5 Expenses or payments not deductible-Section 40A(3) -the payment is made to producer of meat in cash in excess of Rs.20,000/– Circular issued by the CBDT cannot impose additional condition to the Act and / or Rules adverse to an assessee – No disallowance can be made

Pr. CIT – I, Thane vs. Gee Square
Exports.     

[AY
2009-10] [Income tax Appeal no. 1224 of 2015 dated : 13/03/2018 ; (Bombay High
Court)]. 

[Affirmed
Gee Square Exports vs.  I.T.O.

[dated
: 31/10/2014 ; Mum.  ITAT ]

The assessee is a
partnership firm engaged in the business of exporting frozen buffalo meat and
veal meat to countries like Oman, Kuwait and Vietnam etc. The assessee
purchases raw meat from various farmers and after processing and packaging in
cartoons, exports the same. The assessee had in the course of its above
activity, made its purchases of meat in cash in excess of Rs.20,000/-. The AO
disallowed payments made in cash for purchases of meat in excess of Rs.20,000/-
i.e. Rs.26.79 crore in the aggregate u/s. 
40A(3) of the Act. Thus, the AO rejected 
the appellant’s contention that in view of the proviso to sec. 40A(3) of
the Act read with Rule 6DD(e) and (k) of the Income Tax Rules, they would not
be hit by section 40A(3) of the Act. This rejection was primarily on the ground
that in view of CBDT Circular No.8 of 2016, wherein in paragraph 4 thereof, one
of the conditions for grant of benefit of section 6DD of the Income Tax Rules
was certification from a Veterinary Doctor certifying that the person certified
in the certificate is a producer of meat and slaughtering was done under his
supervision.

Being aggrieved by the
order of AO, the assessee filed appeal before CIT(A). The CIT(A) upheld the
Assessment order.

Being aggrieved by the order
of CIT(A), the assessee filed appeal before ITAT. The Tribunal observed  that section 40A(3) of the Act provides that
no disallowance thereunder shall be made if the payment in cash has been made
in the manner prescribed i.e. in circumstances provided in Rule 6DD of the
Rules. The Tribunal held that the payment is made to producer of meat in cash
and would satisfy the requirement of Rule 6DD(e) of the Rules, which is 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 farming; or”

There were no other
conditions to be satisfied in terms of the above Rules. This Tribunal further
helds that neither the Act nor the Rules provides that the benefit of Rule 6DD
of the Rules would be available only if the further conditions / requirements
set out by the board in its Circular are complied with.

The Tribunal also observed
that the power of the board to issue circulars u/s. 119 of the Act is mainly to
remove hardship caused to the assessee. In the above view, it was held by the
Tribunal that the scope of Rule 6DD of the Rules cannot be restricted and/or
fettered by the CBDT Circular No.8 of 2016. 

Before the High Court, the
Revenue states that the assessee had failed to satisfy the conditions of CBDT
Circular. Therefore, the  order of the
Tribunal could not have allowed the assessee’s appeal. 

The Court observed that the
basis of the Revenue seeking to deny the benefit of the proviso to section
40A(3) of the Act and Rule 6DD(e) of the Rules is non satisfaction of the
condition provided in CBDT Circular No.8 of 2016. In particular, non furnishing
of a Certificate from a Veterinary Doctor. The proviso to section 40A(3) of the
Act seeks to exclude certain categories/classes of payments from its net in
circumstances as prescribed. Section 2(33) of the Act defines “prescribed”
means prescribed by the Rules. It does not include CBDT Circulars. It is a
settled position in law that a Circular issued by the CBDT cannot impose
additional condition to the Act and / or Rules adverse to an assessee. In UCO
Bank vs. Commissioner of Income Tax, 237 ITR 889, the Apex Court has
observed “Also a circular cannot impose on the taxpayer a burden higher than
what the Act itself, on a true interpretation, envisages”.

Thus, the view of the
Tribunal that the CBDT Circular cannot put in new conditions for grant of
benefit which are not provided either in the Act or in the Rules framed
thereunder, cannot be faulted. More particularly so as to deprive the assessee
of the benefit to which it is otherwise entitled to under the statutory
provisions. Needless to state, it is beyond the powers of the CBDT to make a
legislation so as to deprive the respondent assessee of the benefits available
under the Act and the Rules. The assessee having satisfied the requirements
under Rule 6DD of the Rules, cannot, to that extent, be subjected to
disallowance u/s. 40A(3) of the Act. Besides, we may in passing point out that
the impugned order of the Tribunal holds that a Certificate of Veterinary
Doctor was rejected by the Authorities under the Act, only because it was not
in proper form. In the above facts, the revenue appeal was dismissed.