2013 (12) TMI 304 - AT - Income Tax

Disallowance of cash payments towards purchase of scrap u/s 40(A)(3) - the assessee has made cash payments to the tune of Rs.32,58,905/- to Railway Department by tendering cash towards purchase of scrap Held that - The south western railway for its public auction sale put the general condition that the payment of balance of sale value and delivery of lots should be paid in cash only - Following CIT Vs. Rhydburg Pharmaceuticals Ltd. 2004 (1) TMI 37 - DELHI High Court When the payee insisted on cash payment and the transactions were found to be genuine and bonafide The expenditure shall be allowed - The payment made by the assessee in cash to the south western railway, who insisted for cash payment were covered by the exception laid down in Rule 6DD(b) of the Income-tax Rules 1962, as such, it was outside the purview of the provision contained in sec.40A(3) Following Sri Devendrappa M Kalal 2012 (8) TMI 188 - ITAT BANGALORE Decided in favour of assessee.

Summary

Issues Involved:
Assessment of disallowed cash payments made to railway department for scrap purchase under section 40(A)(3) of Income-tax Act, 1961.

Analysis:

Issue 1: Disallowance of Cash Payments
The appeal questioned the confirmation of Assessing Officer's action disallowing cash payments to railway department for scrap purchase under section 40(A)(3) of Income-tax Act, 1961. The Assessing Officer disallowed Rs.32,58,905/- cash payment to railway department as per provisions of section 40(A)(3) during the assessment. The Assessing Officer argued that the payments made in cash were not legal tender and hence Rule 6DD(b) did not apply. The first appellate authority upheld the disallowance, leading to the current appeal.

Issue 2: Application of Rule 6DD(b)
The Tribunal analyzed Rule 6DD(b) of Income-tax Rules 1962, which exempts payments to the Government made in legal tender from section 40(A)(3) provisions. The Tribunal referred to a similar case where it was held that payments to the Government in cash were covered under Rule 6DD(b) exceptions. The Tribunal explained that legal tender refers to the currency of a state used as money, and as the payment was made in Indian currency to the South Western Railway, which is part of the Government, it was considered legal tender. The Tribunal further cited judgments from Rajasthan High Court and Delhi High Court supporting this interpretation.

Issue 3: Tribunal's Decision
Based on the analysis of Rule 6DD(b) and relevant judgments, the Tribunal concluded that the cash payment made to the South Western Railway for scrap purchase fell under the exception provided in Rule 6DD(b) of Income-tax Rules 1962. Therefore, the provisions of section 40(A)(3) were not applicable in this case. The Tribunal followed a previous decision on similar facts and allowed the appeal, deleting the disallowance of Rs.32,58,905/-.

In conclusion, the Tribunal allowed the appeal, ruling that the Assessing Officer was not justified in disallowing the cash payments made to the railway department for scrap purchase under section 40(A)(3) of the Income-tax Act, 1961.