2021 (4) TMI 172 - AT - Income Tax

Disallowance u/s 40A - assessee had made cash purchases exceeding ₹ 20,000/- in violation of provisions of section 40A(3) - 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 - HELD THAT - As per CBDT Circular No. 8 of 2006 dated 06.10.2006specifically 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. 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. Appeal filed by the assessee allowed for statistical purposes.

Summary

Issues:
1. Jurisdictional limits of CIT(A)
2. Invocation of section 40A(3) for the first time in appellate proceedings
3. Validity of addition made under section 40A(3) based on conjectures and surmises
4. Sustaining addition on account of household expenses

Jurisdictional Limits of CIT(A):
The appeal challenged the CIT(A)'s jurisdiction in making additions on issues not doubted by the Assessing Officer. The appellant contended that the CIT(A) exceeded his authority. The Tribunal noted the grievances and proceeded to analyze each issue raised by the appellant.

Invocation of Section 40A(3) in Appellate Proceedings:
During the appellate proceedings, the CIT(A) found that the appellant had made cash purchases exceeding the limit specified in section 40A(3) of the Income Tax Act. The CIT(A) served a notice to the appellant to show cause against invoking this provision for the first time in the appellate stage. The appellant relied on Rule 6DD to argue against disallowance under section 40A(3).

Validity of Addition under Section 40A(3):
The CIT(A) rejected the appellant's reliance on the exception provided in Rule 6DD, stating that the purchases made did not fall under the exceptions specified. The CIT(A) emphasized that the benefit of exemption under Rule 6DD was available only to producers, not traders. The CIT(A) concluded that the addition made by the Assessing Officer was merged with the addition under section 40A(3), leading to no separate addition being warranted.

Sustaining Addition on Account of Household Expenses:
The Tribunal considered the appellant's arguments regarding the CBDT Circular No. 8 of 2006 and the misinterpretation by lower authorities. The Tribunal highlighted the conditions specified in the Circular and directed the Assessing Officer to reexamine the evidence provided by the appellant to determine if the mandatory conditions for Rule 6DD were met. The appeal was treated as allowed for statistical purposes, emphasizing the need for a thorough review based on the Circular's provisions.

This detailed analysis of the judgment highlights the key issues raised by the appellant and the Tribunal's considerations and directions regarding each issue, ensuring a comprehensive understanding of the legal aspects involved in the case.