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TMI Blog2014 (11) TMI 139X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 40A(3) shall be made, if the payment in cash has been made in circumstances provided in Rule 6DD - The clause (e)(ii) of Rule 6DD provides exception on cash purchases on produce of animal husbandry - If the payment has been made in cash for the purchase of meat which is nothing but a product of animal husbandry, then in our opinion the same falls within the exception provided in clause (e)(ii) of Rule 6DD - The law only provides that, if the payment is made in cash for purchase of produce of animal husbandry like meat etc., then no disallowance and u/s 40A(3) is called for - Rule does not provide that CBDT should lay down the conditions under this clause - the assessee has purchased the meat from various persons which have been exported. The assessee clearly fulfils the conditions for exporting the meat. The assessee had also furnished a certificate from Veterinary Doctor, before the CIT(A),who has mainly rejected on the ground that, the same is not in the format as instructed by the Board Circular - This cannot be the reason for drawing any adverse inference to deny benefit under Rule 6DD, if otherwise all the conditions stands fulfilled, which is by and large in the spiri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and vouchers from the suppliers 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 ₹ 6,65,27,707/- Shehnaz Enterprises 7,49,735 Kg ₹ 7,35,07,686/- M.S. Traders 93,186 Kg ₹ 95,00,000/- Zain Enterprises 55,652 Kg ₹ 84,56,392/- Zaib Enterprises 86, 323 Kg ₹ 1,16,57,041/- Add: Labour Charges ₹ 31,88,213/- Total Rs.39,59,07,962/- 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 per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re also produced. During the remand proceedings all the details submissions and confirmations were reconciled in respect of the quantity, items of purchases which were found to be tallied. In view of these reasons it was pleaded that disallowance of the purchases should be deleted. The Ld.CIT(A) at page 16 of the order has also noted this fact that the AO and JCIT Range-1, Thane, have stated that consideration paid to the purchase parties have been reconciled with the books of account. The relevant observations in this regard is reproduced hereunder:- The Jt. CIT, Range-1, Thane has also concurred with the findings of the AO and stated that the consideration paid to the purchase parties has been reconciled with the books of account. Further, the genuineness of the transactions 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 gross profit of last 3 years, details of purchase of raw material vis- -vis production of meat and summary of goods movement. The assessee i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of animal products. However, no evidence to prove that the purchases are made from the farmer/producer, has been furnished. Further, complete name address of the Agents, quantity and value of purchases from them and their confirmations, etc. have not also been furnished to establish applicability of Rule 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. Date of compliance fixed is 19/06/2013 at 11.30 AM. In response, the assessee submitted that the meat purchases from the market has been properly explained and party wise purchases along with the quantity and value has already been produced. 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 mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k 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 ₹ 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 ₹ 20,000/- and balance 90% of the cash payment exceeded the prescribed limit of 20,000 at a given time. Accordingly he made the disallowance of cash purchases of ₹ 29,65,78,609/-. He further disallowed the payment of ₹ 10 lacs out of opening balance on the account of market purchases made from Zaib. The final disallowance was thus made at ₹ 26,79,20,748/-. The relevant conclusion of the Ld.CIT(A) reads as under:- Thus, from the above details, it is crystal clear that the cash payments upto ₹ 20,000/- are to the extent of about 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 ₹ 20,000/- and balance 90% of the cash payments thus, exceeded the prescribed limit of ₹ 20,000/- at a time. Accordingly, 90% of the cash purchases are required to be disallowed out of total c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raw meat carcasses which included meat with bones and only the unboned meat was processed for export. As a result the yield of finish meat was 65.45% out of the total raw material consumed. On this the assessee had stated before the Ld.CIT(A) that, by products are returned to the suppliers. However Ld.CIT(A) observed that no evidence have been produced that the bones and animal fat was returned to the supplier. He observed that appellant had no occasion to return the by-products to the suppliers, because the assessee itself does not know the addresses of the suppliers. Under these facts he held that the weight of bones and animal fat works out to 23,85,154 kg after excluding 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 ₹ 15 to ₹ 25 per kg, as per the information available in public domain. Hence the income of this can be worked out after taking the average sale price of ₹ 20 per kg, which comes to ₹ 4,29,32,780/- which should be added. However, such an addition was not made by him due to disallowance confirmed out of cash purchases u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... make the payment in cash for on behalf of such persons. Before the Ld.CIT(A), the assessee has produced certificate from the Veterinary Doctor and health certificates issued by Animal Husbandry Department, 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 purchased from the farmers through agents, therefore, the assessee s case falls within the exception clauses provided under Rule 6DD. He further submitted that the assessee s turn over is more than 90 cores out of which exports are around 86 crores. Without any purchases there cannot be any export. The books of account and gross profit result has not been rejected. Thus, so far as purchases are concerned the same cannot be disallowed. Regarding Ld.CIT(A) s allegation that there is a difference of rate paid through cheque and the payment made in cash to the parties from Belgaum, he submitted that the quality of meat procured from Belgaum was a very high quality meat, which is evident from the fact that the items which were procured were shin- shank, tongue, and boneless meat, which has a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hasing raw material, that is, unprocessed meat from various farmers or the meat producers, who are registered with associations called 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 the assessment stage, the main controversy involved was the genuineness of the purchases on the ground that the cash memos were not proper and were not supported by any documentary evidences. The Assessing Officer had made the disallowance of purchases for sums aggregating to ₹ 39,59,07,962/- which were made from the following 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 4 M.S. Traders -- 95,00,000 5 Zain Enterprises -- 84,56,392 6 Zaib Enterprises -- 1,16,57,041 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 40A(3) provides that no disallowance u/s 40A(3) shall be made, if the payment in cash has been made in circumstances provided in Rule 6DD. The clause (e)(ii) of Rule 6DD provides exception on cash purchases on produce of animal husbandry. If the payment has been made in cash for the purchase of meat which is nothing but a product of animal husbandry, then in our opinion the same falls within the exception provided in clause (e)(ii) of Rule 6DD, which reads as under:- (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 or poultry firming; or For getting the benefit under the exception clause as stated above, there is no such conditions laid down under the rules. 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 the purchase of meat than such a payment can be made in cash exceeding ₹ 20,000/- The Board Circular no. 8 of 2006 provide certain conditions so as to fall within the benefit of Rule 6DD such conditions are as under:- The Board after examination o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed along with Application and, Declaration, the A.M./ P.M. Certificate of Slaughtered Animal duly signed by Veterinarian of APEDA Approved Slaughter House. Health Certificate is required for export shipment of Frozen Buffalo Meat. Sd/- SignatureO 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 the purpose of export of raw meat, the meat has to be sourced from APEDA Registered Integrated Abattoirs or from APEDA registered meat processing plant and a certificate from veterinarian of APEDA approved slaughter house. Thus, the assessee clearly fulfils the conditions for 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 Board Circular. This cannot be the reason for drawing any adverse inference to deny benefit under Rule 6DD, if otherwise all the conditions stands fulfilled, which is by and large in the spirit of CBDT guidelines. Thus in our opinion, the assessee s case falls within the beneficial clause ..... X X X X Extracts X X X X X X X X Extracts X X X X
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