Babu Khan In pursuance of the above provision, Rule 6DD provides exceptions. The exception relevant to the present case is provided in Rule 6DD(f) which is reproduced as under: 6DD. No disallowance under Sub-section (3) of Section 40A shall be made where any payment in a sum exceeding [twenty thousand] rupees is made otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft in the cases and circumstances specified hereunder namely: (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; 7. The combined reading of the above provisions reveals that if any cash payment exceeding Rs. 20,000/- is made by the assessee for which deduction is claimed, than 20% of such amount is to be disallowed. However, the second proviso to Section 40A(3) permits the delegated authority to prescribe the circumstances under which cash payment exceeding Rs. 20,000- can be made. These circumstances have been provided in Rule 6DD. Clause (f) of Rule 6DD clearly reveals that no disallowance is to be made where payment is made for the purchase of the produce of the animal husbandry or dairy or poultry farming to the producer of such produce. If the assessee complies with the provisions of such Rule, than no disallowance can be made.
While construing the provisions of a statute, one must keep in mind the cardinal rule of interpretation that if the language of the Statute is plain and unambiguous then the plain and natural meaning of the words should be supplied to the language used and resort to any rule of interpretation to unfold the intention of the Statute is not permissible. The Constitution Bench of the Hon'ble Supreme court in the case of CIT v. Anjum M.H. Ghasswala has observed as under:
7 ITA.NO.4862/MUM/2017 (A.Y: 2009-10) Mr. Mehmood Khan Haji Babu Khan “…. This exercise of purposive interpretation by looking into the object and scheme of the Act and the legislative intendment would arise, in our opinion, if the language of the statute is either ambiguous or conflicting or gives a meaning leading to absurdity.” In the case of Keshavji Ravji & Co. v. CIT 183 ITR 1, the Apex Court observed as under: “….. As long as there is no ambiguity in the statutory language, resort to any interpretative process to unfold the legislative intent becomes impermissible. The supposed intention of the Legislature cannot then be appealed to whittle down the statutory language which is otherwise unambiguous. If the intendment is not in the words, it is nowhere else. The need for interpretation arises when the words used in the statute are, on their own terms, ambivalent and do not manifest the intention of the Legislature.” Similarly, in the case of guru Devdatta VKSSS Maryadit Their Lordships of the Apex Court held as under: “It is a cardinal principle of interpretation of statute that the words of a statute must be understood in their natural, ordinary or popular sense and construed according to their grammatical meaning, unless there is something in the context or in the object of the statute to suggest to the contrary. The golden rule is that the words of a statute must prima facie be given their ordinary meaning. It is yet another rule of construction that when the words of the statute are clear, plain and unambiguous, then the Courts are bound to give effect to that meaning irrespective of consequences. It is said that the words themselves best declare the intention of the Law give. The Courts have adhered to the principle that efforts should be made to give meaning to each and every word used by the Legislature and it is not a sound principle of construction to bush aside words in a statute as being inapposite surplus if they can have a proper application in circumstances conceivable within the contemplation of the Statute.” A bare look at the provisions of Rule 6dd(f) of the Rules reveals that the language used is plain and unambiguous. It only means that 8 ITA.NO.4862/MUM/2017 (A.Y: 2009-10) Mr. Mehmood Khan Haji Babu Khan no disallowance Under Section 40A(3) is to be made if the payment for the purchase of produce of poultry farming is made to the producer of such produce. It nowhere says that such producer must belong to rural areas where banking facility is not available. Thus, considering the cardinal rule of interpretation, the resort to unfold the intention of the legislature is not required. In the present case, admittedly, the payment has been made by the Assessee to the producer of the chickens and therefore the provisions of Rule 6DD(f) stand complied with. Consequently, the disallowance Under Section 40A(3) was not justified.”
The ratio of the above decision squarely applicable to the facts of the assessee case. The assessee has made payments to the producers of the poultry farming for purchase of the chicks and therefore the provisions of section Rule 6DD(e) of I.T. Rules which is applicable for the current assessment year stand complied with. Thus, we sustain the order of the Ld.CIT(A) and reject the ground raised by the Revenue.