2009 (11) TMI 915 - HC - Income Tax

Court affirms assessee's exemption for seafood purchase under IT Rules, rejects disallowance, deems supplier confirmation unnecessary.

COMMISSIONER OF INCOME TAX Versus INTERSEAS

The court held that processed seafood purchased by the assessee qualifies as fish products under Rule 6DD(f)(iii) of the IT Rules, entitling the assessee ... Addition u/s 40A - cash payments exceeding permisiable limits - assessee made massive purchases from various suppliers of processed fish by paying cash instead of making payment through account payee cheques or demand drafts - claim of exemption for payments made to producers of fish or fish products for the purchases other than through account payee cheques or demand drafts - whether the assessee has discharged their burden of purchase of fish products from the suppliers in terms of r. 6DD(f)(iii) of the IT Rules ? - assessee is a marine exporter who directly export marine products and is also engaged in supplying marine products to export houses for export as a supporting manufacturer. HELD THAT:- We feel the exemption clause generally covers a class of goods in all forms without confining itself to any particular form leaving other forms of it from the very same class. When fish and even manufactured products of fish are covered by the exception clause and the payments to its producers in excess of the limit of ₹ 20,000 are covered by the exception clause, we see no reason why the processed fish which is an intermediary, should be taken out of the scope of the section. Rule makers never intended processed fish to be taken out of the scope of sub-cl. (iii) of cl. (f) of r. 6DD because the Government under the rule considers fish only in two forms, either fish as such or in it's product form. In other words, sub- r. (iii) of r. 6DD(f) covers all forms of fish, though the broad classification is only between fish and fish products. So much so, in our view, since the processed fish purchased is not fish in the same form it is obtained, it falls within the meaning of fish product under the above rule. As accepted the contention of the assessee that the processed fish purchased is fish product within the meaning of that term in the rule, we have to necessarily hold that the supplier namely, the processor of the fish, is certainly producer to whom payments are made. Decided in favour of the assessee and against Revenue. Part disallowance sustained by the CIT(A) and reversed by the Tribunal on the ground that the assessee cannot be expected to prove purchase against payment of cash -The only fool proof evidence to establish purchase from a person is the payment made through account payee cheque or demand draft which is the requirement of s. 40A(3). However, Government has chosen to liberalise the operation of s. 40A(3) to augment trade. After granting this facility, we are of the view that the Department cannot insist the assessees to get the suppliers confirm to the Department about the supplies made to the assessee and the payments received by them. In our view, the assessee should be taken to have discharged their burden by furnishing the copies of purchase bills or vouchers issued containing the names and addresses of the suppliers with date, value, quantity etc No doubt, if assessee's claim of purchase from a particular person is found to be bogus, then it is certainly open to the Department to disallow the expenditure in respect of such purchase. However, in this case it is the finding of the Tribunal that the assessee in fact purchased the quantity accounted by them and the same is seen exported and the assessee has accounted the export proceeds. So much so, in our view, the Tribunal rightly held that the Department cannot call upon the assessee to prove what is beyond their capacity i.e. to get the suppliers confirm the supplies made to the assessee in terms of the claim of the assessee. In our view, there is no logic in the Department disbelieving the assessee with regard to the purchases, but at the same time believe the denial of the supply and receipt of consideration by the suppliers. Besides the denial of full or part supply by the suppliers, we do not find any case of bogus purchases accounted by the assessee as found by any of the lower authorities. We, therefore, uphold the order of the Tribunal on this issue as well by answering the second question also in favour of the assessee. Issues Involved:1. Whether the processed seafood purchased by the assessee qualifies as fish products under Rule 6DD(f)(iii) of the IT Rules for exemption from Section 40A(3) of the IT Act.2. Whether the Tribunal was justified in cancelling the part disallowance confirmed by the CIT(A) based on the assessee's compliance with Rule 6DD(f)(iii) of the IT Rules.Detailed Analysis:Issue 1: Qualification of Processed Seafood as Fish ProductsThe primary issue revolves around whether the processed seafood, specifically meat obtained from prawns, lobsters, and skud fish after removing inedible portions, qualifies as fish products under Rule 6DD(f)(iii) of the IT Rules. The rule provides an exemption from the operation of Section 40A(3) of the IT Act for payments made for the purchase of fish or fish products other than through account payee cheques or demand drafts.Arguments and Interpretation:- The assessee argued that fish meat is a product of fish and hence qualifies for the exemption.- The Department contended that the item purchased is not a fish product but merely fish, and since the payment was not made to the cultivator, grower, or producer, the purchase does not qualify for the exemption.Court's Analysis:- The court examined the rule and noted that for the exemption to apply, two conditions must be met: the items purchased must be those referred to in the rule, and the payment must be made to the cultivator, grower, or producer.- The court concluded that the processed fish, which is meat obtained after removing inedible portions, falls within the meaning of fish products under the rule.- The court rejected the Department's reliance on CIT vs. Relish Foods and Ameena Enterprises vs. CIT, noting these cases were decided in different contexts.- The court emphasized that the rule makers intended to cover all forms of fish, including processed fish, under the exemption clause.Conclusion:The court held that processed fish purchased by the assessee qualifies as fish products under Rule 6DD(f)(iii), and the suppliers, being processors, are considered producers. Therefore, the assessee is entitled to the exemption under Section 40A(3) of the IT Act.Issue 2: Justification of Tribunal's Decision on Part DisallowanceThe second issue concerns whether the Tribunal was justified in cancelling the part disallowance confirmed by the CIT(A) based on the assessee's inability to prove the purchase against cash payments.Arguments and Interpretation:- The Department argued that many suppliers disowned the transactions, and the assessee failed to prove the purchases.- The assessee contended that it is unreasonable to expect them to get suppliers to confirm the transactions, given the nature of their trade.Court's Analysis:- The court noted that the assessee provided purchase bills or vouchers containing details like names, addresses, dates, values, and quantities.- The court found that the Tribunal rightly held that the Department cannot insist on the assessee proving what is beyond their capacity, i.e., getting suppliers to confirm the supplies.- The court observed that if the suppliers deny the transactions, the Department should conduct a survey and enquiry against the suppliers rather than disbelieving the assessee's claims.- The court highlighted that the Tribunal found the assessee had indeed purchased and exported the accounted quantity, and the export proceeds were accounted for.Conclusion:The court upheld the Tribunal's decision, holding that the assessee discharged their burden by furnishing necessary purchase details. The Department's insistence on supplier confirmation was deemed unreasonable, and the Tribunal's cancellation of the part disallowance was justified.Final Judgment:The appeal was dismissed, with both issues decided in favor of the assessee and against the Revenue.