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Income Tax Appellate Tribunal, “C ” BENCH: KOLKATA
Before: Shri Mahavir Singh, JM & Shri M. Balaganesh, AM]
ORDER
Per Shri Mahavir Singh, JM:
This appeal by assessee is arising out of order of CIT(A)-XXXVI, Kolkata vide Appeal No. 725/CIT(A)-XXXVI/Kol/ITO,Wd-1/Murshidabad/09-10 dated 08.02.2013. Assessment was framed by ITO, Ward-1, Murshidabad u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) for Assessment Year 2007-08 vide his order dated 09.12.2009.
The only issue in this appeal of assessee is against the order of CIT(A) in confirming the action of AO in disallowing the cash payment on expenses u/s. 40A(3) of the Act amounting to Rs.15,77,501/- and also enhancing by further amount of Rs.5,93,935/-. 3. Briefly stated facts are that the assessee being export of Lac/shellac. The assessee claimed that it is engaged in the business of export of Lac which is agricultural produce. The AO noticed that on account of purchases cash payment is made to the extent of Rs.78,87,505/- thereby the AO made disallowance of 20% at Rs.15,77,501/-. Aggrieved, assessee preferred appeal before CIT(A), who confirmed the action of AO vide para 4 of his appellate order as under: “4. The submission of AR, ground of appeal
and assessment order were duly considered. Though appellant has taken four ground of appeals but all revolve regarding disallowance made u/s. 40A(3) to the tune of Rs.l5,77,501/-. Majority of purchases of lac for which, appellant is exporter have been shown from Bishnu Kr. Agarwal and Naresh Kumar Banka. To these two parties numerous payments both in the cash and cheques have been made. When suppliers were accepting payments by cheques, there is no point in making huge payments by cash in excess of Rs.20,000/-. The parties to whom cash payments have been made are only traders in lac. They are not producer of lac or agent or middleman. It is purely a purchase by appellant on commercial terms. Hence provision of Rule 6DD(f) and Rule 6DD(h) are, not applicable in appellants case. Hence AO has rightly disallowed a sum of Rs.15,77,501/- u/s. 40A(3) of Income Tax Act. Appeal of appellant is dismissed.” And further, he noticed that the assessee has made cash payment to the extent of Rs.29,69,676/- thereby he also enhanced the disallowance by issuing notice u/s. 251 of the Act at Rs.5,93,935/-. Thereby the total disallowance including enhancement becomes Rs. 21,71,436/-. Aggrieved, assessee preferred appeal before Tribunal.
4. We have heard rival submissions and gone through facts and circumstances of the case. Before us, ld. Counsel for the assessee argued that the area of assessee is so remote that the same is not served by any bank and assessee is engaged in the business of export of lac which is an agricultural produce.
Bodrul Jamal AY 2007-08 Ld. Counsel for the assessee produced before us the definition of various produces also covers lac. The definition of various produces as provided in section 2(4) of the Indian Forest Act, 1927 states “various produces include timber, charcoal, caoutchoue, wood oil resin, natural varnish, bark, lac, myrobalans, mahua flowers”. The assessee is exporter of lac which is procured mainly from Medinipur and Purulia and mainly from two parties viz. Naresh Kumar Bank and Bishnu Kumar Agarwal. According to assessee, the payment is fully reflected in the cash book and also in the party ledger account. The assessee filed complete cash book along with its paper book. The Ld. Counsel for the assessee drew our attention to copies of purchase bills of lac. Ld. Counsel for the assessee also produced the definition of shellac as agriculture produce, which reads as under: “Shellac is scraped from the bark of the trees where the female lac bug, Kerria lacca (Order Hemiptera, Family Kerriidae), also known as Laccifer lacca, secretes it to form a tunnel like tube as it traverses the branches of the tree. Though these tunnels are sometimes referred to as “cocoons”, they are not literally cocoons in the entomological sense. This insect is in the same Superfamily as the insect from which cochineal is obtained. The insects suck the sap of the tree and excrete “sticklac”almost constantly. The least coloured shellac is produced when the insects feed on the kusum tree (Schleichera).”