9911796707
|
Home
Issues Involved:
1. Interpretation of the term "expenditure" u/s 40A(3) of the I.T. Act, 1961. 2. Entitlement to exemption under clauses (f) and (j) of Rule 6DD in respect of cash payments for the purchase of goods. Summary: Issue 1: Interpretation of "Expenditure" u/s 40A(3) The Tribunal held that the word "expenditure" in subsection (3) of section 40A includes the cost of purchasing goods meant for resale. The assessee contended that purchases should not be considered as expenditure in the same sense as payments for salary, wages, or rent, but rather as an investment. However, the Tribunal concluded that the amount was an expenditure and thus covered by the mischief of section 40A(3). The court noted a divergence of opinion among various High Courts on this issue and mentioned that the Supreme Court had granted special leave to appeal against a related judgment, thus refraining from expressing an opinion on this question. Issue 2: Exemption under Clauses (f) and (j) of Rule 6DD The assessee argued that the payments for the purchase of agricultural produce should be exempt under clause (f) of Rule 6DD, which covers payments made for the purchase of agricultural produce to the cultivator, grower, or producer. The Tribunal, however, found that the payments were not made to the cultivator or producer and thus did not qualify for exemption under clause (f). The Tribunal also rejected the claim under clause (j) of Rule 6DD, stating that ignorance of law or non-clarity of the law did not constitute exceptional or unavoidable circumstances. The court examined the purpose of section 40A(3), which was to prevent tax evasion through artificial reduction of tax liability by making large cash payments. The court noted that the proviso to section 40A(3) and Rule 6DD were intended to relax the strictness of the provision under certain circumstances. The court found that the assessee had a bona fide belief that the payments were covered by clause (f) of Rule 6DD due to the ambiguity in the rule's language, which was later clarified by a corrigendum issued by the CBDT. The court also considered that the payments were genuine, the identity of the payee was established, and there was no mens rea or fraudulent intent. Given these factors, the court concluded that the assessee was entitled to exemption under clauses (f) and (j) of Rule 6DD for the payments made in cash for the purchase of goods. Conclusion: The court answered question No. 2 in the negative, in favor of the assessee and against the Revenue, holding that the assessee was entitled to exemption under clauses (f) and (j) of Rule 6DD. Consequently, it was not necessary to answer question No. 1. The reference was answered accordingly, with parties bearing their own costs.
|
