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Income Tax Appellate Tribunal, “SMC” BENCH : KOLKATA
Before: Hon’ble Sri N.V.Vasudevan, JM ]
ORDER This is an appeal by the assessee against the order dated 10.06.2015 of CIT(A)- 7, Kolkata, relating to AY 2010-11.
The first addition that is challenged by the assessee for the Tribunal is addition of Ra.2,046/- being the difference between the amounts outstanding as per the books of account of the assessee and books of account of Ashis Chicken. The assessee is a partnership firm. It is engaged in the business of providing hospitality services. The assessee had shown an amount of Rs.7,02,014/- as outstanding to M/s. Ashis Chicken. In response to the notice u/s 133(6) of the Act M/s. Ashis Chicken confirmed that the outstanding of the assessee was Rs.7,04,060/-. Based on the confirmation of Ashis Chicken the AO concluded that a sum of Rs.2,046/- was undisclosed purchase made by the assessee and the same was added to the total income of the assessee. AO also added a sum of Rs.597/- on the presumption that the undisclosed purchases would have been sold in the market and Rs.597/- would have been earned by the assessee.
2 Sanjha Chulha A.Yr.2010-11 3. Before CIT(A) the assessee contended that variation in the amounts shown as per the books of the assessee and that of Ashis Chicken can be due to many reasons like discount received, material return, price variation, short supply etc. it was contended that the addition was made without proper inquiry. The CIT(A) however confirmed the action of AO.
Before me the learned counsel for the assessee submitted that a sum of Rs.2,046/- was purchases which was returned due to inferior quality of chicken. The supplier, however, has not taken note of these purchases returned. I find that this plea has not been taken by the AO or CIT(A). I, therefore, deem, it fit to set aside the order on this issue and remand the same for fresh consideration by the AO. The assessee will produce additional evidence before the AO.
The next addition that is challenged in this appeal is with regard to disallowance of luxury tax of Rs.26,000/-. AO noticed that the liability of Rs.26,000/- in the balance sheet and the same had been paid by the assessee on 01.11.2010 which was beyond the due date of filing the return of income by the assessee for A.Y.2010-11. The AO invoked the provision of section 43B of the Act and had had disallowed deduction of Rs.26,000/- and added the same to the total income of the assessee. CIT(A) confirmed the action of AO. I am of the view that in the light of the admitted factual position that the liabilities had been paid by the assessee on 01.11.2020 which is beyond the due date for filing the return of income for A.Y.2010-11, disallowance has been rightly made. However, the assessee should be able to claim deduction on actual payments in the subsequent year.
The next addition that is challenged in this appeal is addition of Rs.2,834/- for grocery expenses. The assessee purchased total grocery material to the tune of Rs.28,342/- from M/s. Modi Shop. The AO found that the entire expenditure on grocery 2
3 Sanjha Chulha A.Yr.2010-11 expenses is supported by debit vouchers and no cogent documents was available. Since the purchases were not verifiable AO disallowed 10% of the grocery material expenses resulting in an addition of Rs.2,834/- to the total income of the assessee. On appeal the CIT(A) confirmed the order of AO.
I am of the view that taking into consideration of the business of the assessee purchases are supported by proper bills and vouchers are quite normal. Considering the volume of purchases I am of the view that no disallowance ought to have been made. Accordingly a sum of Rs.2,834/- is directed to be deleted.
The next ground of appeal is with regard to addition of Rs.88,516/- by disallowance of vegetable expenses. The assessee claimed purchase of vegetables worth of Rs.17,70 ,332/- and claimed the same as deduction while computing the income. The AO disallowed 5% of the aforesaid expenses for the reasons that the expenses were supported by self made vouchers and was not possible to investigate. This resulted in addition of Rs.88,517/- to the total income of the assessee. The CIT(A) confirmed the order of the AO.
9. It was submitted by the learned counsel for the assessee that considering the nature of business of the assessee and the purchase of vegetables it was not proper on the part of the revenue authorities to disallow vegetable expenses. It was submitted that no pucca bills are possible to produce for purchase of vegetables. Therefore addition should be deleted. The learned DR relied on the order of AO.
10. I am of the view that considering the nature of the business of the assessee the requirements of the purchase of vegetables and taking note of the fact that bills are not possible to produce for such expenses. I delete the addition sustained by CIT(A).
4 Sanjha Chulha A.Yr.2010-11 11. The next addition challenged by the assessee in this appeal is addition of Rs.7,43,916/- made u/s 40A(3) of the Act.. AO found that the assessee had made cash payment for purchases and purchases made from one person at one time exceeded Rs.20,000/-. The AO was of the view that as per the provision of section 40A(3) of the Act whatever expenses are incurred in cash exceeding Rs.20,000 paid to one person per day the said expenditure will have to be disallowed. The assessee submitted before the AO that the purchases in question were from diary owner Mr.Matwar Ray for dairy produce like paneer, milk, dahi, butter against multiple bills and not for a single bill. Similarly cash in excess of Rs.20,000/- was paid for purchase of chicken and meat. The assessee pointed out that the suppliers were small business man and cannot accept the payments by cheque. The AO, however, did not accept the claim of the assessee. The assessee had placed reliance on Rule 6DD(e) of I.T.Rule 1962 wherein it is provided that payment in cash exceeding Rs.20,000/- to those who are cultivators, growers, for producers, in respect of purchase of agricultural or forest products or product of animal husbandry or poultry farming products u/s 40A(3) of the Act. AO however held that Mr.Matwar Ray was a trader and not a cultivator, grower or producer and therefore the assessee was not entitled to exemption.
Similarly the assessee submitted that payments made for purchase of chicken and meat would not hit by the provision of section 40A(3) of the Act as they are to be considered as products of animal husbandry or poultry farming. This objection was also rejected by the AO for the reason that one payment was made for multiple bills. The AO accordingly disallowed a sum of Rs.7,43,916/- u/s 40A(3) of the Act. On appeal by the assessee the CIT(A) confirmed the order of AO.
Before me the learned counsel for the assessee reiterated the submissions as were made before the revenue authorities. The learned DR relied on the order of AO.
5 Sanjha Chulha A.Yr.2010-11 14. I have considered the rival submissions. Rule 6DD( e) of the Income Tax Rules, 1961 provides, that (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; 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; No disallowance u/s.40A(3) of the Act can be made.
In the present case, the facts as emanate from the records are that Mr.Matwar Ray, is the producer of Products of Animal Husbandry, who owns dairy firm and cattle- shade. He produces fairy products and sold their own dairy products like Milk, Cream, Curd, Paneer, White Butter, Mawa etc. As per the provision of section 40A(3) read with Rule 6DD no disallowance should be attracted in a case where payment exceeding Rs. 20000 is made to a producer of the products of animal husbandry (including livestock, meat, hides, skins) otherwise than by a crossed cheque drawn on bank or by a crossed bank draft. Since Matwar Ray is a Producer of products of Animal Husbandry, no disallowance should. be made in case of payment exceeding Rs. 20000 made to him otherwise than by a crossed cheque drawn en bank or by a crossed bank draft. But the Ld. Erstwhile A.O. ignored the fact and made disallowance of Rs. 2,24,080/- u/s. 40A(3) and acted against the provisions of Rule 6DD. The addition to this extent is therefore directed to be deleted.
M/ s. N. N. Saha & Sons Put. Ltd. has supplied agricultural produce to the assessee against which the assessee was compelled to make payment in excess of Rs. 20000 in a 6 Sanjha Chulha A.Yr.2010-11 single occasion amounting to Rs. 64200/- Sub-Rule (7) of Rule 6DD exempts disallowance u/ s. 40A(3) where the payment is for the purchase of i) Agricultural & Forest Product ii) Animal Husbandry or Poultry Farming Products in) Fish Products or Fish iv) Agriculture or horticulture products Therefore, as per the provisions of Rule 6DD addition u/ s. 40A(3) on the ground that payment in excess of Rs. 20000 was made to N. N. Saha & Sons A gro Put. Ltd. for supply of rice is not correct and is against the law, the same is directed to be deleted.
As per Circular No. 8/2006 dated 6.10.2006 it has been provided that the Board after examination of the issue is of the view that any person by whatever name called, who buys animals from farmers, slaughters them and then sells the raw meat carcasses to the meat processing factories or to the traders/ retail outlets would be considered as Producer of Live Stock and Meat. Ashis Chicken Shop and Haji Mukem Meat Shop purchase animals from farmers and slaughter them and then sell to the Retail outlet/traders. Therefore, both of them are producer of live stock and meat. The assessee had to make cash payments in excess of Rs. 20000/ - in some occasions to Ashis Chicken Shop and Haji Mukem Meat Shop. The addition on account of payment to these two persons was Rs. 4,55,636/- u/s. 40A(3) which in my opinion is totally wrong. The cash payment was done after fulfilling the conditions laid down in Circular No. 8/2006 dated 06.10.2006. Hence the addition is deleted.
Therefore, additions of Rs. 7, 43,916/ - u/ s. 40A(3) is not correct and is against the provisions of section 40A(3) hence deleted. The relevant ground of appeal is allowed.