9911796707
TMI Blog1988 (3) TMI 109X X X X Extracts X X X X X X X X Extracts X X X X ..... h Flour Mills Ltd. In the asst. yr. 1980-81. In the other asst. yr. 1981-82 also most of the purchases were made from Ganesh Flour Mills Ltd. The practice adopted by the assessee of making payments for these purchases was to deposit the cash in advance and then obtain the supplies. Both the deposit of cash and the supply of oil took place on the same day. In the books of Ganesh Flour Mills Ltd. the account of the assessee was credited with the deposits made and debited with the bills raised against the supplies made. The amounts deposited was in round sums whereas the amounts raised for the bills were for the actual value of the goods supplied. The deposits made by the assessee to Ganesh Flour Mills Ltd. against supplies were regarded by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers almost on the same day. So the business exigencies of the assessee were such that it goes to Ganesh Flour Mills Ltd., pays cash, takes delivery of the vegetable ghee and supplies to the customers and collects cash then and there on the same day. It was in this process that everything was carried on in cash. The margin of profit that the assessee gets is about 1 per cent in these supplies and if the assessee is to go to a bank, obtain a draft and then deposit the bank draft against the supplies, first it would involve delay, insecurity for the cash carried to the bank and expenditure for the bank draft charges, which the assessee could ill-afford in view of the very meagre profit earned on the sale of vegetable ghee. It was also pointed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Flour Mills Ltd. had not stated that it would accept only cash for supplies. It stated by way of a certificate that it would accept even bankdrafts. Such being the case and there being no prohibition for making payments by bankdrafts, the assessee should not have made payments only in cash and this violated the provisions of s. 40A(3) and no exceptional circumstance was shown to exist forcing the assessee to make the payments in cash. In other words, when there was no compulsion from the side of Ganesh Flour Mills Ltd. to make payments only in cash, the assessee should not have made payments in cash in violation of s. 40A(3). Further, the assessee did make some payments by way of bankdrafts. When some payments could be made by bankdrafts, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed out of business. A provision of an Act should not compel a person in its implementation to ease him out of business. Precautions are necessary to take in the interests of Revenue to prevent loss of revenue but the exceptions provided must be construed is such a way that the real nature of the business is understood and its conduct is not hampered. Lastly it was submitted that for the asst. yr. 1984-85 an addition made by the ITO under identical circumstances was deleted by the Commissioner(A) against which the Department has not chosen to file a further appeal and the amount involved in that year was no less than Rs. 22,99,175 which would support the view that the Commissioner(A) was satisfied after going to the conditions in which the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions but the Departmental Representative pointed out that those decisions would be of no consequence as this case should be decided on its own merits. 6. In our judgment the Department was not quite justified in making these additions under s. 40A(3). As rightly pointed out on behalf of the assessee, the genuineness of the payment as well as the identity of the party was more than fully established. What is more, Ganesh Flour Mills Ltd. the only supplier of Vanaspati Ghee inDelhiis a Government Company and it is an unwritten rule with every Government Company to make the payment first and then obtain deliveries of goods. The certificate issued by Ganesh Flour Mills Ltd. clearly stated that they would not accept cheques and that they wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l not afford an opportunity of tracing the person for cross-examination. So if the identity of the person and the genuineness of payments are established, then the rigours of s. 40A(3) should be very much reduced. This aspect has been provided for in r. 6-DD(j) of the IT Rules, which provided that no disallowance under s. 40A(3) be made if the assessee is able to satisfy the ITO that the payments could not be made by a crossed cheque or crossed bank draft due to exceptional or unavoidable circumstances or the payment was not practicable or would have caused genuine difficulty to the payee having regard to the nature of the transaction and the necessity for expeditious settlement thereof and also furnishes evidence to the satisfaction of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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