2023 (3) TMI 1516 - AT - Income Tax

Addition u/s 40A - payments to creditors through bearer cheques - Business exigency for making payments through bearer cheques - HELD THAT - Exceptions have been carved out by way of Rule 6DD of the IT Rules, and thus, no benefit can be given, over and above, what was stated in Rule 6DD of the IT Rules. Further, assuming for a moment, the cases and circumstances of consideration of business exigency and other relevant factors comes under exception, but in this case, the assessee could not make out a case of business exigency and other relevant factors which compelled the assessee to make payment through bearer cheques to the parties, because as claimed by the assessee, the business of the assessee was closed down long back and the assessee was not making any purchases from the parties. Assessee has made payment through proper banking channel, but such payments have been made otherwise than account payee cheque or bank draft and the assessee could not explain as to why payment cannot be made through crossed cheque and bank draft or by electronic mode of transfer of funds. Since, the assessee could not make out a case of business exigency, we are of the considered view that no exceptions can be made out from the proviso to Sec.40A(3) of the Act, and thus, we reject the arguments of the assessee. In so far as, the case law relied upon by the assessee in the case of N.Mohammed Ali v. ITO 2016 (1) TMI 941 - MADRAS HIGH COURT we find that in the said case, the Hon ble Madras High Court has taken note of proviso to Sec.40A(3) of the Act, and three ingredients provided thereunder including regarding business exigency, but made it very clear that it is for the assessee to prove the existence of consideration of business exigency that compelled to make payment in cash. Since, the assessee could not make out a case of business exigency in making payment otherwise by way of mode of payment specified u/s.40A(3) we are of the considered view that there is no error in the reasons given by the CIT(A) to sustain addition made towards payment u/s.40A(3) of the Act, and thus, we are inclined to uphold the findings of the CIT(A) and reject the arguments of the assessee.

Issues:
1. Disallowance of payments made through uncrossed bearer cheques under section 40A(3) of the Income Tax Act.
2. Applicability of exceptions under Rule 6DD of the Income Tax Rules, 1962, to the case.
3. Business exigency as a valid reason for making payments through bearer cheques.
4. Interpretation of proviso to Section 40A(3) of the Act in relation to business exigency and banking facilities.

Analysis:

Issue 1: Disallowance of payments made through uncrossed bearer cheques under section 40A(3)
The appeal was filed against the order of the Commissioner of Income Tax (Appeals) concerning disallowance of payments made through uncrossed bearer cheques under section 40A(3) of the Income Tax Act for the assessment year 2009-10. The Assessing Officer disallowed a sum of Rs.97,45,000 under section 40A(3) as the assessee made payments in excess of the prescribed limit through uncrossed bearer cheques. The Tribunal upheld the disallowance, stating that the payments did not fall under any exceptions as provided in Rule 6DD of the Income Tax Rules, and the assessee failed to prove the existence of business exigency for making such payments.

Issue 2: Applicability of exceptions under Rule 6DD
The Tribunal examined whether the case of the assessee falls under any of the exceptions provided in Rule 6DD of the Income Tax Rules, 1962. It was observed that the assessee's claim that the payments were made through an Agent under Clause (k) of Rule 6DD was unsubstantiated. The Tribunal concluded that the case did not meet the criteria specified in Rule 6DD, thereby upholding the disallowance under section 40A(3).

Issue 3: Business exigency for making payments through bearer cheques
The assessee argued that there was a business exigency for making payments through bearer cheques due to pressure from trade creditors. However, the Tribunal found that the assessee could not provide sufficient evidence to establish the existence of business exigency. As a result, the Tribunal rejected the argument and upheld the disallowance of payments made through bearer cheques.

Issue 4: Interpretation of proviso to Section 40A(3) in relation to business exigency
The Tribunal analyzed the proviso to Section 40A(3), which exempts certain payments from disallowance based on business exigency and other relevant factors. It was noted that the exceptions were specified in Rule 6DD of the Income Tax Rules, and the Tribunal emphasized that no additional benefits could be granted beyond what was outlined in the rule. The Tribunal concluded that the assessee failed to demonstrate a valid business exigency for making payments through bearer cheques, leading to the rejection of the appeal.

In conclusion, the Tribunal dismissed the appeal filed by the assessee, upholding the disallowance of payments made through uncrossed bearer cheques under section 40A(3) of the Income Tax Act for the assessment year 2009-10.

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