I guess we still need the request buf, so made these changes which seemed better. but the behavior is still same. Went though the code for upstream create request and looks like the body is always read from buffer.

ngx_buf_t *payload_buf = NULL;

payload_buf = ngx_create_temp_buf(r->pool, ctx->temp_buf_size);
if (payload_buf == NULL) {
ngx_log_stderr(0, "failed to ngx_create_temp_buf");
return NGX_HTTP_INTERNAL_SERVER_ERROR;
}
payload_buf->in_file = 1;
payload_buf->temp_file = 1;
payload_buf->file = &ctx->test_temp_file->file;

sr->request_body->buf = payload_buf;
sr->request_body->bufs->next = NULL;
sr->request_body->bufs->buf = payload_buf;
sr->header_only = 1;
//sr->filter_need_in_memory = 1;