2020 (10) TMI 37 - HC - Income Tax

Addition u/s.40A(3) - cash payments were effected by the assessee for the purpose of acquiring rights to screen movies in their theatres as exceeded ₹ 20,000/ - - nature and extent of banking facilities available, consideration of business expediency and other relevant factors - Whether Tribunal was right in holding that Rule 6DD has not been satisfied? - HELD THAT - Correct test to be applied is to examine as to whether the expenses would fall under any one of the exceptional circumstances set out in Rule 6DD of the Rules. Concept regarding business expediency or commercial expediency can hardly be canvassed by the assessees, as the assessees had been periodically adopting the modes by effecting cash payments. Therefore, concurrently the two authorities and the Tribunal have held against the assessees and we are not expected to examine the correctness of the impugned order as if exercising powers as the third appellate authority and what we are expected to do is to consider as to whether any substantial question of law arises for consideration in these appeals, while exercising power under Section 260A of the Act. No question of law, much less substantial question of law arises for consideration in these appeals. Assessment years under consideration in these appeals are 2014-15 and 2015-16 when the said Rules stood deleted and therefore, the Revenue is right in contending that the genuinity of the transaction is hardly a matter, which should weigh in the minds of the Assessing officer while examining as to the whether the assessees had violated Section 40A(3) of the Act. - Decided against assessee.

Issues Involved:
1. Applicability of proviso to Section 40A(3) of the Income Tax Act, 1961.
2. Satisfaction of Rule 6DD in relation to Section 40A(3).
3. Genuineness of transactions and identity of film producers/distributors.
4. Rejection of documents by the Tribunal without verification by lower authorities.

Detailed Analysis:

Issue 1: Applicability of Proviso to Section 40A(3)

The appellants argued that the Tribunal failed to consider the proviso to Section 40A(3), which allows for no disallowance of cash payments exceeding ?20,000 under certain conditions, such as the nature and extent of banking facilities available and business expediency. The court noted that Section 40A(3) prohibits deductions for cash payments exceeding ?20,000 unless specified circumstances under Rule 6DD are met. However, the appellants could not bring their cases under any of the exceptions in Rule 6DD.

Issue 2: Satisfaction of Rule 6DD

The appellants contended that the second proviso to Section 40A(3) is a substantive provision and that satisfaction of Rule 6DD should not affect the exemption. The court clarified that Rule 6DD lists specific circumstances under which cash payments exceeding ?20,000 may be allowed. The appellants failed to demonstrate that their cases fell under any of these exceptions, thus the disallowance under Section 40A(3) was justified.

Issue 3: Genuineness of Transactions and Identity of Film Producers/Distributors

The appellants argued that they had provided sufficient evidence to prove the genuineness of the transactions, including letters from payees and their PAN numbers. The court acknowledged that genuineness might be a factor but emphasized that it should be considered within the context of Rule 6DD. The court found that the assessees’ regular cash payments did not meet the exceptional circumstances required under Rule 6DD, thus the genuineness of transactions alone could not justify the cash payments.

Issue 4: Rejection of Documents by the Tribunal

The appellants claimed that the Tribunal erred in rejecting documents without restoring the matter to the lower authorities for verification. The court noted that the appellants had disclosed these details in the Auditor's report and not during the assessment. The court held that the Tribunal and lower authorities were correct in their approach, as the appellants did not meet the requirements of Rule 6DD, and thus, the rejection of documents was justified.

Conclusion:

The court concluded that no substantial question of law arose for consideration. The appeals were dismissed, affirming that the appellants did not meet the conditions under Rule 6DD to justify cash payments exceeding ?20,000. The court emphasized that the provisions of Section 40A(3) and Rule 6DD are aimed at regulating business transactions and preventing the use of unaccounted money, and the appellants failed to demonstrate exceptional circumstances that would warrant an exemption.

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