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TMI Blog1997 (6) TMI 72X X X X Extracts X X X X X X X X Extracts X X X X ..... account of unavoidable and unexceptional circumstances, cash payments exceeded Rs.2500 were made and the assessee came within the benevolence of Rule 6DD(i) and the Board's Circular No. 220 dated 31st May, 1997. The Assessing Officer added the said sum of Rs.1,22,077. The addition of Rs.10,000 was made by the Assessing Officer because from out of total labour payments of Rs.2,04,078 most of the payments were not verifiable with supporting vouchers. He, therefore, made an addition of Rs.10,000. The assessee was unsuccessful before the A/C who confirmed both additions. 2. The assessee has filed written submissions have been placed on record along with some connected papers and copies of the Judgments of various Courts rendered on the addition under section 40A(3) of the Act. 3. We have given due consideration to the written submissions in respect of both the grievances and the various case laws, citations of which are given therein. We have also heard the DR who relied upon the orders of both the lower authorities. 4. We shall deal with the second grievance first. Admittedly the Assessing Officer has not doubted the genuiness of the payments made to M/s. STP Ltd. which is assessed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... restrict the addition in a sum of Rs.75,000 in labour payment account as against Rs.10,000 made by the Assessing Officer and confirmed by the A/C. 6. In the result, the appeal is partly allowed. ITA No. 348 (Pat.)/1992 A.Y. 1990-91 I have read carefully the order proposed by my ld. brother. I agree with his decision regarding upholding of an addition of Rs.7,500 as against Rs.10,000 upheld by the CIT(A) in Labour Payment Account. However, with respect, I am unable to come to the same conclusion as my learned brother with regard to a disallowance of Rs.1,22,077 made by the Assessing Officer under section 40A(3) of the Act, and upheld by the CIT(A). 2. In para 4 of the proposed order my ld. Brother has given weight to the assessee's contention on the ground that the Assessing Officer has not doubted the genuineness of the payments made to M/s. STP Limited. However, the ld. counsel for the assessee, in his second written submissions before the Tribunal, has referred to the decision of the Supreme Court in case of Attar Singh Gurmukh Singh v.ITO [1991] 191 ITR 667 and has given an extract also where it has been observed by the Hon'ble Supreme Court that "genuine and bona fide trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... --------------------------------------------------- DN/CB/90/0077 8-12-1989 10,982.60 DN/CB/90/0086 3-1-1990 17,35.92 DN/CB/90/0087 4-1-1990 23,124.96 DN/CB/90/0104 28-2-1990 12,245.05 DN/CB/90/0120 16-3-1990 16,941.71 DN/CB/90/0131 31-3-1990 41,647.18 ---------------- 1,22,077.42" ---------------------------------------------------------------------------- 6. The assessee was asked to explain the reasons for making the above payments other than by crossed cheque or crossed demand draft and a written reply was given by the assessee, giving a copy of letter from M/s. STP Ltd. to the assessee regarding supply of material. The following extract has been reproduced in the assessment order: "Further to our discussion in connection with the above is to inform you that our terms of payment is full value of the material in the form of Demand Draft in favour of STP Ltd. on Calcutta or in Cash. We win not accept any cheque against our product sale" 7. The Assessing Officer observed that it was clear that the terms of payment were not only in cash but M/s. STP Ltd. were accepting the demand draft also, and the assessee should have made payment by demand draft as provided under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pecific discount is given by the seller for payment to be made by way of cash. (g) It can be said that it would, generally, satisfy the requirements of rule 6DD(1), if a letter to the above effect is produced in respect of each transaction falling within the categories fisted above from the seller giving full particulars of his address, sales tax numbers/permanent account number, if any, for the purposes of proper identification to enable the Income-tax Officer to satisfy himself about the genuineness of the transaction. The Income-tax Officer will, however, record his satisfaction before allowing the benefit of rule 6DD(j)." 11. A copy of the Certificate dated 25-7-1991 has also been placed in the paper book, according to which, M/s. STP Ltd. did not have a bank account at Dhanbad. The CIT(A) has mentioned that a certificate from STP Ltd. has been filed before him but there is nothing to show that he admitted this additional evidence, since it has not been discussed and no reasons have been recorded by the CIT(A) for admitting it as referred to by Rule 46A(2) of the Income-tax Rule, 1962. Further, Board's Circular No. 220 deals with the case where payment by crossed cheque or cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Rs.8,03,373. The income shown from out of those receipts was Rs.1,05,671 which works out to more than 13 per cent. M/s. STP Ltd. is a public limited company having its headquarters at Calcutta and its Branch at Dhanbad. Admittedly, the assessee purchased material from the Branch Office of M/s. STP Ltd. at Dhanbad for the purpose of using the said material in its construction work. It made cash payments of more than Rs.10,000 each time on the following dates and under the following bills obtained from M/s. STP Ltd.: ---------------------------------------------------------------------------- Bill No. Date of cash payment Amount Rs. ---------------------------------------------------------------------------- DN/CB/90/0077 8-12-1989 10,982.60 DN/CB/90/0086 3-1-1990 17,135.92 DN/CB/90/0087 4-1-1990 23,124.96 DN/CB/90/0104 28-2-1990 12,245.05 DN/CB/90/0120 16-3-1990 16,941.71 DN/CB/90/0131 31-3-1990 41,647.18 -------------- 1,22,077.42" ---------------------------------------------------------------------------- Under section 40A(3), where the assessee incurs any expenditure in respect of which payment is made, after such date (not being later than the 31st day of Mar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Member deleted the addition in his proposed order for the reasons stated below. Admittedly, the Assessing Officer has not doubted the genuineness of the payments made to M/s. STP Ltd. which is assessed to income-tax. He followed the Gujarat High Court decision in Hasanand Pinjomal's case and held that section 40A(3) was intended to serve the objective of checking tax evasion and ensure that cash payment was genuine and was made out of income from undisclosed sources. He also found out to be one of the ratios of the said decision that while interpreting the provisions or rules, the very object of Legislature should not be frustrated. Similarly, he relied upon the Calcutta High Court decision in Girdharilal Goenka's case and found that the object of section 40A(3) is to check evasion of tax and not to disallow legitimate expenditure where the amount was paid in cash or received in cash. The Assessing Officer has to find out whether the transaction is genuine or not, and if he finds that the transaction is genuine, he should allow the deduction. He also followed the Punjab & Haryana High Court decision in Avtar Singh & Son's case where it was laid down that when the identity of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a holiday on account of Guru Govind Singh's Birthday, and on 31-3-1990 also, no bank draft is issued from the Bank and the sum of Rs.41,647 paid on 31-3-1990 and the sum of Rs.17,136 paid on 3-1-1990 were thus covered under Rule 6DD(1). The learned Accountant Member stated that the Board's Circular No. 220 deals with the case where payment by crossed cheque or crossed demand was not possible and, therefore, the payment was made in cash. He distinguished the facts of this case stating that here the situation is different. Payment by crossed demand draft was acceptable to M/s. STP Ltd. and, therefore, Circular No. 220 does not apply to the case. As per the certificate dated 25-7-1991 of M/s. STP Ltd., the amount was sent to the Calcutta Office of M/s. STP Ltd. by STP Ltd., Dhanbad, through demand draft. If that is so, there is no reason why the assessee could not have done the same, wonders the ld. Accountant Member. He did not even prepare to excuse the payment in cash on 3-1-1990 being a bank holiday and on 31-3-1990 being yearly closing day. According to the ld. Accountant Member, the crossed demand draft could have been prepared on the next day. Thus, even conceding that 3-1-199 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rishna Bhawan, Manohartand, Sindri. ---------------------------------------------------------------------------- Our Bill No. Date Amount *D/D. No. Date ---------------------------------------------------------------------------- DHN/CB/90/0077 8-12-1989 10,982.60 MOL/A/2-822359 9-12-1989 DHN/CB/90/0086 3-1-1990 17,135.92 MOL/A/2-822391 4-1-1990 DHN/CB/90/0087 4-1-1990 23,124.96 MOL/A/2-822395 6-1-1990 DHN/CB/90/0089 19-1-1990 9,720.66 MOL/A/2-010194 8-2-1990 DHN/CB/90/0095 6-2-1990 3,468.74 DHN/CB/90/0104 20-2-1990 12,245.05 MOL/A/2-822564 7-3-1990 DHN/CB/90/0120 16-3-1990 16,941.71 MOL/A/2-822579 20-3-1990 & MOL/A/2-822580 DHN/CB/90/0131 31-3-1990 41,647.18 MOL/A/2-822593 & MOL/A/2-822594 4-4-1990 ---------------------------------------------------------------------------- *Further it is to be noticed that the money realised against the aforesaid bills were sent to our Calcutta Office through Demand Drafts, as per details mentioned above, since we have no Bank Account at Dhanbad. For STP Limited sd/- Sr. Unit Incharge." A perusal of the certificate would show that it was not possible immediately to send the amounts covered under each of the bills to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccount, it would have been certainly disclosed in the said balance-sheet. The very fact that no such account was mentioned in the balance-sheet would show that the assessee had no bank account at Dhanbad where the transaction took place. Further, if one critically examines the letter of STP Ltd. dated 9-1-1989, from which I have already extracted in the paragraphs of this order, one thing is very clear. M/s. STP Ltd. agrees to admit demand draft for the purchase value of the material sold, only when D.D. is drawn on any Calcutta Branch, otherwise it always insisted cash from its purchasers. M/s. STP Ltd. has its Head Office at Calcutta and Branch Office at Dhanbad. It carries on business both at Calcutta as well as at Dhanbad. It never said in the letter dated 9-11-1989 that it would accept demand draft even for the business conducted by it at places other than Calcutta. Therefore, in a way, the letter dated 9-11-1989 can as well be construed in favour of the assessee. Suffice for me to cite the Punjab & Haryana Court judgment rendered in CIT v. Brij Mohan Singh.& Co. [1994] 209 ITR 753. At page 754 of the head-note, it had stated the facts as well as its judgment thereon. It is si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ular dated May 31, 1977, thus, stood complied with to enable the assessee to claim deduction of the expenditure. Further, the contention of the assessee that the actual amount for which purchases of liquor under the permits granted by the Excise and Taxation Department were to be made, would be known only at the time of actual purchase was accepted. Thus, it was not possible to obtain bank drafts in advance to make the purchases. Furthermore, the identity of the payee had been successfully established, i.e., the liquor to be purchased by the assessee, a liquor contractor from the distillery could only be made on issuing of permits, identifying the distillery. The Tribunal was, therefore, justified in deleting the disallowance made under section 40A(3). No question of law arose from its order".
Therefore, for the foregoing reasons, I agree with the learned Judicial Member's order fully and completely and I hold that the sum of Rs.1,22,077 cannot be added in the hands of the assessee under section 40A(3) and the addition in this regard, should be deleted fully.
7. The matter should now go back to the Division Bench who should decide the issue according to the majority decision. X X X X Extracts X X X X X X X X Extracts X X X X
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