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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 ..... d Kakinada, where it is packed in cartons and all finished goods are brought to Mumbai for exporting the same. The assessee has shown sales of Rs. 90,47,67,934/-, as against this, the assessee had shown purchases including opening stock 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. 3,11,83,996/-. From the details furnished, by the assessee before the AO, during the course of the assessment proceedings, the AO noted that out of the total purchases of Rs. 69,66,99,558/-, purchases to the tune of Rs. 52,36,66,940/- were purchases of meat and mutton. These purchases were classified by the assessee in two categories, namely 'Meat purchases' and 'Market purchases'. The AO noted that for the market purchases of meat aggregating Rs. 39,59,07,962/-, no party wise details and the bills 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 Rs. 6,65,27,707/- Shehnaz Enterprises 7,49,735 Kg Rs. 7,35,07,686/- M.S. Traders 93,186 Kg Rs. 95,00,000/- Zain Enterprises 55,652 Kg Rs. 84,56,392/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the record of the individual farmers. During the course of the remand proceedings, party wise details were furnished and was stated that the purchases were made through Jamat (association). In support, confirmation letters from the respective Jamat were furnished with complete quantitative details along with the date of supply, name of the member, rate and value of the meat 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 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 partie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elow:- Raw material- 8elgaum Rs. 22,30,70,923/- Shahnaz Enterprises Rs. 7,35,07,686/- In respect of these purchases, no direct confirmation from the seller has been produced by you either during assessment 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 purchases are made directly from the farmer/producer 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 cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been fulfilled and therefore benefit cannot be given under Rule 6DD(f). The said paragraph has been reproduced at page 36 of the appellate order. He also held that assessee's claim that it has purchased meat from agents who were required to make cash payments to the farmers has also not been established by the assessee. Thus these is a clear cut violation of section section 40A(3) and proceeded to disallow the cash purchases 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. 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 Rs. 29,65,78,609/-. He further disallowed the payment of Rs. 10 lacs out of opening balance on the account of market purchases made from Zaib. The final disallowance was thus made at Rs. 26,79,20,748/-. The relevant conclusion of the Ld.CIT(A) reads as under:- "Thus, from the abo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as 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 proceeded to examine from one more angle that, the assessee has purchased the 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 Rs. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted that and assessee's case for cash payment is fully covered by the exceptions provided in Rule 6DD under clause (e)(ii) and clause (k). These clauses provides exception in the case of payment made to purchase of produce of animal husbandry like meat etc. or if the payment is made through agent who is required to 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 ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missions, perused the relevant finding of the Ld.CIT(A) and material placed on record. The assessee is mainly in the business of exporting various products of meat to different countries. The assessee had shown sale of 90.47 crores, out of which export sales is approximately 86 crores. The assessee is purchasing 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 Rs. 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 -- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 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 Rs. 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 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 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 of exceptions provided in Rule 6DD, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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