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Income Tax Appellate Tribunal, DELHI ‘C’ BENCH,
Before: SHRI N.K. BILLAIYA, & MS. SUCHITRA KAMBLE
PER N.K. BILLAIYA, ACCOUNTANT MEMBER,
This appeal by the assessee is preferred against the order of the Commissioner of Income Tax [Appeals], Muzaffarnagar dated 05.03.2013 pertaining to Assessment Year 2009-10.
2. The grievances of the assessee read as under:
1. That the Ld. CIT(A) has exceeded his jurisdiction making addition that in respect of those issues which are not doubted by the Assessing Officer during the course;
2. On the facts and in the circumstances of the case, the ld. CIT(A) ha erred in invoking the provisions of section 40A(3) for the first time in appellate proceedings;
3. The addition made by the ld. CIT(A) suo moto u/s 40A(3) of the Act is bad in law and is based on conjectures and surmises.
4. The ld. CIT(A) has erred on facts in sustaining the addition made by the Assessing Officer on account of household expenses.”
Briefly stated, the facts of the case are that the appellant is running a trading business of live stock i.e. manufacturing raw buffalo meat on whole sale basis. The assessee also manufactured boneless meat. Return was filed electronically declaring income of Rs. 2,87,042. Returned income was assessed at Rs. 115,43,077/- and computed as under:
Net Profit as per P/L Account Rs. 3,12,011 ADD: 1. Addition on account of Gross Profit Rs. 33,70,945 2. Addition on account of sundry creditors Rs. 42,33,236 3. Addition on account of unaccounted Cash paid to the parties. Rs.33,64,728 4. Addition out of telephone expenses. Rs. 22,157 Addition on account of House Hold Exp. Rs. 2,40,000 Rs.l,12.31,066 b/f... Rs. 1,15,43,077 2. Salary from Al Babar Marketing Pvt. Ltd. Rs. 1,00,000 Rs.1,16,43,077 Less: Deduction U/s 80C as claimed. Rs. 1,00.000 Total taxable income Rs.l.15,43,077
4. The assessment was assailed before the ld. CIT(A).
During the course of appellate proceedings, the ld. CIT(A) found that the assessee had made cash purchases exceeding Rs. 20,000/- in violation of provisions of section 40A(3) of the Income tax Act, 1961 [hereinafter referred to as 'The Act' for short]. Accordingly, the first appellate authority served a notice on the assessee requiring him to show cause as to why provisions of section 40A(3) not be invoked.
In his reply, the assessee submitted that Rule 6DD states that no disallowance under section 40A of the Act will be made and no payment shall be deemed to be the profits and gains of the business or profession under sub section (3A) of section 40A of the Act where the payment or aggregate of the payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds Rs. 20,000/- in the cases and circumstances specified hereunder, namely:
Where the payment is made for the purchase of -
(i) agricultural or forest produce; or –
(ii) the produce of animal husbandry (including livestock, meat, hides and skins) or dairy or poultry farming; or (iii) fish or fish products; or (iv) the products of horticulture or agriculture, to the cultivator, grower or producer of such articles, produce or products.
In light of the aforementioned provisions, it was strongly contended that no disallowance should be made on the facts of the case in hand.
After considering the aforementioned submissions, the first appellate authority directed the Assessing Officer to furnish details of cash payments towards purchases made in violation of section 40A(3) of the Act after verification from the books of accounts.
Vide letter dated 25.02.2013, the Assessing Officer furnished requisite details and pointed out that in violation of provisions of section 40A(3) of the Act, following two payments have been made:
Aftab Brothers - Rs. 2,19,87,102/-
2. To other persons - Rs. 22,72,54,229/-
Rejecting the reliance on the exception provided u/r 6DD to section 40A(3) of the Act, the ld. CIT(A) observed as under:
“All these firms are traders of meat and by no stretch of imagination these firms may be called producers of meat. One of such firm, M/s Aftab Brothers, Gangoh, Prop. Sh. Aftab Ahmad is assessed with the same AO and its appeal is being adjudicated simultaneously. It is observed that Sh. Aftab Ahmad had made purchases from 118 persons and further sold the same to the appellant. In the case of Sh. /Aftab Ahmad, it is observed that admittedly he was also buying meat from the middlemen only but took the benefit of Circular No.8/2006. The appellant is trying to project Sh. Aftab Ahmad as a meat producer just to take benefit of Circular No.8/2006 dated 06-10-2006 although he is admittedly a trader. Similar is the case of other firms whose turnover is running in crores. The benefit of exception to Rule 6DD(e)(ii) is not extended to the traders. Had that been the spirit of the statute, entire trading in animal husbandry products should have been kept outside the purview of section of section 40A(3) of the Act. However, it is not so and benefit of exemption is available to the producers only and not to the traders. Thus purchases made from these 10 firms is not covered by exception of Rule 6DD as well as Circular No.8/2006 dated 06-10-2006.”
The ld. CIT(A) finally concluded as under:
“The facts of the case, submissions made by the appellant remand report of the AO and rejoinder of the appellant have been carefully considered. It is observed that the AO has made addition of Rs.33,70,945/- on the ground that in the case of Sh. Aftab Ahmed, Prop. M/s Aftab Brothers dealing in similar trade, for AY 2009-10, reasonable GP was adopted and estimated @ 2.50%. Further in the case of M/s ALM Industries Ltd., Saharanpur, GP rate of 8.05% was declared on total turnover of Rs.2,87,57,70,211/- during AY 2009-10. It has been argued by the appellant that the case of M/s A.L.M. Industries Ltd. Saharanpur could not be compared to appellant’s case as the aforesaid concerned had huge turnover as against turnover declared by the appellant at Rs.28,57,61,124/-. The AO in the remand report has mentioned that the comparison of the appellant’s case to that of M/s A.L.M. Industries Ltd. Saharanpur was actually not made but it was cited only to drive home the fact that even in cases of huge turnover of the assessee’s line of trade GP rate declared was at 8% or even more. It is observed that the action of the AO in citing the case of M/s A.L.M. Industries Ltd. Saharanpur and at the same time adopting GP rate at 2.50% is held as conservative estimate. The AO could have estimated GP at 8% or near to that figure. Consequently, the addition would have been even more than what the AO had estimated. However, it is observed that disallowance u/s 40A(3) of the Act has ultimately resulted in increase in the income of the appellant. Since addition on account of cash purchases at Rs.24,92,41,331/- have already been made u/s 40A(3) of the Act, therefore the addition made by the AO at Rs.33,70,945/- is held as merged with the addition made u/s 40A(3) of the Act and no separate addition on this count is called for. Addition of Rs.33,70,945/- is accordingly directed to be deleted. Ground of appeal No.3 is allowed.”
12. Before us, the ld. counsel for the assessee drew our attention to the CBDT Circular No. 8 of 2006 dated 06.10.2006 and pointed out that the lower authorities have wrongly interpreted the mandatory clauses of this Circular. It is the say of the ld. counsel for the assessee that if this Circular is interpreted in true perspective, additions made u/s 40A(3) get deleted.
13. Per contra, the ld. DR strongly supported the findings of the ld. CIT(A).
14. We have given thoughtful consideration to the orders of the authorities below. There is no dispute in so far as the nature of business of the assessee is concerned. The CBDT Circular referred to hereinabove reads as under:
CIRCULAR INCOME-TAX ACT Clarification regarding the meaning of the expression ‘the produce of animal husbandry’ used in sub-clause (ii) of clause (f) of rule 6DD of the Income-tax Rules, 1962
CIRCULAR NO. 8/2006, DATED 6-10-2006
1. Reference is invited to the clarification issued vide Circular No. 4/2006, dated 29th March, 2006 on the above subject. Vide this circular, it was clarified that the expression ‘the produce of animal husbandry’ used under rule 6DD(f)( ii) would include ‘livestock and meat’ and in a case where payment exceeding rupees twenty thousand is made to a producer of the products of animal husbandry (including livestock, meat, hides and skins) otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft for the purchase of such produce, no disallowance should be attracted under section 40A(3) read with rule 6DD. It was further clarified that the above exception will not be available in respect of payment for the purchase of livestock, meat, hides and skins from a person who is not proved to be the producer of these goods and is only a trader, broker or any other middleman by whatever name called.
Representations have been received from certain quarters seeking further clarification as to who are the producers of livestock and meat and the evidence required to be furnished in this regard by the persons making the payments.
3. 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.
The benefit of rule 6DD 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 he 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.”
Clauses 3 and 4 are very much relevant to the facts of the case in hand. It has been specifically mentioned that any person 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. This means that even the traders and retailers are covered by this Circular.
At Clause 4, how the benefit of Rule 6DD of the Income-tax Rules, 1952 can be derived has been mentioned. Following three conditions have to be fulfilled by the appellant:
(i) A declaration from the person receiving the payment that he 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.”
The ld. counsel for the assessee drew our attention to the relevant documents of the paper book and stated that the assessee has fulfilled all the three mandatory conditions in support of his claim.
However, we are of the considered view that since the lower authorities have not considered the CBDT Circular in its true perspective, these documents remained unverified. Therefore, in the interest of justice, we restore this issue to the file of the Assessing Officer. The assessee is directed to furnish all evidences demonstrating that he has fulfilled the mandatory conditions for getting benefit of Rule 6DD of the Rules and the Assessing Officer is directed to examine the evidences and decide this issue afresh after giving reasonable and sufficient opportunity of being heard to the appellant.
In the result, the appeal filed by the assessee in is treated as allowed for statistical purposes.
The order is pronounced in the open court on 25.03.2021 in the presence of both the representatives.