2017 (6) TMI 831 - HC - Income Tax

Addition u/s 40A - Tribunal applying Rule 6DD(j) to disallow the claim in respect of payments made in excess of ₹ 10,000/- in cash - Held that - Where the head office or the place from where all the business operations are controlled or directed is a village or town which has a banking facilities, even such transporter would not be covered by Rule 6DD(h) of the Rules. Therefore, in the present case the benefit of Rule 6DD(h) was not available and could not be extended to the appellant-assessee. A plain reading of Rule 6DD(h) of the Rules indicate that the Assessee has to furnish evidence so as to satisfy the Assessing Officer about the genuineness of the payments and the identity of the payee. In this case, the undisputed position is that Assessee was not able to satisfy the Assessing Officer with regard to the genuineness of the payment made to the transporters, contractors etc. inasmuch as the evidence in the form of bills etc. was not produced. Consequently, the claim of the appellant-assessee was correctly denied by the Authorities under Section 40A(3) of the Act read with Rule 6DD(h) of the Rules. - Decided against assessee.

Issues Involved:
1. Applicability of Rule 6DD(h) of the Income Tax Rules, 1962.
2. Applicability of Rule 6DD(j) of the Income Tax Rules, 1962.
3. Genuineness of payments exceeding ?10,000 in cash.
4. Disallowance of expenditure under Section 40A(3) of the Income Tax Act, 1961.

Detailed Analysis:

1. Applicability of Rule 6DD(h) of the Income Tax Rules, 1962:

The appellant's factory is located in village Devada, which lacks banking facilities. The appellant made cash payments exceeding ?10,000 to contractors and laborers, totaling ?21.37 lakhs, and claimed that these payments were exempt under Rule 6DD(h) of the Income Tax Rules, which allows for such exemptions in villages without banking facilities. However, the Assessing Officer disallowed the claim, stating that Rule 6DD(h) applies only to payments made to persons ordinarily resident or carrying on business in the village lacking banking facilities. The Tribunal upheld this view, noting that the appellant failed to prove that the recipients of the payments were carrying on business in village Devada.

2. Applicability of Rule 6DD(j) of the Income Tax Rules, 1962:

The appellant argued that Rule 6DD(j), a residuary clause, should not be applied unless Rule 6DD(h) is exhausted. The Tribunal, however, applied Rule 6DD(j) to assess the payments made to transporters, contractors, and suppliers who had business establishments outside village Devada. The Tribunal found that the appellant could not prove the identity of the payees or the genuineness of the transactions, as no supporting bills or vouchers were produced. Consequently, the Tribunal disallowed the claim under Section 40A(3) of the Act.

3. Genuineness of Payments Exceeding ?10,000 in Cash:

The appellant failed to produce bills or vouchers to substantiate the cash payments made to transporters, contractors, and suppliers of rice straw. Both the CIT(A) and the Tribunal upheld the Assessing Officer's decision, emphasizing the appellant's inability to prove the genuineness of these payments. The Tribunal noted that the appellant did not establish that the recipients were carrying on business in village Devada, thus failing to meet the requirements of Rule 6DD(h).

4. Disallowance of Expenditure Under Section 40A(3) of the Income Tax Act, 1961:

Section 40A(3) disallows deductions for expenditures exceeding ?10,000 made otherwise than by crossed cheque or bank draft, except under prescribed circumstances. The second proviso to Section 40A(3) allows for exceptions based on the nature and extent of banking facilities available. Rule 6DD outlines these exceptions, including Rule 6DD(h) for villages without banking facilities and Rule 6DD(j) for exceptional or unavoidable circumstances. The Tribunal found that the appellant did not satisfy the conditions of either rule, as the appellant failed to prove the genuineness and necessity of the cash payments. Consequently, the disallowance of ?21.37 lakhs was upheld.

Conclusion:

The High Court held that the appellant failed to establish that the payments were made to persons carrying on business in village Devada, thus not qualifying for the exemption under Rule 6DD(h). The Tribunal's application of Rule 6DD(j) was justified, as the appellant could not prove the genuineness of the payments. The substantial question of law was answered in favor of the respondent-Revenue, and the appeal was dismissed with no order as to costs.

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