2008 (8) TMI 356 - HC - Income Tax

Payments made in cash to suppliers of hides and skins - The genuinity of the transactions, rate of gross profit or the fact that the bona fides of the assessee that payments are made to producers of hides and skins are neither doubted nor disputed by the Assessing Officer. On the basis of these facts it is not justified on the part of the Assessing Officer to disallow 20 per cent. of the payments under section 40A(3) in the process of assessment. disallowance is not justified

Summary

Issues:
1. Condonation of delay in filing the petition.
2. Interpretation of rule 6DD(f)(ii) regarding the status of suppliers of hides and skins as producers.
3. Disallowance under section 40A(3) for cash payments made to suppliers.

Analysis:
1. The High Court of Calcutta, comprising of Pinaki Chandra Bose and Sankar Prasad Mitra JJ., perused the petition for condonation of delay and found the grounds satisfactory, thereby condoning the delay in filing the application. The application, being C.A. No. 867 of 2008, was allowed (para. 1).

2. The Tribunal had previously held that suppliers of hides and skins are to be recognized as producers, granting them the benefit under rule 6DD(f)(ii). The Tribunal's decision was based on the fact that the suppliers processed the hides and skins before selling them to tanneries. The Court upheld the Tribunal's decision, emphasizing that processing by suppliers qualifies them as producers under the rule. The Court rejected the contention that the suppliers were not directly connected to live animals, stating that the plain reading of the rule includes hides and skins as products of animal husbandry. The Court further ruled that the Assessing Officer was unjustified in disallowing payments made to these suppliers under section 40A(3), as the genuineness of the transactions and the suppliers' status as producers were not in dispute (para. 2).

3. The Court concluded that no substantial question of law was involved in the matter, leading to the dismissal of the appeal (I.T.A. No. 186). The parties were instructed to act on a xerox signed copy of the order, and an urgent certified copy of the order would be provided upon application (paras. 3-5).