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2013 (12) TMI 959 - AT - Income TaxPayment excedding Rs.20,000 made through crossed cheque - Violation of Section 40A(3) - Held that - As per the Circular issued by the CBDT refers to the instructions issued by the Reserve bank of India to the banks in which the difference between a crossed cheque and account payee cheque has been brought out - Payments made by a crossed cheque cannot be considered as payment by account payee cheque. Law requires payments to be made by an account payee cheque and not by a crossed cheque - Section 40A(3) is neither subject to any reasonable cause nor to any exception. Once payment exceeding Rs. 20,000/- is shown to have been made otherwise than by account payee cheque drawn on a bank or account payee bank draft, the expenditure in respect of which such payment has been made cannot be allowed as deduction - All the conditions for the applicability of section 40A(3) are fully satisfied - Decided against assessee.
Issues Involved:
1. Disallowance under Section 40A(3) of the Income-tax Act for payments exceeding Rs. 20,000 made otherwise than by account payee cheque or bank draft for the assessment years 2007-08 and 2008-09. Issue-wise Detailed Analysis: Disallowance under Section 40A(3) for Assessment Year 2007-08: The assessee firm, engaged in the manufacturing and trading of edible oil, filed a return of income for the assessment year 2007-08. The Investigation Wing of the Income-tax Department discovered that the assessee made payments exceeding Rs. 20,000 to M/s. Shree Swaraj Oil Mill otherwise than by an account payee cheque or bank draft. Consequently, the Assessing Officer invoked Section 40A(3) and disallowed Rs. 26,72,198. The Assessing Officer noted that the cheques issued were not account payee cheques as they were encashed through Shroffs, violating the provisions of Section 40A(3)(a) effective after 13.07.2006, which mandates payments exceeding Rs. 20,000 to be made by account payee cheques or drafts. The CIT(A) upheld this disallowance. Disallowance under Section 40A(3) for Assessment Year 2008-09: For the assessment year 2008-09, the assessee filed a return declaring total income of Rs. 84,49,900. Investigations revealed that Rs. 80,00,384 was paid to M/s. Shree Swaraj Oil Mill otherwise than by account payee cheque or bank draft. The Assessing Officer disallowed this amount under Section 40A(3), citing similar reasons as for the previous year. The CIT(A) confirmed this disallowance as well. Tribunal's Analysis and Decision: The Tribunal noted that prior to the amendments effective from 13.07.2006, Section 40A(3) required payments exceeding Rs. 20,000 to be made by crossed cheque or bank draft. Post-amendment, the requirement changed to account payee cheque or bank draft to ensure traceability and prevent black money circulation. The Tribunal emphasized that the legislative intent behind the amendments was to strictly enforce compliance and that the genuineness of the transaction or the identity of the payee does not exempt the assessee from adhering to the prescribed mode of payment. The Tribunal rejected the assessee's contention that "account payee cheque" was not defined in the Income-tax Act or the Negotiable Instruments Act, clarifying that the distinction between crossed cheque and account payee cheque is well established and recognized by the Reserve Bank of India. The Tribunal also dismissed the argument that the genuineness of the purchases should exempt the assessee from the provisions of Section 40A(3), reiterating that the section is not subject to any reasonable cause or exception. The Tribunal concluded that since the assessee admitted to making payments exceeding Rs. 20,000 otherwise than by account payee cheque or bank draft, the disallowance under Section 40A(3) was justified. Therefore, the Tribunal upheld the CIT(A)'s orders confirming the disallowances for both assessment years and dismissed the appeals filed by the assessee. Order pronounced on 30.09.2013.
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