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Income Tax Appellate Tribunal, “C” BENCH : KOLKATA
Before: Hon’ble Sri N.V.Vasudevan, JM & Shri Waseem Ahmed, AM ]
This is an appeal by the Revenue against the order dated 27.03.2014 of CIT(A), Jalpaiguri relating to AY 2010-11.
Grounds of appeal
raised by the revenue read as follows :- “1. Whether on the facts and in the circumstances of the case, the Ld. CIT(A), Jalpaiguri, was justified in concluding that 'the purchases by the assessee are covered under the "business expediency" .. .' despite the fact that the Assessing Officer, after considering the facts and circumstances of the case, had already established the fact that the case of the assesee does not fall within any of the exceptions provided under Rule 6DD.
2. That the Ld. CIT(A), Jalpaiguri, has erred in fact, in concluding that the assessee's cash payments are covered under 'business expediency' on the ground that the assessee's loan accounts had become NPA, while totally disregarding the fact that the assessee's current bank account was fully functional throughout the year under scrutiny.
3. That the appellant craves leave to add, amend or alter the grounds of appeal, if any.”
2 M/s. Ratan Paul A.Yr.2010-11 3. The Assessee is a partnership firm. It is engaged in the business of trading in poultry feed. In the course of assessment proceedings u/s 143(3) of the Income Tax Act, 1961 (Act) the AO noticed that the assessee had made a payment of Rs.61,50,744/- to M/s. Samrat Feed Mills towards purchase of poultry feed. Under the provision of section 40A(3) of the Act, where the assessee incurs an expenditure in respect of which payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds Rs.20,000/- no deduction shall be allowed in respect of such expenditure. The mandate of section 40A(3) of the Act is that for any expenditure payment should not be made by cash where the payment exceeds a sum of Rs.20,000/-. Since the assessee had paid in cash for purchase of poultry feed a sum exceeding Rs.20,000/-, the AO disallowed the claim of the assessee for deduction of a sum of Rs.61,50,744/- and added the same to the total income of the assessee.
Rule 6DD of the IT Rules give a list of cases and circumstances in which a payment or aggregate of payments in a day, can be made otherwise than by an account payee cheque or account payee bank draft i.e. in cash even beyond the limit of Rs.20,000/-.. The plea of the assessee before the revenue authorities was that M/s. Samrat Feed Mills from whom the assessee purchased poultry feed insisted on payment by the assessee in cash because the assessee had huge debts. The plea of the assessee was that since the payment in cash was made due to the aforesaid circumstances, keeping in mind considerations of business expediency, no disallowance u/s 40A(3) of the Act should be made. This argument found favour with CIT(A) and CIT(A) held that the payment in question was made owing to business exigencies by cash and therefore no disallowance u/s 40A(3) of the Act ought to have been made by the AO.
Aggrieved by the order of CIT(A) the revenue has preferred the present appeal before the Tribunal. 2
3 M/s. Ratan Paul A.Yr.2010-11 6. We have heard the rival submissions. The Ld. DR submitted that business exigency as a ground for not making disallowance u/s 40A(3) of the Act is not a ground set out in any of the sub-rules of Rule 6DD of the IT Rules and CIT(A) fell into an error in deleting the addition made by the AO. The ld. Counsel for the assessee, on the other hand, brought to our notice that the Kolkata Bench of ITAT ‘C “Bench in the case of Rampada Panda vs ITO in ITA No.67/Kol/2013 for A.Y.2008-09 vide order dated 07.10.2015 had dealt with a similar case of an assessee engaged in trading of poultry feed making purchase of poultry feed by making payment of cash. The AO in that case by invoking the provision of section 40A(3) of the Act disallowed the payment made in cash by invoking the provision of section 40A(3) of the Act. The disallowance was ultimately considered by the Tribunal and the Tribunal held that the payment for purchase of poultry feed falls within exceptional case provided in Rule 6DD(e) of the IT Rules. The following were the relevant observations of the Tribunal: “3.3.1. We are not in agreement with the argument of the Learned AR that the payment is made to an agent and that the relationship of the assessee with this supplier is one of principal and agent and as such, the assessee’s case falls under the exception provided in Rule 6DD(k) of IT Rules. However, we are in agreement with the arguments of the Learned AR that the purchase of poultry feeds falls under the exceptions clause provided in Rule 6DD(e) of the Income Tax Rules, 1962. For the sake of convenience, the relevant rule is reproduced here in below :-
6DD(e) Where the payment is made for the purchase of – (i) Agricultural or forest produce; or (ii) The produce of animal husbandry (including livestock, meat, hides and skins) or dairy or poultry farming; …………………………………….To the cultivator, grower or producer of such articles, produce or products.”
He also made submissions with regard to absence of banking facility at Fulbari-I Gram Panchayat where M/s. Samrat Feed Mills from whom the assessee had made purchase of poultry feed was located. In this regard the ld. Counsel also filed copy of Fulbari-I Gram Panchayat certifying that factory of M/s. Samrat Feed Mills is situated within the gram panchayat of Fulbari-I and that there is no banking facility in Fulbari-I. 3
After considering the rival submissions we are of the view that order of CIT(A) deleting the addition made by the AO has to be upheld on the basis of the decision rendered by ITAT in the case of Rama Pada (supra). The facts of the assessee’s case and in the case of Rama pada are identical and therefore the ruling of the tribunal in the aforesaid decision that payment by cash for purchase of poultry feeds would fall within the exception laid down in Rule 6DD(e) of the IT Rules would be applicable to the present case also. Respectfully following the aforesaid decision we uphold the order of CIT(A). In view of the above conclusion we do not wish to deal with the other contentions put forth by the ld. Counsel for the assessee before us.
In the result the appeal by the revenue is dismissed.
Order pronounced in the Court on 03.05.2017.