Income Tax Appellate Tribunal - Mumbai
Gee Square Exports, Navi Mumbai vs Assessee on 31 October, 2014
IN THE INCOME TAX APPELLATE TRIBUNAL,
MUMBAI BENCH "B", MUMBAI
BEFORE SHRI R.C. SHARMA, ACCOUNTANT MEMBER AND
SHRI AMIT SHUKLA, JUDICIAL MEMBER
ITA No. 6606/Mum/2013
Assessment Year: 2009-10
Gee Square Exports JCIT Rg-1
522 Great Eastern Thane
Gallaria, Sector IV,
Vs.
Nerul
Navi Mumbai- 400 076
PAN :
(Appellant) (Respondent)
Assessee by Shri Rajiv and Neelkant
:
Khandelwal
Revenue by : Shri Preetam Singh
Date of hearing : 11.09.2014
Date of Pronouncement : 31.10.2014
ORDER
PER AMIT SHUKLA, JM:
This appeal has been preferred by the Assessee against the order dated 06.09.2013 passed by the Ld.CIT(A) -2, for the quantum of assessment passed u/s 143(3) for the A.Y. 2009-10.
2. The sole issue raised in various grounds of appeal is, disallowance of Rs.26,79,20,745/- made u/s 40A(3). Since grounds of appeal are argumentative in nature, therefore the same is not reproduced, the matter is being adjudicated on the issue disallowance u/s 40A(3) as made by the Ld.CIT(A).
ITA No. 6606/Mum/20132 Gee Square Exports Assessment Year: 2009-10
3. Facts and Briefs:- The assessee is a partnership firm, engaged in the business of exporting Frozen Buffalo Meat and Veal Meat to countries like Oman, Kuwait, Vietnam, and other Middle East Countries. Modus operandi of the assessee is that, raw meat is procured from various farmers registered with association called "Jamat" and same is processed at Belgaum and Kakinada, where it is packed in cartons and all finished goods are brought to Mumbai for exporting the same. The assessee has shown sales of Rs.90,47,67,934/-, as against this, the assessee had shown purchases including opening stock at Rs.69,66,99,558/- and packing materials consumed at Rs.1,72,65,677/-. The profit shown from the business was at Rs.3,11,83,996/-. From the details furnished, by the assessee before the AO, during the course of the assessment proceedings, the AO noted that out of the total purchases of Rs.69,66,99,558/-, purchases to the tune of Rs.52,36,66,940/- were purchases of meat and mutton. These purchases were classified by the assessee in two categories, namely 'Meat purchases' and 'Market purchases'. The AO noted that for the market purchases of meat aggregating Rs.39,59,07,962/-, no party wise details and the bills and vouchers from the suppliers were furnished. The details of these purchases were as under:-
Raw Material-Belgaum 43,71,816 Kg Rs.22,30,70,923/- Raw Material Zaib 6,10,376 Kg Rs. 6,65,27,707/- Shehnaz Enterprises 7,49,735 Kg Rs. 7,35,07,686/-
M.S. Traders 93,186 Kg Rs. 95,00,000/-
Zain Enterprises 55,652 Kg Rs. 84,56,392/-
Zaib Enterprises 86, 323 Kg Rs. 1,16,57,041/-
Add: Labour Charges Rs. 31,88,213/-
Total Rs.39,59,07,962/-
ITA No. 6606/Mum/2013
3 Gee Square Exports
Assessment Year: 2009-10
3.1 In response to show cause notice by the AO, the assessee submitted cash vouchers and memos. From these memos, the Assessing Officer noted that:-
(a) There is no serial number on the memos;
(b) There is no date mentioned;
(c) With respect to the material, it is mentioned as "purchases of Raw material". the details of raw material like Mutton, Meat are not mentioned;
(d) There is no signature of the person preparing or approving the vouchers;
(e) In most of the cases there is only thumb impression under the head "received by";
(f) In some cases there is no signature of the person under the head "receive by";
(g) In most of the cases the name of the person ends with "Bepary";
(h) Lastly, none of these memos/vouchers are supported by any documentary evidence with respect to the transport of the raw material like lorry receipt.
3.2 Assessing Officer also recorded the statement of main partner, Shri Subramanian Venkatraman u/s 131 which has been incorporated in the assessment order from pages 8 to 13 of the assessment order. Thereafter he referred to decision of Delhi High Court in the case of CIT Vs. La Medica, 250 ITR 575 and held that the purchases to the extent of Rs.39,59,07,962/- have been made from undisclosed sources and added back same to the income of the assessee. He further proceeded to make disallowances on account of unexplained expenses, for sums aggregating Rs.35,75,33,149/-.
ITA No. 6606/Mum/20134 Gee Square Exports Assessment Year: 2009-10
4. Before the Ld.CIT(A), detail submissions/evidences were filed including confirmations from the parties, so far as unexplained expenses and market purchases were concerned. The said details and submissions were forwarded to the AO for submitting a remand report. In the remand report given by the AO, the genuineness of the transaction in respect of unexplained expenses were found to be correct and based on that, Ld.CIT(A) has given consequential relief except for some minor additions of Rs.72,538/- and 44,316/- which has been confirmed. Against this, no ground has been raised before us by the assessee or any appeal has been filed by the department. Regarding addition on account of market purchases of Rs.39,59,07,962/-, assessee submitted that purchases were made from small farmers and therefore it was not practical for the assessee to keep the record of the individual farmers. During the course of the remand proceedings, party wise details were furnished and was stated that the purchases were made through Jamat (association). In support, confirmation letters from the respective Jamat were furnished with complete quantitative details along with the date of supply, name of the member, rate and value of the meat purchases, which were duly signed and certified by the head of the Jamat. The stock register and the purchase ledger account were also produced. During the remand proceedings all the details submissions and confirmations were reconciled in respect of the quantity, items of purchases which were found to be tallied. In view of these reasons it was pleaded that disallowance of the purchases should be deleted. The Ld.CIT(A) at page 16 of the order has also noted this fact that the AO and JCIT Range-1, Thane, have stated that consideration paid to the ITA No. 6606/Mum/2013 5 Gee Square Exports Assessment Year: 2009-10 purchase parties have been reconciled with the books of account. The relevant observations in this regard is reproduced hereunder:-
"The Jt. CIT, Range-1, Thane has also concurred with the findings of the AO and stated that the consideration paid to the purchase parties has been reconciled with the books of account. Further, the genuineness of the transactions have also been established by the A.R. in respect of the unexplained expenses."
5. The Ld.CIT(A) then himself required the assessee to furnish copy of audited balance sheets and P&L Accounts for the A.Ys. 2007-08 and 2008-09. He also required to furnish working of gross profit of last 3 years, details of purchase of raw material vis-à-vis production of meat and summary of goods movement. The assessee in response, submitted a note in respect of processing activity and also made submissions which has been dealt by the Ld.CIT(A) at page 18 of the appellate order in the following manner.
"The assessee purchased buffalos from the farmers in Belgaum once the useful life of these animals was over and the farmers got slaughtered in Municipal slaughter houses and they supplied the bone in carcasses to the assessee company in the processing unit. The raw-material received is examined by the Veterinary Doctors and then boneless meat was prepared and stored in the processing unit at the desired temperature. It was also stated that the yield of the boneless meet was about 45 to 55% with reference to the carcasses depending upon the fat contained in the finished meat. In the year under consideration, the assessee has produced meat at 45,20,050 Kg. out of the total raw-material consumed at 69,05,204 Kg. giving an average yield of 65.45%. The gross profit in the year under consideration has been stated to be @ 13.83% as compared to 14.92% immediately preceding year. The assessee has also furnished another letter dt. 07/01/2013 stating that provisions of section 40A(3) would not apply in ITA No. 6606/Mum/2013
6 Gee Square Exports Assessment Year: 2009-10 respect of the cash purchases in view of the provisions of Rule 6DD(e) & (k)."
6. From the submissions and details furnished by the assessee, the Ld.CIT(A) noted that the cash payments have been made exceeding Rs.20,000/- for making the purchases and therefore such a payment would be hit by the provision of section 40A(3). He accordingly issued a show cause notice for making the disallowance u/s 40A(3). The relevant show cause notice as incorporated in the appellate earlier order reads as under:-
In this connection. I have carefully gone through the details furnished and submissions made during the course of appellate proceedings and I find that you have made cash purchases as detailed below:-
Raw material- 8elgaum Rs. 22,30,70,923/- Shahnaz Enterprises Rs. 7,35,07,686/-
In respect of these purchases, no direct confirmation from the seller has been produced by you either during assessment proceedings or appellate proceedings. You have also claimed cash payments exceeding Rs. 20,000/- exempt for the purposes of section 40A(3) under Rule 6DD(e) & (k). Please note that Rule 6DD (e) is applicable only when purchases are made directly from the farmer/producer of animal products. However, no evidence to prove that the purchases are made from the farmer/producer, has been furnished. Further, complete name & address of the Agents, quantity and value of purchases from them and their confirmations, etc. have not also been furnished to establish applicability of Rule 6DD(k).
In view of the above, you are hereby given another opportunity of being heard and to show cause as to why adverse view should be not taken in the matter. Date of compliance fixed is 19/06/2013 at 11.30 AM."
In response, the assessee submitted that the meat purchases from the market has been properly explained and party wise purchases along ITA No. 6606/Mum/2013
7 Gee Square Exports Assessment Year: 2009-10 with the quantity and value has already been produced. The cash purchases made from the farmers is fully justified, looking to the nature of transaction which is directly covered under the exception provided in Rule-6DD. Reliance was also placed on the decision of ITAT Delhi Bench in the case of M/s. AL-Noor Exports ITA No. 89/Del/2001, and ITA Mumbai Bench in the case of Premji Cold Storage Pvt. Ltd. The working of gross profit for last three years, statement of raw material purchases, production of meat and summary of finish goods movement was also furnished. A certificate from Veterinary Doctor was also submitted in the name of supplier of meat, stating that the meat was in a good condition and fit for human consumption. It was also explained that before export, a sample of the Frozen meat has to be certified by the Animal Husbandry Department, without which, shipment of frozen meat cannot be under taken. Such a certificate is issued only after a certificate from the Veterinary Doctor is furnished. The specimen of the certificate issued by the Animal Husbandry Department was also filed before us.
7. The Ld.CIT(A) noted that following payments had been made through cash which is in violation of provision of section 40A(3).
Name of the Party Quantity purchased (kg) Amount (Rs.) Belgaum Purchase 43,71,816 22,30,70,923/- Shehnaz Enterprises 7,49,735 7,35,07,686/-
He also noted that the cash memos were having the same defect as were pointed out by the Assessing officer, therefore, the purchases are not fully verifiable and genuineness is also doubtful. He also took note of certificate from the Jamat Association as submitted by the assessee and noted that these association do not maintain any record of sales and purchases on day to day basis and also the addresses of the suppliers ITA No. 6606/Mum/2013 8 Gee Square Exports Assessment Year: 2009-10 has also not been mentioned. In every name, the word "Bepari" has been mentioned which means "trader". Thus the assessee has been making cash purchases from a trader in contradistinction to the farmers as claimed. He further noted that cash purchases to the tune of Rs.7,35,07,686/- has been made from M/s. Shehnaz Enterprises which appears to be a firm, and yet the assessee has made cash purchases from the said firm aggregating to Rs.94,27,677/-. He also relied upon CBDT Circular No. 8 of 2006 and held that in view of para 4 of the said circular, the conditions mentioned for giving the benefit to the persons who bought meat in cash has not been fulfilled and therefore benefit cannot be given under Rule 6DD(f). The said paragraph has been reproduced at page 36 of the appellate order. He also held that assessee's claim that it has purchased meat from agents who were required to make cash payments to the farmers has also not been established by the assessee. Thus these is a clear cut violation of section section 40A(3) and proceeded to disallow the cash purchases exceeding Rs.20,000/-. To work the disallowance he noted the pattern of cash payment made to M/s. Shehnaz Enterprises and market purchases from Belgaum, and found that the cash payments, below Rs.20,000 were approximately 8%. Thus to the extent of 10% of the cash payments, he held, that would be allowed as they were below Rs.20,000/- and balance 90% of the cash payment exceeded the prescribed limit of 20,000 at a given time. Accordingly he made the disallowance of cash purchases of Rs.29,65,78,609/-. He further disallowed the payment of Rs.10 lacs out of opening balance on the account of market purchases made from Zaib. The final disallowance was thus made at ITA No. 6606/Mum/2013 9 Gee Square Exports Assessment Year: 2009-10 Rs.26,79,20,748/-. The relevant conclusion of the Ld.CIT(A) reads as under:-
"Thus, from the above details, it is crystal clear that the cash payments upto Rs. 20,000/- are to the extent of about 8% of the total cash purchases. Thus, in the interest of justice, at the most 10% of the cash payments can be considered as upto Rs. 20,000/- and balance 90% of the cash payments thus, exceeded the prescribed limit of Rs. 20,000/- at a time. Accordingly, 90% of the cash purchases are required to be disallowed out of total cash purchases of Rs. 29,65,78,609/- (Rs. 22,30,70,923/- + Rs. 7,35,07,686/-) and accordingly, disallowance u/s. 40A(3) works out to Rs.26,69,20,748/- which also included the cash payments to M/s. Sunahra Enterprises amounting to Rs. 94,27,677/-. On perusal of copy of Account of Market Purchases - Zaib, it is noticed that the appellant has made payments by cheque to the extent of Rs. 7,45,15,707/-. However, it has paid cash of Rs.10,00,000/- on 07.04.2008 out of opening balance which is liable to be disallowed u/s. 40A(3) in view of the provisions of section 40A(3A) & accordingly, the disallowance is made.
In view of the above, an addition to the tune of Rs. 26,79,20,748/- (Rs. 26,69,20,748/- + Rs. 10,00,000/-) is confirmed out of the addition of Rs. 39,59,07,962/- made on account of unverifiable purchases by the A.O. and hence appellant partly succeeds on this account."
8. After making the disallowance aforesaid manner, the Ld.CIT(A) further proceeded analyse the reasonableness of the assessee's income disclosed in the Profit and Loss Account. He noted that assessee firm has meat export sales of Rs.86,75,51,478/- and local sales of Rs.63,35,081/-, on which it has disclosed profit of Rs.3,11,87,951/-. On the perusal of the breakup of the income, he noted that assessee has earned income from DEPB sale at Rs.3,08,81,375/-, besides interest and dividend income of Rs.2,80,818/-. Thus the assessee's annual business income is only Rs.25,758. This analysis goes to prove that assessee has ITA No. 6606/Mum/2013 10 Gee Square Exports Assessment Year: 2009-10 inflated the purchases. Thereafter, he proceeded to examine the purchases and noted that the average rate of purchases of raw material paid through cheque were at Rs.43 per kg and on the other hand the cash purchases made from market purchases from Belgaum was @ Rs.51 per kg and purchases from M/s. Shehnaz Enterprises was at Rs. 98 per kg. The total purchases from these two parties were around Rs.29,65,78,609/-. From this he inferred that, the assessee has claimed excess purchases. Thus taking the average purchase cost of Rs.43 per kg, he worked out the excess purchase cost at Rs.7,63,51,916/-. However, he did not disallow the same as a same was covered under the disallowance confirmed u/s 40A(3). He further proceeded to examine from one more angle that, the assessee has purchased the raw meat carcasses which included meat with bones and only the unboned meat was processed for export. As a result the yield of finish meat was 65.45% out of the total raw material consumed. On this the assessee had stated before the Ld.CIT(A) that, by products are returned to the suppliers. However Ld.CIT(A) observed that no evidence have been produced that the bones and animal fat was returned to the supplier. He observed that appellant had no occasion to return the by-products to the suppliers, because the assessee itself does not know the addresses of the suppliers. Under these facts he held that the weight of bones and animal fat works out to 23,85,154 kg after excluding the meat. From this, if 10% is considered as irrecoverable wastage, then balance quantity of 214669 kg was salable. The market rate of animal bones etc. is normally about Rs.15 to Rs.25 per kg, as per the information available in public domain. Hence the income of this can be worked out after taking the average sale price of Rs.20 per kg, which ITA No. 6606/Mum/2013 11 Gee Square Exports Assessment Year: 2009-10 comes to Rs.4,29,32,780/- which should be added. However, such an addition was not made by him due to disallowance confirmed out of cash purchases u/s 40A(3). In this manner, he only sustained of Rs.26,79,20,745/- u/s. 40A(3).
9. Before us learned counsel, Shri Rajiv Khandelwal submitted that the assessee is mainly into export of meat which are procured from small farmers who are illiterate. There are agents who are in touched with these farmers and they negotiate and access in the procurement and selling of the meat to the assessee. The bills are prepared accordingly. The payment is made in cash because they have to pay to the meat producers farmers. To prove the genuineness of the purchases, the assessee had furnished party wise details, copy of ledger account, cash memos, purchase and sale register and also confirmation from various Jamat. All these details were examined and all the purchases stood reconciled during the course of the remand proceeding. It is after verification only the Assessing Officer along with JCIT has stated that the purchases stood reconcile as per noting given page 16 of the appellant order. Not only that, the confirmations which were filed before the Ld.CIT(A) clearly certifies that the agents have procured the raw meat from various meat producers on cash payments and such a payment were made in cash, because the farmers insisted on cash payments. On a sample basis he drew our attention to a certificate issued from Shehnaz Enterprises for the market purchase at Belgaum which is appearing at page 260 of the Paper Book. From the said certificate he submitted that, it would be clear that these persons were agents who had assisted in procuring the meat from meat producers on the payment of cash. He further submitted that the names of various ITA No. 6606/Mum/2013 12 Gee Square Exports Assessment Year: 2009-10 agents along with their addresses and the details of the meat producers were filed along with confirmations. These were filed before the AO during the remand proceedings which have been verified. Based on these confirmations only, the purchases were reconciled. The allegation of the Ld.CIT(A) that, the purchases has not been confirmed is not covered. The list of such confirmations were also filed before us. He further submitted that and assessee's case for cash payment is fully covered by the exceptions provided in Rule 6DD under clause (e)(ii) and clause (k). These clauses provides exception in the case of payment made to purchase of produce of animal husbandry like meat etc. or if the payment is made through agent who is required to make the payment in cash for on behalf of such persons. Before the Ld.CIT(A), the assessee has produced certificate from the Veterinary Doctor and health certificates issued by Animal Husbandry Department, Government of Maharashtra, certifying that the processed meat was fit for human consumption for the purpose of export. Thus, there cannot be any doubt that the raw material that is meat has been purchased from the farmers through agents, therefore, the assessee's case falls within the exception clauses provided under Rule 6DD. He further submitted that the assessee's turn over is more than 90 cores out of which exports are around 86 crores. Without any purchases there cannot be any export. The books of account and gross profit result has not been rejected. Thus, so far as purchases are concerned the same cannot be disallowed. Regarding Ld.CIT(A)'s allegation that there is a difference of rate paid through cheque and the payment made in cash to the parties from Belgaum, he submitted that the quality of meat procured from Belgaum was a very high quality meat, which is evident from the fact that the ITA No. 6606/Mum/2013 13 Gee Square Exports Assessment Year: 2009-10 items which were procured were shin- shank, tongue, and boneless meat, which has a high yield, therefore, the rate of such purchases were high. This cannot be any adverse reason for making the disallowance or drawing any negative inference. Regarding sale of bones, he submitted that the assessee has not sold any by product and it is mere presumption of the Ld.CIT(A). Lastly on the observation of the Ld.CIT(A) that assessee's actual income from sale of meat products is only 25,000/-, he submitted that the duty drawback is available on exports, that is, on sales. Thus the DEPB sale only goes to reduce the cost of purchases, which has been done by the assessee. If the cost of purchase after including the DEPB sale is compared to the export sales, then there would be a very reasonable gross profit compared to the sales. Otherwise also assessee's gross profit, if compared from the earlier years, then it could be seen that, it would be around 14% to 15% which has not been disturbed either in the earlier years or in this year. Such a working work done by the Ld.CIT(A) to justify the disallowance u/s 40A(3), is not called for. Lastly he placed strong reliance on following decisions.
(i) Hind Industries Limited-120 ITD89 (Del)
(ii) Al-Noor Exports ITA No. 89/Del/2001
(iii) Allied Leather Finishers Pvt. Ltd 32 SOT 549 (Luck).
10. On the other hand Ld. DR submitted that the assessee has clearly violated the provisions of section 40A(3) and assessee's case strictly speaking does not fall within the exception provided under Rule 6DD. The conditions mentioned under the relevant clause has been elaborated by CBDT in Circular No. 6 of 2008 which has been dealt by the Ld.CIT(A) exhaustively. The Ld.CIT(A) has given a very detailed reasons for ITA No. 6606/Mum/2013 14 Gee Square Exports Assessment Year: 2009-10 making the disallowance u/s 40A(3). He also read the relevant findings as given by the Ld.CIT(A). Regarding other observations of the Ld.CIT(A), he submitted that the same is based on material on record and on reasonable analysis, therefore, same should not be disturbed without any proper explanation or evidence. He has strongly relied upon the findings of the Ld.CIT(A).
11. We have heard the rival submissions, perused the relevant finding of the Ld.CIT(A) and material placed on record. The assessee is mainly in the business of exporting various products of meat to different countries. The assessee had shown sale of 90.47 crores, out of which export sales is approximately 86 crores. The assessee is purchasing raw material, that is, unprocessed meat from various farmers or the meat producers, who are registered with associations called "Jamat" at Belgaum and Kakinada. After procuring the raw meat the same is processed at these places and are placed in carton and thereafter all the finish goods are brought to Mumbai for export. At the assessment stage, the main controversy involved was the genuineness of the purchases on the ground that the cash memos were not proper and were not supported by any documentary evidences. The Assessing Officer had made the disallowance of purchases for sums aggregating to Rs.39,59,07,962/- which were made from the following parties:-
S. No. Name of the Party Quantity in Kgs Amount in Rs. 1 Belgaum 4,37,186 22,30,70,923 2 Zaib 6,10,376 6,65,27,707 3 Shehnaz 7,49,735 7,35,07,686 Enterprises ITA No. 6606/Mum/2013 15 Gee Square Exports Assessment Year: 2009-10 4 M.S. Traders -- 95,00,000 5 Zain Enterprises -- 84,56,392 6 Zaib Enterprises -- 1,16,57,041 7 Transport charges -- 31,88,213 Before the Ld.CIT(A), the assessee had submitted the confirmations letters from these parties/association, copy of stock register, sales and purchase register. The payment made to the purchase party were reconciled during the course of the remand proceedings. In the remand report, the AO as well as JCIT, have confirmed the reconciliation of the purchases as debited in the books of account which is evident from the extract incorporated from the page 16 of the appellate order, in the foregoing paragraph.The Ld.CIT(A), however has proceeded to make the disallowance after invoking the provision of section 40A(3). The main reasons for invoking the provision of section 40A(3) was that, the purchases made from the market were in cash which were not fully verifiable as they were made on self made cash vouchers, which did not contain addresses, proper serial number, and were were undated and unsigned. The certificates furnished by the assessee from Jamat association also does not prove that they were the agents, because the purchases have been made from "Bepari" who are traders only. Another justification given by him was that, the assessee has failed to produce proper certificate from Veterinary Doctor as required in the conditions provided in circular no. 8 of 2006 given in respect of Rule 6DD (f). Lastly the identity of the suppliers and the recipients of the cash payment and the overall genuineness of the purchases have not been conclusively proved by the assessee.ITA No. 6606/Mum/2013
16 Gee Square Exports Assessment Year: 2009-10
12. In wake of these observations of Ld.CIT(A), we have perused the records and find that the payments have been made to persons like, Shehnaz Enterprises, Zaib Enterprises, Zain Enterprises, M.S. Traders and various association at Belgaum. All these payments have been made in cash. The confirmation certificate from M/s. Shehnaz Enterprises goes to show that, they have procured the raw meat from various meat producers in and around Belgaum on cash payments as the meat producers will supply only on cash payment. It was in this background the assessee has made the cash payment. Similarly, the cash payments have been made to various association only for the purchase of raw meat. It is not the case of the Ld.CIT(A) that the purchases have been made for, other than the procurement or purchase of raw meat. Proviso to section 40A(3) provides that no disallowance u/s 40A(3) shall be made, if the payment in cash has been made in circumstances provided in Rule 6DD. The clause (e)(ii) of Rule 6DD provides exception on cash purchases on produce of animal husbandry. If the payment has been made in cash for the purchase of meat which is nothing but a product of animal husbandry, then in our opinion the same falls within the exception provided in clause (e)(ii) of Rule 6DD, which reads as under:-
(e) "where the payment is made for the purchase of-
(i) ............
(ii) the produce of animal husbandry (including livestock, meat, hides and skins) or dairy or poultry firming; or"
For getting the benefit under the exception clause as stated above, there is no such conditions laid down under the rules. The only condition is that the payment should be made for the purchase of produce of animal husbandry like meat etc. Thus if the payment has been made for ITA No. 6606/Mum/2013 17 Gee Square Exports Assessment Year: 2009-10 the purchase of meat than such a payment can be made in cash exceeding Rs.20,000/- The Board Circular no. 8 of 2006 provide certain conditions so as to fall within the benefit of Rule 6DD such conditions are as under:-
"The Board after examination of the issue is of the view that any person, by whatever name called, who buys animals from the 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 livestock and meat.
4. The benefit of rule 600 of the Income-tax Rules, 1952 shall be available to the person referred to at para 3 above subject to furnishing of the following :
(i) A declaration from the person receiving the payment that the is a producer of meat;
(ii) A confirmation that the payment, otherwise than by an account payee cheque or account payee bank draft, was made on his insistence; and
(iii) A further confirmation from a veterinary doctor certifying that the person specified in the certificate is a producer of meat and that slaughtering was done under his supervision."
First of all, the provisions of the statute or Rules does not provide any such conditions as spelled out in the Board circular and therefore such circular putting restrictive conditions cannot be followed. CBDT circulars are mainly to remove the rigours of the law by explaining the correct interpretation. They cannot lay down the conditions which restrict the apparent condition laid down in the statutory provisions or the rules.
13. The law only provides that, if the payment is made in cash for purchase of produce of animal husbandry like meat etc., then no disallowance and u/s 40A(3) is called for. Rule does not provide that CBDT should lay down the conditions under this clause. In any case it is not in dispute in the present case that the assessee has purchased the meat from various persons which have been exported. This is further ITA No. 6606/Mum/2013 18 Gee Square Exports Assessment Year: 2009-10 certified by certificate issued by Department of Animal Husbandry Government of Maharashtra which reads as under:-
'TO WHOM IT'MAY CONCERN This is to state that, the Health Certificate of Meat for Export purpose is issued under Raw Meat (Chilled & Frozen) under the Export (Quality Control and Inspection) Act,1963.
As per the DGFT Notification No. 82 Dt. 31.10.11 Export of Meat and Meat Product is Permitted subject to Material or Meat has been sourced from APEDA Registered Integrated Abattoirs or from APEDA Registered Meat Processing plant.
Presently, for applying or obtaining Health Certificate of Buffalo Meat for Export purpose, the Exporter has to submitted along with Application and, Declaration, the A.M./ P.M. Certificate of Slaughtered Animal duly signed by Veterinarian of APEDA Approved Slaughter House.
Health Certificate is required for export shipment of Frozen Buffalo Meat.
Sd/-
Signature· DR. D.S. KAMBLE
M.V. Sc.
DY. COMM. OF ANIMAL HUSBANDRY
QUALITY CONTROL LABORATORY
AAREY, GOREGAON, MUMBAI-64
The aforesaid certificate duly certifies that for the purpose of export of raw meat, the meat has to be sourced from APEDA Registered Integrated Abattoirs or from APEDA registered meat processing plant and a certificate from veterinarian of APEDA approved slaughter house. Thus, the assessee clearly fulfils the conditions for exporting the meat. The assessee had also furnished a certificate from Veterinary Doctor, before the Ld.CIT(A),who has mainly rejected on the ground that, the same is not in the format as instructed by the Board Circular. This cannot be the reason for drawing any adverse inference to deny benefit under Rule 6DD, if otherwise all the conditions stands fulfilled, which is by and large in the spirit of CBDT guidelines. Thus in our opinion, the ITA No. 6606/Mum/2013
19 Gee Square Exports Assessment Year: 2009-10 assessee's case falls within the beneficial clause of exceptions provided in Rule 6DD, clause(e)(ii) and therefore, no disallowance u/s 40A(3) can be made. Accordingly the disallowance of Rs.26,79,20,745/- as made by Ld. CIT(A) stands deleted.
14. Now coming to the other observations of the Ld.CIT(A) that the assessee had shown higher purchase rate on the cash purchases of meat and the assessee must have sold the byproducts like bones and animal fat, to justify the non genuineness of cash purchases. Such a reasons apparently are not tenable for the reason that, there is always a difference in quality of meat products and the yield. There are certain meat-products which are boneless and are of tender in nature which are sold on a higher rate. This has been shown by the learned counsel before us. There cannot be a uniform purchase rate of the meat, as it depends upon quality, geographical difference, market conditions and other factors. Coming to a conclusion that there is a uniform rate of purchase, some concrete material is to be brought on record. Further regarding alleged sale of by products, prima facie, the observation of the Ld.CIT(A) appears to be correct, however, the same needs to be justified after carrying out some enquiry or bringing any material on record. The observation of the Ld.CIT(A) is purely based on presumption. In any case no addition has been made by the Ld.CIT(A) on this score, therefore, we are not entering into the merits of such finding of the Ld.CIT(A). Thus the grounds raised by the assessee is allowed.
ITA No. 6606/Mum/201320 Gee Square Exports Assessment Year: 2009-10
15. In the result, the appeal filed by the Assessee is allowed.
0Order pronounced in the open court on this 31st day of October, 2014.
Sd/- Sd/-
(R.C. SHARMA) (AMIT SHUKLA)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Dated: 31.10.2014
*Srivastava
Copy to: The Appellant
The Respondent
The CIT, Concerned, Mumbai
The CIT(A) Concerned, Mumbai
The DR "B" Bench
//True Copy//
By Order
Dy/Asstt. Registrar, ITAT, Mumbai.