1 IN HIGH COURT OF KARNATAKA, BANGALORE Dated this 8th day of December, 2014 PRESENT: HON'BLE Mr. JUSTICE N.KUMAR AND HON'BLE Mr. JUSTICE B. MANOHAR Income Tax Appeal No.213/2009 BETWEEN 1. COMMISSIONER OF INCOME TAX C R BUILDING, ATTAVAR MANGALORE 2. ASST. COMMISSIONER OF INCOME TAX CIRCLE - 2(1), MANGALORE APPELLANTS (By Sri E SANMATHI INDRAKUMAR, ADV.,) AND M/s. BLUE WATER FOODS & EXPORTS PVT. LTD., INDUSTRIAL AREA BAIKAMPADY, MANGALORE RESPONDENT (By Sri S PARTHASARATHI, ADV.,) THIS ITA FILED U/S.260-A OF I.T.ACT, 1961 ARISING OUT OF ORDER DATED 1-12-2008 PASSED IN ITA.NO.887/BANG/2008 FOR ASSESSMENT YEAR 2003-04, PRAYING TO (i) FORMULATE SUBSTANTIAL QUESTIONS OF 2 LAW STATED THEREIN AND (ii) ALLOW APPEAL AND SET ASIDE ORDER PASSED BY ITAT BANGALORE IN ITA.NO.887/BANG/2008 DATED 1-12-2008. THIS ITA COMING ON FOR FINAL HEARING, THIS DAY, N.KUMAR, J., DELIVERED FOLLOWING: JUDGMENT Revenue has preferred appeal against order passed by Tribunal, which has held Section 40A(3) of Income Tax Act, 1961 (for short hereinafter referred to as Act ) is not attracted to facts of case. 2. assessee is 100% Export Oriented Unit engaged in Exports of Fish. assessing authority during course of assessment proceedings found that sum of Rs.1,40,14,283/- cash payment had been made and assessee has failed to produce identity of purchases and genuineness of purchases were not established. In other words, he held purchases to aforesaid extent are not genuine and disallowed same as these payments have been made by cash. In appeal preferred by assessee, 3 first appellate authority deleted addition made by assessing officer, but enhances addition by disallowing 20% of entire expenditure. In effect, disallowance was Rs.2,51,00,909/- as against Rs.1,40,14,283/- made by assessing officer by invoking Section 40A(3) of Act. 3. assessee preferred appeal before Tribunal against said order. Tribunal held once majority of fish was purchased through banking channel, there was no reason to invoke provision of Section 40A(3) of Act for entire purchases solely on issue that payments were not made to producer of fish and therefore allowed appeal and set aside order of assessing authority. Aggrieved by said order, Revenue is in appeal. On 9.9.2010, appeal came to be admitted to consider following substantial question of law:- Whether Tribunal was justified in setting aside order of Appellate Tribunal which had disallowed 20% of total purchases of fish on 4 ground that entire purchases are made by cash contrary to sub-section (3) of Section 40A, when payment of entire consideration by cash was not in dispute? 4. We have heard learned Counsel for parties. 5. Section 40A(3) reads as under:- Where assessee incurs any expenditure in respect of which payment is made, after such date (not being later than 31st day of March, 1969) as may be specified in this behalf by Central Government by notification in Official Gazette, in sum exceeding ([twenty] thousand) rupees otherwise than by crossed cheque drawn on bank or by crossed bank draft, [twenty per cent of such expenditure shall not be allowed as deduction]: 6. Rule 6DD(f) of Income Tax Rules, 1962 (for short hereinafter referred to as Rules ) reads as under:- 5 (f) where payment is made for purchase of- (i) agricultural or forest produce; or (ii) produce of animal husbandry (including hides and skins) or dairy or poultry farming; or (iii) fish or fish products; or (iv) products of horticulture or apiculture, to cultivator, grower or producer of such articles, produce or products; 7. circular issued dated 5.12.2008 explaining meaning of expression fish or fish products used in sub-clause (iii) of clause (e) of rule 6DD of Rules reads as under:- (i) expression fish or fish products used in rule 6DD(e)(iii) would include other marine products such as shrimp, prawn, cuttlefish, squid, crab, lobster etc. . 8. argument of learned Counsel for Revenue is assessee has not produced any material to show that 6 they have purchased this fish from producer. Therefore, assessee is not entitled to benefit of Rule 6DD of Rules. 9. material on record discloses that assessee procures fish from sea shore bordering Goa to Kochi and has been able to make export turn over of more than Rs.10 crores. producers of fish or fish products for purpose of rule 6DD(e) of Rules would include, besides fishermen, any headman of fishermen, who sorts catch of fish brought by fishermen from sea, at sea shore itself and then sells fish or fish products to traders, exporters etc. 10. It is only when fish is purchased from trader; broker or any other middleman, benefit of aforesaid provision is not available. assessee is trader/exporter of fish. assessee has purchased fish from fishermen or headman of fisher and once 7 purchase is made of fish from aforesaid persons, no disallowance under sub-section (5) shall be made, even if any portion in sum exceeding twenty thousand rupees is made to person in day, otherwise than by crossed cheque drawn on bank or crossed bank draft in cases of bank draft. Therefore, order passed by Tribunal holding that Section 40A(3) is not attracted to facts of this case, is proper and cannot be found fault with. Thus, substantial question of law is answered in favour of assessee and against revenue. 11. We do not find any merit in appeal. Accordingly, appeal is dismissed. Sd/- JUDGE Sd/- JUDGE cp* Commissioner of Income-tax, Mangalore / Asst. Commissioner of Income-tax, Circle-2(1) Mangalore v. Blue Water Foods & Exports Pvt. Ltd