MOHD. AYAZ,LUCKNOW vs. DCIT, RANGE-4, LUCKNOW

The facts of the case are, that in this case, an original assessment order was passed under section 143(3) on 9.12.2019 on a total returned income of Rs.33,76,700/-. Subsequently, an order under section 263 was passed by the Pr. CIT, Lucknow-1 on 8.03.2022, with a direction to make a proper enquiry and verification. Accordingly, fresh notices were issued to the assessee but the ld. AO records that proper compliance was not made by the assessee in response to the notices issued. On perusal of the return of income, the ld. AO observed that the assessee derives income from supply of Buffaloes and has shown sale of goods at Rs. 67,63,71,053/-. After deducting purchases and expenditures, the gross total income had been shown at Rs. 34,81,704/- and after deduction under Chapter VI-A, the net income from business had been shown at Rs.33,76,700/-. The case had been selected for scrutiny through CASS to examine the abnormal increase in cash deposits during the demonetization period as compared to the pre-demonetization period. Accordingly, the assessee was asked to submit the details of cash deposited in old specified bank notes amounting to Rs. 49,16,000/- alongwith the supporting documentary evidences. After seeking various adjournments, the assessee submitted that it deals in cattle supplies and furnished a copy of its audit report and bank statement. 2 A.Y. 2017-18 Mohd Ayaz However, the ld. AO records that the assessee did not submit any details or explanation regarding the source of deposited in specified bank notes. Accordingly, the ld. AO proposed to treat the cash deposit of Rs. 49,16,000/- as unexplained money under section 69A of the Income Tax Act, 1961. However, from the final computation of income, it is not seen that the ld. AO actually made any such addition. Thereafter, the ld. AO turned his focus to purchases made by the assessee. The assessee claimed to have made purchases of cattle to the tune of Rs. 66,89,75,490/-. The ld. AO asked him to submit details of purchases with names and addresses, PAN of the parties from whom purchased with party wise purchase ledger, purchase invoices, mode of payment and party wise payment ledger etc,. In response, the assessee submitted that most of the cattle were purchased from the unorganized sector i.e. farmers and villagers and there were a huge number of transactions of small value. Therefore, it is practically impossible for the assessee to provide the details thereof to the ld. AO. It was also submitted that the transactions were covered under the exceptions mentioned in Rule 6DD. However, the ld. AO quoted from Circular No. 4/2006 which stated that the exception under Rule 6DD would not be available for payment for the purchase of livestock, meat, hides and skins from a person who is not proved to be a producer of these goods and is only a trader, broker or any other middleman by whatever name filed. The CBDT had laid down that, to claim the benefit of Rule 6DD, the following documents were to be filed:- i. A declaration from the person receiving the payment that he is a producer of meat. ii. A confirmation that the payment otherwise by account payee cheque was made on his insistence. iii. A further confirmation from a veterinary Doctor certifying that the person specified in the certificate is a producer of meat and slaughtering was done in his supervision (Circular No. 8/2006 dated 6.10.2010).

The ld. AO thereafter records the fact that the assessee made a satisfactory response to the cash deposit of Rs. 49,16,000/- in specified bank notes during demonetization period. Accordingly, he did not take any adverse influence on this account. However, with regard to the disallowance under section 40A(3) since the assessee had not furnished the necessary documents as outlined earlier in this order and was admitting that the major item of cash expenditure was purchase of Cattles from unorganized sector and failed to provide evidence in tune with the above Circular and clarification, the contention of the assessee that the transactions were mentioned under Rule 6DD were not acceptable. Therefore, after considering the extent of transactions and the lack of proof submitted in this regard, he added back 10% of the same under section 40A(3) and thereby made an addition of Rs. 6,68,97,549/-.

Aggrieved with the said order, the assessee went in appeal before the ld. CIT(A). The ld. CIT(A) records the fact that he issued five notices to the assessee but did not receive any response with regard to any of them. He, therefore, concluded that the assessee was not interested in pursuing this appeal. He quoted from the assessment order and thereafter held that in the absence of any plausible explanation and documentary evidences in support of the claim, he did not find any merit in the A.Y. 2017-18 Mohd Ayaz contentions raised by the assessee in his appeal. Accordingly, he confirmed the addition and dismissed the appeal of the assessee.

The assessee is aggrieved at this summary disposal of his appeal by the ld. CIT(A). Sh. Rakesh Garg, Advocate (hereinafter referred to as the ld. AR) arguing the matter on behalf of the assessee submitted that the assessee was an individual who was a Buffalo supplier. Regular books of accounts had been maintained by the assessee which have been duly audited. No adverse findings had been recorded by the Chartered Accountant who had audited the account. No omission or mistake had been noticed by the ld. AO and the books and its trading results had been duly accepted. After proceedings under section 263, the ld. AO made an assessment on a total income of Rs. 7,02,74,249/- after treating 10% of the total purchases of Rs. 66,89,75,490/- as cash purchases. It was submitted that the assessee was prevented from by sufficient and reasonable cause in not making compliance to notices as his counsel was ill at the time and he could not make communication. It was submitted that the disallowance was made under section 40A(3) without actually pointing out any infirmity in the books of accounts. As such, the addition had been made without any basis and the ld. CIT(A) had erred in confirming the disallowance. It was further submitted that the assessee was carrying on a business of animal husbandry being that of livestock, meat, hide and skin and was specifically exempted under Rule 6DD from clutches of section 40A(3). Therefore, there was no reason for the ld. AO to make any addition on estimated basis @ 10% of the total purchases. It was further submitted that even ld. Pr. CIT had only directed to make assessment de novo after examination of books of accounts. The books of accounts had been produced before the ld. AO and no defects in the same were pointed out. Therefore, there was no justification for making the addition of 10% on account of section 40A(3).

We have duly considered the facts and circumstances of the case. Section 40A(3) relates to payment made in cash either individually or aggregate wise in a day