2007 (7) TMI 331 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of Rs. 83,90,623 u/s 40A(3) of the Income-tax Act, 1961.
2. Applicability of rule 6DD(f) of the Income-tax Rules, 1962.

Summary:

1. Disallowance of Rs. 83,90,623 u/s 40A(3):
The primary issue in this appeal is the disallowance of Rs. 83,90,623 u/s 40A(3) of the Income-tax Act, 1961, which represents 20% of cash purchases totaling Rs. 4,19,53,114. The assessee, a company engaged in the business of live birds (chicken), made cash purchases from three suppliers. The Assessing Officer (AO) disallowed these purchases, stating that the payments were not covered by the exceptions under rule 6DD(f) of the Income-tax Rules, 1962, as the suppliers had access to modern banking facilities. The CIT(A) upheld the AO's decision, emphasizing that the suppliers were corporate bodies with full access to banking systems.

2. Applicability of rule 6DD(f):
The assessee contended that the payments were covered by the exception in rule 6DD(f), which exempts payments made to producers of poultry farming from disallowance u/s 40A(3). The assessee argued that the suppliers were producers of chickens, and thus, the disallowance was not justified. The Tribunal examined the language of rule 6DD(f) and concluded that it is plain and unambiguous, stating that no disallowance is to be made if the payment is made to the producer of poultry farming produce. The Tribunal found that the lower authorities had relied on general observations from the Allahabad High Court judgment in Pehlaj Rai Daryanmal, which were not directly relevant to the issue at hand.

The Tribunal emphasized that the statutory language should be given its plain and natural meaning, and no additional conditions, such as the location of the seller or availability of banking facilities, should be inferred. Consequently, the Tribunal held that the cash purchases were in accordance with rule 6DD(f) and that the disallowance made by the AO was not justified. The order of the CIT(A) was set aside, and the disallowance was deleted.

Conclusion:
The appeal of the assessee was allowed, and the disallowance of Rs. 83,90,623 u/s 40A(3) was deleted, as the cash purchases were found to be in compliance with rule 6DD(f) of the Income-tax Rules, 1962.