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Facts
The assessee, engaged in processing and supplying buffalo waste meat, made cash payments for purchases. The Assessing Officer (AO) disallowed these payments under Section 40A(3) for violating Rule 6DD by not providing documentary evidence. The CIT(A) deleted the addition, holding the assessee protected by Rule 6DD(e)(ii).
Held
The Tribunal held that the CIT(A) correctly deleted the addition made by the AO under Section 40A(3). The Tribunal emphasized that CBDT circulars cannot impose conditions beyond the Act and Rules, and the assessee's case squarely fell under the exemption provided by Rule 6DD(e)(ii).
Key Issues
Whether cash payments for purchase of meat from producers, made in contravention of Section 40A(3), are eligible for exemption under Rule 6DD(e)(ii) of the Income Tax Rules, irrespective of CBDT circulars imposing additional conditions.
Sections Cited
143(3), 147, 139(1), 148, 250, 40A(3), 6DD, 271(1)(c)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, MUMBAI BENCH “C”, MUMBAI
O R D E R Per: Anikesh Banerjee (JM): The instant appeal of the revenue is filed against the order of the National Faceless Appeal Centre (NFAC), Delhi [hereinafter called ‘Ld.CIT(A)] passed under section 250 of the Income-tax Act, 1961 (in short, ‘the Act’), date of order 18/07/2024 for Assessment year 2012-13. The impugned order emanated from the order of the Learned Assistant Commissioner of Income-tax-26(1), Mumbai (in short, ‘Ld.AO’) passed u/s 143(3) r.w.s. 147 of the Act, date of order 21/12/2019.
/Mum/2024 Chandmiya Miyajan Qureshi 2. The revenue has taken the following grounds of appeal:-
1. "The Le CIT(A) has erred in directing the deletion of addition made u/s 40A(3) of the L.T. Act for Rs. 5,85,85,652/- despite the fact that the assessee has failed to give documentary evidences as required under rule 6DD of the I.T. Rules. The Ld. CIT(A) has completely ignored the fact that in some of the documents/certificates dates were of beyond the financial year.
2. The Lid. CET(A) has erred in concluding that the assessee has violated rule 6DD by not submittingthe documents as required i.e. a) declarations from persons receiving the payments that they are producers of meat b) confirmations that payments, otherwise than by an account payee cheque or draft, were madeIn their insistence, and c) confirmations from veterinary doctor certifying that the persons specified in the certificate are producers of meat and that slaughtering was done under his supervision.
3. The Ld. CIT(A) has erred in concluding that the assessee had claimed that cash purchases of Rs. 5,85,85,652/- were made in A.Y. 2012-13 for the purchase of ALY, 2011-12 and before that. The assessee failed to substantiate his claim as he could not produce documents fully but merely submitted few purchase memos for A.Y. 2011-12. It was further stated that records were not available as well as that the purchase memos for AY 2010-11 are not available.
4. The appellant craves leave to add, amend, alter substitute or modify any of the above grounds or add a fresh ground as and when found necessary either before or at the time of hearing."
The brief facts of the case are that that the assessee is engaged in business of processing and supply of “Buffalo Waste Meat”. The return was fled u/s 139(1) declaring total income of Rs.5,44,83,740/-. The assessee’s case was reopened U/s 148 of the Act. During the assessment proceedings, the Ld.AO noticed that the /Mum/2024 Chandmiya Miyajan Qureshi assessee made cash payments on various dates for purchase which amount to Rs.4,96,65,628/-. Accordingly, the AO is in the opinion that the assessee had contravened the provisions of section 40A(3) of the Act read with rule 6DD of the I.T. Rules, 1962 (in short, the “Rule”). It can be construed that the entire purchase for the year was made on credit and no payment was made to the suppliers for the year. In such case, the assessee raised the issue, whether Sec. 40A(3) is applicable in this case or not. Finally the Ld. AO ascertained the total cash payments during the impugned year was Rs. 5,85,85,652/-. The Ld.AO added back the entire amount with the total income of the assessee for contravening provision section 40A(3) of the Act.
4. The aggrieved assessee filed appeal before the Ld.CIT(A) and stated that the assessee’s case is covered by the exceptional circumstances provided under rule 6DD(e)(ii) of the Rule. The assessee accordingly prayed that the assessee’s case was not liable to the impugned addition. The Ld.CIT(A), considering the submission of the assessee allowed the appeal of the assessee and deleted the addition. Being aggrieved, revenue filed an appeal before us.
5. The Ld.DR specifically argued that the assessee has contravened the provisions contained in the CBDT circular No.8/2006 dated 06/10/2006 (para 4) to submit the relevant documents to derive the benefit of rule 6DD of the Rule. The Ld. DR argued the Ld. CIT(A) without considering the evidence like:- a. Declaration from persons receiving the payments that they are produced the meat. b. confirmations that payments otherwise than by account payee cheque or draft.
/Mum/2024 Chandmiya Miyajan Qureshi c. confirmations from veterinary doctor certifying that the persons specified in the certificate are produced meat and that slaughtering was done under his supervision. So the payment made to the party is liable to be added back which is violating the CBDT circular 8/2006. The Ld.DR relied on the order of the Ld.AO. The relevant paragraph on pages 28 & 29 of the impuged assessment order is extracted below:- “Dear Sir/Madam, With reference to notice dated 14.12.2019, I would like to state that I am submitting herewith following details and an explanation to the requirements stated in the notice:
The question raised in the notice is the cash payment made u/s. 40A(3) in excess of Rs. 20,000/- 1 would like to bring to your notice that the payments are made to the parties from whom purchases of Meat and other animal husbandry products are made. There payments are made via bearer cheques which are uncashed by the sellers.
These payments do not exceed the limit stated in section 404[3] as the section itself states that no disallowance to be made u/s. 404(3) if the payments are made in the manner prescribed Le. In circumstances provided in Rule 6DD of the rules. The payments in question in the assessment is made to producer of meat in cash and will satisfy the requirements of Rule 6DD(e)) of the Rules, the extracts of which are reproduced here: “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 poultry farming; or “ /Mum/2024 Chandmiya Miyajan Qureshi 3. The product purchased during the year under assessment is meat and the above Rule 6DD clearly clarifies that if payment is made for the purchase of produce of Animal husbandry (including livestock, meat, hides and skins) then no disallowance will be made u/s 40A(3).
An explanation Sheet has been attached herewith wherein details of cash payment of 5,685.652/has been made during the year this buy this are made for the opening balance as on 01.04.2010 and forthe purchases made during preceding F.Y. i.e.F.Y. 2010-11. All these payments are made in A.Y. 2012-13 for the purchases of A.Y. 2011-12 and also before that. The Ledger copies of all the Parties for FY. 2010 11 are attached for ready reference wherein the opening balance as on 01 04.2010 is reflected and 2011-12 i.e. the year under assessment.
Few Purchase Memos of all the Parties for F.Y. 2010-11 are attached herewith for reference. However any records before F.Y. 2010-11 are no handy at present. The memos are attached with this explanation.
6. Some of the payments are made against opening outstanding amount as on 31.03.2010. The Purchase memos of the same are not handy as these records are too old and not handy.
Requesting you to kindly not add the payments made to parties u/s. 40A(3) of the Income Tax Act. After, perusing the assessee's submission it is concluded that the cash payment of Rs. 5,85,85,652/- is found unexplained cash. Therefore, the same is disallowed and added back to the total income of the assessee for A.Y. 2012-13. Penalty proceeding u/s. 271(1)(c) of the I.T. Act, 1961 is being initiated separately for concealment of income. (Addition: Rs. 5,85,85,652/-)”
The Ld.AR in argument stated that the CBDT circular cannot overrule the rules in the I.T. Rules. He stated that the basis of the revenue seeking to deny the benefit of the provise to Section 404(3) of the Act and Rule 6DD(e) of the Rule is non satisfaction of the condition provided in CBDT Circular No.8 of 2016. In particular, non furnishing of a Certificate from a Veterinary Doctor. The proviso to Section 40A(3) of the Act seeks to exclude certain categories/classes of payments /Mum/2024 Chandmiya Miyajan Qureshi from its net in circumstances as prescribed. Section 2(33) of the Act defines "prescribed" means prescribed by the rules. It does not include CBDT Circulars. It is a settled position in law that a Circular issued by the CBDT cannot impose additional condition to the Act and/or Rules adverse to an assessee. Respectfully relied on the order of Hon’ble Supreme Court in UCO Bank v. CIT reported in [1999] 237 ITR 889/104 Taxman 547 (SC), held that “12. We do not see any inconsistency or contradiction between the circular so issued and section 145. In fact, the circular clarifies the way in which these amounts are to be treated under the accounting practice followed by the lender. The circular, therefore, cannot be treated as contrary to section 145 or illegal in any form. It is meant for a uniform administration of law by all the income-tax authorities in a specific situation and, therefore, validly issued under section 119. As such, the circular would be binding on the department.” The Hon’ble Apex Court has observed "Also a circular cannot impose on the taxpayer a burden higher than what the Act itself, on a true interpretation, envisages". Thus, the view of the Tribunal that the CBDT Circular cannot put in new conditions for grant of benefit which are not provided either in the Act or in the Rules framed thereunder, cannot be faulted. More particularly so as to deprive the respondent assessee of the benefit to which it is otherwise entitled to under the statutory provisions. Needless to state it is beyond the powers of the CBDT to make a legislation so as to deprive the respondent assessee of the benefits available under the Act and the Rules. Therefore, a procedural or directory Provision cannot be fatal to the claim of the assessee especially, when "Deeming Provisions are sought to be applied”.
/Mum/2024 Chandmiya Miyajan Qureshi 7. In the facts and circumstances of the case, the payment for Sundry creditors/Purchases and the true and correct facts revolving around the said Sundry Creditors and Purchases is as follows: (A) The break-up w.r.t. Sundry Creditors and Purchases is provided as follows: Opening Creditors as on 01/04/2011 Rs. 7,28,37,406/- Add : Purchases FY: 01-03-2011 to 31-03-2012 Rs. 4,96,65,628/- Add : Sundry Debtors having credit balance Rs. 6,43,665/- Total Rs.12,31,46,699/- Less : Payments FY FY: 01-03-2011 to 31-03-2012 Rs. 7,17,65,413/- _____________ Closing Creditors as on 31-03-2012 Rs. 5,13,81,286/- (B) Total Purchases Debited to Profit and Loss Account is Rs. 4,96,65,628/- (C) Out of the above Purchases of Rs.4,96,65,628/-debited to Profit and Loss Account the break-up w.r.t. mode of making payment for the Sundry Creditors and Purchases is as under:- i. By Cash Rs. 2,23,131………… 0.31% ii.Bearer Cheques Rs. 7,15,42,282……99.69% iii.Total Payments Made Rs. 7,17,65,413 100.00% The Ld. AR argued that the Ld. CIT(A) considering the proposition deleted the addition. The Ld. AR accepted the purchase and only defect is raised related payment in cash which violated the provision U/s 40A(3) of the Act. But his claim is that the assessee is protected by the rule 6DD(e)(ii) of the Rule.
/Mum/2024 Chandmiya Miyajan Qureshi 8. The Ld. AR respectfully relied on the impugned appellate order. The relevant paragraphs are reproduced as below:- “4.5. In the landmark decision of the Hon’ble Supreme Court of India, reported in 100 taxmann.com 462, in the case of PCIT – Vs. – Gee Square Exports, the Court ruled that denial of benefit, as per proviso to Sec. 40A(3) and Rule 6DD(e) on grant of non-satisfaction condition, provided in CBDT’s Circular 8 of 2006, dated 06.10.2006, relating to non-furnishing of a certificate from a veterinary doctor is not proper. By dismissing an SLP, filed by the Department, the Supreme Court held that, the CBDT’s Circular cannot put in new conditions, for grant of benefit, under Rule 6DD, which is not provided, either in the Act, or in the Rules framed thereunder. Therefore, if prima facie, the requirement under Rule 6DD(e) is satisfied, it cannot be subjected to disallowance u/s. 40A(3). 4.6. Respectfully, following the above decisions, relied on, by the assessee, I hold that the deeming provision of Sec. 40A(3) is not applicable in this case, for the following reasons:- i. The assessee made the payments through bearer cheques, issued from bank accounts. ii. There was no denial that the assessee has procured raw meat for processing, for which cash payment is allowed, as per Rule 6DD(e)(ii) of the Income Tax Rules. iii. The quantum of amount of Rs. 5,85,85,652/-, as mentioned in the order, passed by the AO u/s. 147 is not substantiated, whether such payment was made for the current year or in earlier years, as that did not match with the amount of the assessee, where it was disclosed that purchase for the year, was made for Rs. 4,96,65,628/- and payments were made for Rs. 7,17,65,413/-. 4.7. To summarize, it is held that the addition made u/s. 40A(3) is not proper and the AO is directed to delete the addition of Rs. 5,85,85,652/-, made in the assessment order dated 21/12/2019”
We have carefully considered the rival submissions, the material placed on record, and the reasoning adopted by the Ld. AO as well as the findings rendered by the Ld. CIT(A). It is an undisputed position that the assessee is engaged in the business of processing and supplying “buffalo waste meat” and that the payments /Mum/2024 Chandmiya Miyajan Qureshi in question relate to procurement of raw meat from producers. The assessee claimed protection under Rule 6DD(e)(ii) of the Rule, which specifically exempts payments made for purchase of the produce of animal husbandry—including meat—from the rigours of section 40A(3). The Ld. CIT(A) has recorded a categorical finding that the assessee’s case falls squarely within Rule 6DD(e)(ii) and that the payments were made through bearer cheques to meat producers. It has also been noted that the AO’s quantification of the impugned cash payments at Rs.5,85,85,652/- is not reconcilable with the assessee’s books, wherein total purchases amounted to Rs.4,96,65,628/- and total payments aggregated to Rs.7,17,65,413/-, mostly through bearer cheques. The department’s grievance is primarily founded on alleged non-compliance with CBDT Circular No. 8/2006, particularly non-furnishing of a veterinary doctor’s certificate, declarations from producers, etc. However, as rightly held by the Ld. CIT(A), and as fortified by the decision of the Hon’ble Supreme Court in PCIT v. Gee Square Exports (100 taxmann.com 462), a CBDT Circular cannot impose additional conditions which are not stipulated either in the Act or in the Rules. The Apex Court in UCO Bank (supra) has unequivocally held that circulars cannot curtail or dilute statutory exemptions nor create new restrictions which would deprive an assessee of a benefit otherwise available under law. In the present case, Rule 6DD(e)(ii) itself does not mandate production of a veterinary certificate or further conditions as suggested in the circular. Once the assessee establishes that the payment is made for purchase of meat from producers, the statutory condition stands satisfied. The Ld. CIT(A) has correctly followed the binding ratio and granted relief. Considering the above factual matrix, the statutory framework under Rule 6DD(e)(ii), and the binding judicial precedents, we find no infirmity in the order of the Ld. CIT(A)
/Mum/2024 Chandmiya Miyajan Qureshi deleting the addition of Rs.5,85,85,652/- made u/s 40A(3). The deletion is justified and does not call for any interference. So, the appeal of the revenue stands dismissed. 8. In the result, appeal filed by the revenue bearing is dismissed. Order pronounced in the open court on 24/11/ 2025