GEE SQUARE EXPORTS, NAVI MUMBAI V. JCIT RG 1, MUMBAI

ITA 6606/MUM/2013

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 8244 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 18-08-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 11-11-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PREETAM SINGH
• Assessee Lawyers: NEELKANT KHANDELW AL; RAJIV
• Keywords: Business income; Opportunity of being heard; Cost of acquisition
• Section: 40A(3); 143(3); 131

Judgement Text

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 522 GREAT EASTERN GALLARIA, SECTOR IV, NERUL NAVI MUMBAI- 400 076 PAN : VS. JCIT RG - 1 THANE (APPELLANT) (RESPON DENT) ASSESSEE BY : SHRI RAJIV AND NEELKANT KHANDELWAL REVENUE BY : SHRI PREETAM SINGH DATE OF HEARING : 11 .09. 2014 DA TE OF PRONOUNCEMENT : 31 . 10 .2014 O R D E R PER AMIT SHUKLA, JM: THIS APPEAL HAS BEEN PREFERRED BY THE ASSESSEE AGA INST THE ORDER DATED 06.09.2013 PASSED BY THE LD.CIT(A) -2, FOR TH E QUANTUM OF ASSESSMENT PASSED U/S 143(3) FOR THE A.Y. 2009-10. 2. THE SOLE ISSUE RAISED IN VARIOUS GROUNDS OF APPE AL 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 DISALLOWAN CE U/S 40A(3) AS MADE BY THE LD.CIT(A). ITA NO. 6606/MUM/2013 GEE SQUARE EXPORTS ASSESSMENT YEAR: 2009-10 2 3. FACTS AND BRIEFS:- THE ASSESSEE IS A PARTNERSHIP FIRM, ENGAGED IN THE BUSINESS OF EXPORTING FROZEN BUFFALO MEAT AND V EAL MEAT TO COUNTRIES LIKE OMAN, KUWAIT, VIETNAM, AND OTHER MID DLE 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 PACK ED IN CARTONS AND ALL FINISHED GOODS ARE BROUGHT TO MUMBAI FOR EXPORT ING THE SAME. THE ASSESSEE HAS SHOWN SALES OF RS.90,47,67,934/-, AS A GAINST THIS, THE ASSESSEE HAD SHOWN PURCHASES INCLUDING OPENING STOC K 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.3,11,8 3,996/-. FROM THE DETAILS FURNISHED, BY THE ASSESSEE BEFORE THE AO, D URING THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE AO NOTED THAT OUT O F THE TOTAL PURCHASES OF RS.69,66,99,558/-, PURCHASES TO THE TU NE OF RS.52,36,66,940/- WERE PURCHASES OF MEAT AND MUTTON . THESE PURCHASES WERE CLASSIFIED BY THE ASSESSEE IN TWO CA TEGORIES, NAMELY MEAT PURCHASES AND MARKET PURCHASES. THE AO NOT ED THAT FOR THE MARKET PURCHASES OF MEAT AGGREGATING RS.39,59,07,96 2/-, NO PARTY WISE DETAILS AND THE BILLS AND VOUCHERS FROM THE SUPPLIE RS 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 K G 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 GEE SQUARE EXPORTS ASSESSMENT YEAR: 2009-10 3 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 IMPRE SSION UNDER THE HEAD RECEIVED BY; (F) IN SOME CASES THERE IS NO SIGNATURE OF THE PER SON UNDER THE HEAD RECEIVE BY; (G) IN MOST OF THE CASES THE NAME OF THE PERSON END S WITH BEPARY; (H) LASTLY, NONE OF THESE MEMOS/VOUCHERS ARE SUPPOR TED 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 BEE N INCORPORATED IN THE ASSESSMENT ORDER FROM PAGES 8 TO 13 OF THE ASSE SSMENT ORDER. THEREAFTER HE REFERRED TO DECISION OF DELHI HIGH CO URT IN THE CASE OF CIT VS. LA MEDICA, 250 ITR 575 AND HELD THAT THE PURCHA SES TO THE EXTENT OF RS.39,59,07,962/- HAVE BEEN MADE FROM UNDISCLOSED S OURCES AND ADDED BACK SAME TO THE INCOME OF THE ASSESSEE. HE FURTHER PROCEEDED TO MAKE DISALLOWANCES ON ACCOUNT OF UNEXPLAINED EXPENSES, F OR SUMS AGGREGATING RS.35,75,33,149/-. ITA NO. 6606/MUM/2013 GEE SQUARE EXPORTS ASSESSMENT YEAR: 2009-10 4 4. BEFORE THE LD.CIT(A), DETAIL SUBMISSIONS/EVIDENC ES WERE FILED INCLUDING CONFIRMATIONS FROM THE PARTIES, SO FAR AS UNEXPLAINED EXPENSES AND MARKET PURCHASES WERE CONCERNED. THE SAID DETAI LS AND SUBMISSIONS WERE FORWARDED TO THE AO FOR SUBMITTING A REMAND RE PORT. IN THE REMAND REPORT GIVEN BY THE AO, THE GENUINENESS OF T HE TRANSACTION IN RESPECT OF UNEXPLAINED EXPENSES WERE FOUND TO BE CO RRECT AND BASED ON THAT, LD.CIT(A) HAS GIVEN CONSEQUENTIAL RELIEF EXCE PT FOR SOME MINOR ADDITIONS OF RS.72,538/- AND 44,316/- WHICH HAS BEE N CONFIRMED. AGAINST THIS, NO GROUND HAS BEEN RAISED BEFORE US B Y THE ASSESSEE OR ANY APPEAL HAS BEEN FILED BY THE DEPARTMENT. REGARD ING ADDITION ON ACCOUNT OF MARKET PURCHASES OF RS.39,59,07,962/-, A SSESSEE SUBMITTED THAT PURCHASES WERE MADE FROM SMALL FARMERS AND THE REFORE IT WAS NOT PRACTICAL FOR THE ASSESSEE TO KEEP THE RECORD OF TH E INDIVIDUAL FARMERS. DURING THE COURSE OF THE REMAND PROCEEDINGS, PARTY WISE DETAILS WERE FURNISHED AND WAS STATED THAT THE PURCHASES WERE MA DE THROUGH JAMAT (ASSOCIATION). IN SUPPORT, CONFIRMATION LETTERS FRO M THE RESPECTIVE JAMAT WERE FURNISHED WITH COMPLETE QUANTITATIVE DETAILS A LONG WITH THE DATE OF SUPPLY, NAME OF THE MEMBER, RATE AND VALUE OF THE M EAT 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 SUBMI SSIONS AND CONFIRMATIONS WERE RECONCILED IN RESPECT OF THE QUA NTITY, ITEMS OF PURCHASES WHICH WERE FOUND TO BE TALLIED. IN VIEW O F THESE REASONS IT WAS PLEADED THAT DISALLOWANCE OF THE PURCHASES SHOU LD BE DELETED. THE LD.CIT(A) AT PAGE 16 OF THE ORDER HAS ALSO NOTED TH IS FACT THAT THE AO AND JCIT RANGE-1, THANE, HAVE STATED THAT CONSIDER ATION PAID TO THE ITA NO. 6606/MUM/2013 GEE SQUARE EXPORTS ASSESSMENT YEAR: 2009-10 5 PURCHASE PARTIES HAVE BEEN RECONCILED WITH THE BOOK S OF ACCOUNT. THE RELEVANT OBSERVATIONS IN THIS REGARD IS REPRODUCED HEREUNDER:- THE JT. CIT, RANGE-1, THANE HAS ALSO CONCURRED WIT H THE FINDINGS OF THE AO AND STATED THAT THE CONSIDERATIO N PAID TO THE PURCHASE PARTIES HAS BEEN RECONCILED WITH THE B OOKS OF ACCOUNT. FURTHER, THE GENUINENESS OF THE TRANSACTIO NS 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 GRO SS PROFIT OF LAST 3 YEARS, DETAILS OF PURCHASE OF RAW MATERIAL VIS--VI S PRODUCTION OF MEAT AND SUMMARY OF GOODS MOVEMENT. THE ASSESSEE IN RESP ONSE, SUBMITTED A NOTE IN RESPECT OF PROCESSING ACTIVITY AND ALSO M ADE SUBMISSIONS WHICH HAS BEEN DEALT BY THE LD.CIT(A) AT PAGE 18 OF THE A PPELLATE ORDER IN THE FOLLOWING MANNER. THE ASSESSEE PURCHASED BUFFALOS FROM THE FARMERS I N BELGAUM ONCE THE USEFUL LIFE OF THESE ANIMALS WAS O VER 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 I S EXAMINED BY THE VETERINARY DOCTORS AND THEN BONELESS MEAT WA S PREPARED AND STORED IN THE PROCESSING UNIT AT THE D ESIRED TEMPERATURE. IT WAS ALSO STATED THAT THE YIELD OF T HE BONELESS MEET WAS ABOUT 45 TO 55% WITH REFERENCE TO THE CARC ASSES DEPENDING UPON THE FAT CONTAINED IN THE FINISHED ME AT. IN THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS PRODUCED MEAT AT 45,20,050 KG. OUT OF THE TOTAL RAW-MATERIAL CONSUME D AT 69,05,204 KG. GIVING AN AVERAGE YIELD OF 65.45%. TH E GROSS PROFIT IN THE YEAR UNDER CONSIDERATION HAS BEEN STA TED 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 GEE SQUARE EXPORTS ASSESSMENT YEAR: 2009-10 6 RESPECT OF THE CASH PURCHASES IN VIEW OF THE PROVIS IONS OF RULE 6DD(E) & (K). 6. FROM THE SUBMISSIONS AND DETAILS FURNISHED BY TH E ASSESSEE, THE LD.CIT(A) NOTED THAT THE CASH PAYMENTS HAVE BEEN MA DE 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 4 0A(3). THE RELEVANT SHOW CAUSE NOTICE AS INCORPORATED IN THE APPELLATE EARLIER ORDER READS AS UNDER:- IN THIS CONNECTION. I HAVE CAREFULLY GONE THROUGH T HE 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 CONFIRMATI ON FROM THE SELLER HAS BEEN PRODUCED BY YOU EITHER DURING ASSES SMENT 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 PURC HASES ARE MADE DIRECTLY FROM THE FARMER/PRODUCER OF ANIMAL PR ODUCTS. HOWEVER, NO EVIDENCE TO PROVE THAT THE PURCHASES AR E MADE FROM THE FARMER/PRODUCER, HAS BEEN FURNISHED. FURTH ER, COMPLETE NAME & ADDRESS OF THE AGENTS, QUANTITY AND VALUE OF PURCHASES FROM THEM AND THEIR CONFIRMATIONS, ETC. H AVE NOT ALSO BEEN FURNISHED TO ESTABLISH APPLICABILITY OF R ULE 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. DAT E OF COMPLIANCE FIXED IS 19/06/2013 AT 11.30 AM. IN RESPONSE, THE ASSESSEE SUBMITTED THAT THE MEAT P URCHASES FROM THE MARKET HAS BEEN PROPERLY EXPLAINED AND PARTY WISE P URCHASES ALONG ITA NO. 6606/MUM/2013 GEE SQUARE EXPORTS ASSESSMENT YEAR: 2009-10 7 WITH THE QUANTITY AND VALUE HAS ALREADY BEEN PRODUC ED. 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 MOVE MENT 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 EXPLAINE D THAT BEFORE EXPORT, A SAMPLE OF THE FROZEN MEAT HAS TO BE CERTIFIED BY THE ANIMAL HUSBANDRY DEPARTMENT, WITHOUT WHICH, SHIPMENT OF FR OZEN MEAT CANNOT BE UNDER TAKEN. SUCH A CERTIFICATE IS ISSUED ONLY A FTER A CERTIFICATE FROM THE VETERINARY DOCTOR IS FURNISHED. THE SPECIMEN OF THE CERTIFICATE ISSUED BY THE ANIMAL HUSBANDRY DEPARTMENT WAS ALSO FILED B EFORE 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 S AME DEFECT AS WERE POINTED OUT BY THE ASSESSING OFFICER, THEREFOR E, THE PURCHASES ARE NOT FULLY VERIFIABLE AND GENUINENESS IS ALSO DOUBTF UL. HE ALSO TOOK NOTE OF CERTIFICATE FROM THE JAMAT ASSOCIATION AS SUBMITTED BY THE ASSESSEE AND NOTED THAT THESE ASSOCIATION DO NOT MAINTAIN ANY RE CORD OF SALES AND PURCHASES ON DAY TO DAY BASIS AND ALSO THE ADDRESSE S OF THE SUPPLIERS ITA NO. 6606/MUM/2013 GEE SQUARE EXPORTS ASSESSMENT YEAR: 2009-10 8 HAS ALSO NOT BEEN MENTIONED. IN EVERY NAME, THE WOR D BEPARI HAS BEEN MENTIONED WHICH MEANS TRADER. THUS THE ASSES SEE HAS BEEN MAKING CASH PURCHASES FROM A TRADER IN CONTRADISTIN CTION 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 EN TERPRISES WHICH APPEARS TO BE A FIRM, AND YET THE ASSESSEE HAS MAD E CASH PURCHASES FROM THE SAID FIRM AGGREGATING TO RS.94,27,677/-. H E ALSO RELIED UPON CBDT CIRCULAR NO. 8 OF 2006 AND HELD THAT IN VIEW O F PARA 4 OF THE SAID CIRCULAR, THE CONDITIONS MENTIONED FOR GIVING THE B ENEFIT TO THE PERSONS WHO BOUGHT MEAT IN CASH HAS NOT BEEN FULFILLED AND THEREFORE BENEFIT CANNOT BE GIVEN UNDER RULE 6DD(F). THE SAID PARAGRA PH HAS BEEN REPRODUCED AT PAGE 36 OF THE APPELLATE ORDER. HE AL SO HELD THAT ASSESSEES CLAIM THAT IT HAS PURCHASED MEAT FROM A GENTS WHO WERE REQUIRED TO MAKE CASH PAYMENTS TO THE FARMERS HAS A LSO NOT BEEN ESTABLISHED BY THE ASSESSEE. THUS THESE IS A CLEAR CUT VIOLATION OF SECTION SECTION 40A(3) AND PROCEEDED TO DISALLOW THE CASH P URCHASES 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.2 0,000/- AND BALANCE 90% OF THE CASH PAYMENT EXCEEDED THE PRESCR IBED LIMIT OF 20,000 AT A GIVEN TIME. ACCORDINGLY HE MADE THE DIS ALLOWANCE OF CASH PURCHASES OF RS.29,65,78,609/-. HE FURTHER DISALLOW ED THE PAYMENT OF RS.10 LACS OUT OF OPENING BALANCE ON THE ACCOUNT OF MARKET PURCHASES MADE FROM ZAIB. THE FINAL DISALLOWANCE WAS THUS MAD E AT ITA NO. 6606/MUM/2013 GEE SQUARE EXPORTS ASSESSMENT YEAR: 2009-10 9 RS.26,79,20,748/-. THE RELEVANT CONCLUSION OF THE L D.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 ABO UT 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 ACCORD INGLY, DISALLOWANCE U/S. 40A(3) WORKS OUT TO RS.26,69,20,7 48/- WHICH ALSO INCLUDED THE CASH PAYMENTS TO M/S. SUNAH RA ENTERPRISES AMOUNTING TO RS. 94,27,677/-. ON PERUSA L OF COPY OF ACCOUNT OF MARKET PURCHASES - ZAIB, IT IS NOTICE D THAT THE APPELLANT HAS MADE PAYMENTS BY CHEQUE TO THE EXTENT OF RS. 7,45,15,707/-. HOWEVER, IT HAS PAID CASH OF RS.10,0 0,000/- ON 07.04.2008 OUT OF OPENING BALANCE WHICH IS LIABLE T O 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 H ENCE APPELLANT PARTLY SUCCEEDS ON THIS ACCOUNT . 8. AFTER MAKING THE DISALLOWANCE AFORESAID MANNER, THE LD.CIT(A) FURTHER PROCEEDED ANALYSE THE REASONABLENESS OF THE ASSESSEES INCOME DISCLOSED IN THE PROFIT AND LOSS ACCOUNT. HE NOTED THAT ASSESSEE FIRM HAS MEAT EXPORT SALES OF RS.86,75,51,478/- AND LOCA L 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/-, B ESIDES 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 PRO VE THAT ASSESSEE HAS ITA NO. 6606/MUM/2013 GEE SQUARE EXPORTS ASSESSMENT YEAR: 2009-10 10 INFLATED THE PURCHASES. THEREAFTER, HE PROCEEDED T O EXAMINE THE PURCHASES AND NOTED THAT THE AVERAGE RATE OF PURCHA SES 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 BELG AUM WAS @ RS.51 PER KG AND PURCHASES FROM M/S. SHEHNAZ ENTERP RISES WAS AT RS. 98 PER KG. THE TOTAL PURCHASES FROM THESE TWO PARTI ES 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 P ROCEEDED TO EXAMINE FROM ONE MORE ANGLE THAT, THE ASSESSEE HAS PURCHASED THE RAW MEAT CARCASSES WHICH INCLUDED MEAT WITH BONES AND O NLY THE UNBONED MEAT WAS PROCESSED FOR EXPORT. AS A RESULT THE YIEL D OF FINISH MEAT WAS 65.45% OUT OF THE TOTAL RAW MATERIAL CONSUMED. ON T HIS THE ASSESSEE HAD STATED BEFORE THE LD.CIT(A) THAT, BY PRODUCTS A RE RETURNED TO THE SUPPLIERS. HOWEVER LD.CIT(A) OBSERVED THAT NO EVIDE NCE HAVE BEEN PRODUCED THAT THE BONES AND ANIMAL FAT WAS RETURNED TO THE SUPPLIER. HE OBSERVED THAT APPELLANT HAD NO OCCASION TO RETURN T HE BY-PRODUCTS TO THE SUPPLIERS, BECAUSE THE ASSESSEE ITSELF DOES NOT KN OW THE ADDRESSES OF THE SUPPLIERS. UNDER THESE FACTS HE HELD THAT THE W EIGHT OF BONES AND ANIMAL FAT WORKS OUT TO 23,85,154 KG AFTER EXCLUDIN G 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 W ORKED OUT AFTER TAKING THE AVERAGE SALE PRICE OF RS.20 PER KG, WHIC H ITA NO. 6606/MUM/2013 GEE SQUARE EXPORTS ASSESSMENT YEAR: 2009-10 11 COMES TO RS.4,29,32,780/- WHICH SHOULD BE ADDED. HO WEVER, SUCH AN ADDITION WAS NOT MADE BY HIM DUE TO DISALLOWANCE CO NFIRMED 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 AR E 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 TH EY HAVE TO PAY TO THE MEAT PRODUCERS FARMERS. TO PROVE THE GENUINENES S OF THE PURCHASES, THE ASSESSEE HAD FURNISHED PARTY WISE DE TAILS, 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 NO TING GIVEN PAGE 16 OF THE APPELLANT ORDER. NOT ONLY THAT, THE CONFIRMATIO NS WHICH WERE FILED BEFORE THE LD.CIT(A) CLEARLY CERTIFIES THAT THE AGE NTS HAVE PROCURED THE RAW MEAT FROM VARIOUS MEAT PRODUCERS ON CASH PAYMEN TS AND SUCH A PAYMENT WERE MADE IN CASH, BECAUSE THE FARMERS INSI STED ON CASH PAYMENTS. ON A SAMPLE BASIS HE DREW OUR ATTENTION T O A CERTIFICATE ISSUED FROM SHEHNAZ ENTERPRISES FOR THE MARKET PURC HASE AT BELGAUM WHICH IS APPEARING AT PAGE 260 OF THE PAPER BOOK. F ROM THE SAID CERTIFICATE HE SUBMITTED THAT, IT WOULD BE CLEAR TH AT 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 GEE SQUARE EXPORTS ASSESSMENT YEAR: 2009-10 12 AGENTS ALONG WITH THEIR ADDRESSES AND THE DETAILS O F THE MEAT PRODUCERS WERE FILED ALONG WITH CONFIRMATIONS. THESE WERE FIL ED BEFORE THE AO DURING THE REMAND PROCEEDINGS WHICH HAVE BEEN VERIF IED. BASED ON THESE CONFIRMATIONS ONLY, THE PURCHASES WERE RECONC ILED. THE ALLEGATION OF THE LD.CIT(A) THAT, THE PURCHASES HAS NOT BEEN C ONFIRMED IS NOT COVERED. THE LIST OF SUCH CONFIRMATIONS WERE ALSO F ILED BEFORE US. HE FURTHER SUBMITTED THAT AND ASSESSEES CASE FOR CASH PAYMENT IS FULLY COVERED BY THE EXCEPTIONS PROVIDED IN RULE 6DD UNDE R CLAUSE (E)(II) AND CLAUSE (K). THESE CLAUSES PROVIDES EXCEPTION IN THE CASE OF PAYMENT MADE TO PURCHASE OF PRODUCE OF ANIMAL HUSBANDRY LIK E MEAT ETC. OR IF THE PAYMENT IS MADE THROUGH AGENT WHO IS REQUIRED T O MAKE THE PAYMENT IN CASH FOR ON BEHALF OF SUCH PERSONS. BEFO RE THE LD.CIT(A), THE ASSESSEE HAS PRODUCED CERTIFICATE FROM THE VETE RINARY DOCTOR AND HEALTH CERTIFICATES ISSUED BY ANIMAL HUSBANDRY DEPA RTMENT, 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 PURCHAS ED FROM THE FARMERS THROUGH AGENTS, THEREFORE, THE ASSESSEES CASE FALL S WITHIN THE EXCEPTION CLAUSES PROVIDED UNDER RULE 6DD. HE FURTHER SUBMITT ED THAT THE ASSESSEES TURN OVER IS MORE THAN 90 CORES OUT OF W HICH EXPORTS ARE AROUND 86 CRORES. WITHOUT ANY PURCHASES THERE CANNO T BE ANY EXPORT. THE BOOKS OF ACCOUNT AND GROSS PROFIT RESULT HAS NO T BEEN REJECTED. THUS, SO FAR AS PURCHASES ARE CONCERNED THE SAME CA NNOT BE DISALLOWED. REGARDING LD.CIT(A)S ALLEGATION THAT THERE IS A D IFFERENCE OF RATE PAID THROUGH CHEQUE AND THE PAYMENT MADE IN CASH TO THE PARTIES FROM BELGAUM, HE SUBMITTED THAT THE QUALITY OF MEAT PROC URED FROM BELGAUM WAS A VERY HIGH QUALITY MEAT, WHICH IS EVIDENT FROM THE FACT THAT THE ITA NO. 6606/MUM/2013 GEE SQUARE EXPORTS ASSESSMENT YEAR: 2009-10 13 ITEMS WHICH WERE PROCURED WERE SHIN- SHANK, TONGUE, AND BONELESS MEAT, WHICH HAS A HIGH YIELD, THEREFORE, THE RATE O F SUCH PURCHASES WERE HIGH. THIS CANNOT BE ANY ADVERSE REASON FOR MAKING THE DISALLOWANCE OR DRAWING ANY NEGATIVE INFERENCE. REGARDING SALE OF B ONES, HE SUBMITTED THAT THE ASSESSEE HAS NOT SOLD ANY BY PRODUCT AND I T IS MERE PRESUMPTION OF THE LD.CIT(A). LASTLY ON THE OBSERVA TION OF THE LD.CIT(A) THAT ASSESSEES ACTUAL INCOME FROM SALE OF MEAT PRO DUCTS IS ONLY 25,000/-, HE SUBMITTED THAT THE DUTY DRAWBACK IS AV AILABLE 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 ASSESSEES GROSS PROFIT, IF C OMPARED 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 JUSTIF Y THE DISALLOWANCE U/S 40A(3), IS NOT CALLED FOR. LASTLY HE PLACED STR ONG 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 ASS ESSEE HAS CLEARLY VIOLATED THE PROVISIONS OF SECTION 40A(3) AND ASSES SEES CASE STRICTLY SPEAKING DOES NOT FALL WITHIN THE EXCEPTION PROVIDE D UNDER RULE 6DD. THE CONDITIONS MENTIONED UNDER THE RELEVANT CLAUSE HAS BEEN ELABORATED BY CBDT IN CIRCULAR NO. 6 OF 2008 WHICH HAS BEEN DE ALT BY THE LD.CIT(A) EXHAUSTIVELY. THE LD.CIT(A) HAS GIVEN A VERY DETAIL ED REASONS FOR ITA NO. 6606/MUM/2013 GEE SQUARE EXPORTS ASSESSMENT YEAR: 2009-10 14 MAKING THE DISALLOWANCE U/S 40A(3). HE ALSO READ TH E RELEVANT FINDINGS AS GIVEN BY THE LD.CIT(A). REGARDING OTHER OBSERVAT IONS OF THE LD.CIT(A), HE SUBMITTED THAT THE SAME IS BASED ON M ATERIAL 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 TH E RELEVANT FINDING OF THE LD.CIT(A) AND MATERIAL PLACED ON RECORD. THE ASSESSEE IS MAINLY IN THE BUSINESS OF EXPORTING VARIOUS PRODUCTS OF ME AT TO DIFFERENT COUNTRIES. THE ASSESSEE HAD SHOWN SALE OF 90.47 CRO RES, OUT OF WHICH EXPORT SALES IS APPROXIMATELY 86 CRORES. THE ASSESS EE IS PURCHASING RAW MATERIAL, THAT IS, UNPROCESSED MEAT FROM VARIOUS F ARMERS OR THE MEAT PRODUCERS, WHO ARE REGISTERED WITH ASSOCIATIONS CAL LED 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 T HE ASSESSMENT STAGE, THE MAIN CONTROVERSY INVOLVED WAS THE GENUINENESS O F THE PURCHASES ON THE GROUND THAT THE CASH MEMOS WERE NOT PROPER AND WERE NOT SUPPORTED BY ANY DOCUMENTARY EVIDENCES. THE ASSESSI NG OFFICER HAD MADE THE DISALLOWANCE OF PURCHASES FOR SUMS AGGREG ATING TO RS.39,59,07,962/- WHICH WERE MADE FROM THE FOLLOWIN G 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 ENTERPRISES 7,49,735 7,35,07,686 ITA NO. 6606/MUM/2013 GEE SQUARE EXPORTS ASSESSMENT YEAR: 2009-10 15 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 TH E CONFIRMATIONS LETTERS FROM THESE PARTIES/ASSOCIATION, COPY OF STO CK REGISTER, SALES AND PURCHASE REGISTER. THE PAYMENT MADE TO THE PURCHASE PARTY WERE RECONCILED DURING THE COURSE OF THE REMAND PROCEEDI NGS. 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 APPELL ATE ORDER, IN THE FOREGOING PARAGRAPH.THE LD.CIT(A), HOWEVER HAS PROC EEDED TO MAKE THE DISALLOWANCE AFTER INVOKING THE PROVISION OF SE CTION 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 W ERE NOT FULLY VERIFIABLE AS THEY WERE MADE ON SELF MADE CASH VOUC HERS, WHICH DID NOT CONTAIN ADDRESSES, PROPER SERIAL NUMBER, AND WERE W ERE UNDATED AND UNSIGNED. THE CERTIFICATES FURNISHED BY THE ASSESSE E FROM JAMAT ASSOCIATION ALSO DOES NOT PROVE THAT THEY WERE THE AGENTS, BECAUSE THE PURCHASES HAVE BEEN MADE FROM BEPARI WHO ARE TRAD ERS ONLY. ANOTHER JUSTIFICATION GIVEN BY HIM WAS THAT, THE ASSESSEE H AS FAILED TO PRODUCE PROPER CERTIFICATE FROM VETERINARY DOCTOR AS REQUIR ED 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 B EEN CONCLUSIVELY PROVED BY THE ASSESSEE. ITA NO. 6606/MUM/2013 GEE SQUARE EXPORTS ASSESSMENT YEAR: 2009-10 16 12. IN WAKE OF THESE OBSERVATIONS OF LD.CIT(A), WE HAVE PERUSED THE RECORDS AND FIND THAT THE PAYMENTS HAVE BEEN MADE T O PERSONS LIKE, SHEHNAZ ENTERPRISES, ZAIB ENTERPRISES, ZAIN ENTERPR ISES, M.S. TRADERS AND VARIOUS ASSOCIATION AT BELGAUM. ALL THESE PAYME NTS HAVE BEEN MADE IN CASH. THE CONFIRMATION CERTIFICATE FROM M/S. SHE HNAZ 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 CIRCU MSTANCES PROVIDED IN RULE 6DD. THE CLAUSE (E)(II) OF RULE 6DD PROVID ES EXCEPTION ON CASH PURCHASES ON PRODUCE OF ANIMAL HUSBANDRY. IF THE PA YMENT HAS BEEN MADE IN CASH FOR THE PURCHASE OF MEAT WHICH IS NOT HING BUT A PRODUCT OF ANIMAL HUSBANDRY, THEN IN OUR OPINION THE SAME F ALLS WITHIN THE EXCEPTION PROVIDED IN CLAUSE (E)(II) OF RULE 6DD, W HICH READS AS UNDER:- (E) WHERE THE PAYMENT IS MADE FOR THE PURCHASE OF- (I) (II) THE PRODUCE OF ANIMAL HUSBANDRY (INCLUDING LIVESTOC K, 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 RUL ES. 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 GEE SQUARE EXPORTS ASSESSMENT YEAR: 2009-10 17 THE PURCHASE OF MEAT THAN SUCH A PAYMENT CAN BE MAD E IN CASH EXCEEDING RS.20,000/- THE BOARD CIRCULAR NO. 8 OF 2 006 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 TH E RAW MEAT CARCASSES TO THE MEAT PROCESSING FACTORIES OR TO TH E TRADERS/RETAIL OUTLETS WOULD BE CONSIDERED AS PRODU CER 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 AB OVE SUBJECT TO FURNISHING OF THE FOLLOWING : (I) A DECLARATION FROM THE PERSON RECEIVING THE PAY MENT THAT THE IS A PRODUCER OF MEAT; (II) A CONFIRMATION THAT THE PAYMENT, OTHERWISE THA N BY AN ACCOUNT PAYEE CHEQUE OR ACCOUNT PAYEE BANK DRAFT, W AS MADE ON HIS INSISTENCE; AND (III) A FURTHER CONFIRMATION FROM A VETERINARY DOCT OR CERTIFYING THAT THE PERSON SPECIFIED IN THE CERTIFICATE IS A P RODUCER OF MEAT AND THAT SLAUGHTERING WAS DONE UNDER HIS SUPER VISION. FIRST OF ALL, THE PROVISIONS OF THE STATUTE OR RULE S DOES NOT PROVIDE ANY SUCH CONDITIONS AS SPELLED OUT IN THE BOARD CIRCULA R AND THEREFORE SUCH CIRCULAR PUTTING RESTRICTIVE CONDITIONS CANNOT BE F OLLOWED. CBDT CIRCULARS ARE MAINLY TO REMOVE THE RIGOURS OF THE LAW BY EXP LAINING THE CORRECT INTERPRETATION. THEY CANNOT LAY DOWN THE CONDITIONS WHICH RESTRICT THE APPARENT CONDITION LAID DOWN IN THE STATUTORY PROVI SIONS OR THE RULES. 13. THE LAW ONLY PROVIDES THAT, IF THE PAYMENT IS M ADE IN CASH FOR PURCHASE OF PRODUCE OF ANIMAL HUSBANDRY LIKE MEAT E TC., THEN NO DISALLOWANCE AND U/S 40A(3) IS CALLED FOR. RULE DOE S NOT PROVIDE THAT CBDT SHOULD LAY DOWN THE CONDITIONS UNDER THIS CLAU SE. IN ANY CASE IT IS NOT IN DISPUTE IN THE PRESENT CASE THAT THE ASSESSE E HAS PURCHASED THE MEAT FROM VARIOUS PERSONS WHICH HAVE BEEN EXPORTED. THIS IS FURTHER ITA NO. 6606/MUM/2013 GEE SQUARE EXPORTS ASSESSMENT YEAR: 2009-10 18 CERTIFIED BY CERTIFICATE ISSUED BY DEPARTMENT OF AN IMAL HUSBANDRY GOVERNMENT OF MAHARASHTRA WHICH READS AS UNDER:- 'TO WHOM IT'MAY CONCERN THIS IS TO STATE THAT, THE HEALTH CERTIFICATE OF ME AT 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 EX PORT OF MEAT AND MEAT PRODUCT IS PERMITTED SUBJECT TO MATERIAL OR ME AT HAS BEEN SOURCED FROM APEDA REGISTERED INTEGRATED ABATTOIRS OR FROM APEDA REGISTERED MEAT PROCESSING PLANT. PRESENTLY, FOR APPLYING OR OBTAINING HEALTH CERTIFI CATE OF BUFFALO MEAT FOR EXPORT PURPOSE, THE EXPORTER HAS TO SUBMIT TED ALONG WITH APPLICATION AND, DECLARATION, THE A.M./ P.M. CERTIF ICATE OF SLAUGHTERED ANIMAL DULY SIGNED BY VETERINARIAN OF APEDA APPROVE D 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 T HE PURPOSE OF EXPORT OF RAW MEAT, THE MEAT HAS TO BE SOURCED FROM APEDA REG ISTERED INTEGRATED ABATTOIRS OR FROM APEDA REGISTERED MEAT PROCESSING PLANT AND A CERTIFICATE FROM VETERINARIAN OF APEDA APPROV ED SLAUGHTER HOUSE. THUS, THE ASSESSEE CLEARLY FULFILS THE CONDITIONS F OR 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 BOA RD CIRCULAR. THIS CANNOT BE THE REASON FOR DRAWING ANY ADVERSE INFERE NCE TO DENY BENEFIT UNDER RULE 6DD, IF OTHERWISE ALL THE CONDITIONS STA NDS FULFILLED, WHICH IS BY AND LARGE IN THE SPIRIT OF CBDT GUIDELINES. THUS IN OUR OPINION, THE ITA NO. 6606/MUM/2013 GEE SQUARE EXPORTS ASSESSMENT YEAR: 2009-10 19 ASSESSEES CASE FALLS WITHIN THE BENEFICIAL CLAUSE OF EXCEPTIONS PROVIDED IN RULE 6DD, CLAUSE(E)(II) AND THEREFORE, NO DISALL OWANCE U/S 40A(3) CAN BE MADE. ACCORDINGLY THE DISALLOWANCE OF RS.26,79,2 0,745/- 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 T HAT, THERE IS ALWAYS A DIFFERENCE IN QUALITY OF MEAT PRODUCTS AND THE YIEL D. 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 L EARNED COUNSEL BEFORE US. THERE CANNOT BE A UNIFORM PURCHASE RATE OF THE MEAT, AS IT DEPENDS UPON QUALITY, GEOGRAPHICAL DIFFERENCE, MARK ET CONDITIONS AND OTHER FACTORS. COMING TO A CONCLUSION THAT THERE IS A UNIFORM RATE OF PURCHASE, SOME CONCRETE MATERIAL IS TO BE BROUGHT O N 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 BRINGI NG 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 B Y THE ASSESSEE IS ALLOWED. ITA NO. 6606/MUM/2013 GEE SQUARE EXPORTS ASSESSMENT YEAR: 2009-10 20 15. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED . 0 ORDER PRONOUNCED IN THE OPEN COURT ON THIS 31 ST 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.