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TMI Blog1984 (11) TMI 173X X X X Extracts X X X X X X X X Extracts X X X X ..... s justified. 3. Shri Gujarathi explained the basis facts of the case with which there is no dispute. The assessee prepares ayurvedic preparations and has to made purchases of bottles, machinery, etc. During the year in question in the ordinary course of business the assessee made payments in cash over Rs. 2,500 to six parties as detailed in para 4 of the ITO s order. Shri Gujarathi pointed out that the lower authorities have not followed the provision of the law correctly. Sec. 40A(3), no doubt, requires the disallowance of expenditure which is incurred by payment in cash in excess of Rs. 2,500, but the provision has also some built in relief measure. Thus where an assessee shows that insisted payments by cheque or draft would have caused ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herever possible the assessee did make payments by demand drafts. For example the firs payment in the year to M/s K.K. Shah Co. was made by demand draft on 1st Jan., 1980 to the tune of Rs. 10,364. The first cash payment over Rs. 5,000 to M/s K. K. Shah Co. was made on 29th Jan., 1980 by withdrawing certain amounts which were lying to the credit of the assessee with another party in Bombay namely S. Himmatlal Co. and K.T. Parakh, Bombay. The second amount on 11th March, 1980 was also taken in cash from Himmatlal Co. The third amount Rs. 3,951 on 12th March, 1980 had to be made out of cash in hand. The fourth amount of Rs. 4,000 on 29th April, 1980 as also the fifth and sixth amounts of Rs. 5,000 and Rs. 3,000 on 30th April 1980 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts G. I. Number, etc. 5. Regarding Ramchandra Vithaldas who is a legal party of Jalgaon, Shri Gujarathi gave detailed copy of the account of this party in the books of the assessee, here there is only one payment of Rs. 3,000 paid on 11th Oct., 1980 by self cheque withdrawal. This payment had to be made because the day was Saturday and the party insisted on cash payment as cheque payment would have delayed encashment till Monday or perhaps later. These were the exceptional circumstances. Regarding Dalichand, another local party of Jalgaon, Shri Gujarathi showed from copy of the account of that party how one solitary payment of Rs. 4,000 had to be made on 30th Aug., 1980 again on Saturday. 6. As to the last item, namely, M/s Shrayas Art ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee has also linked certain cash payments with the withdrawals from the Bombay parties made much earlier, but there was sufficient time to obtain a cheque or draft as the case may be. Shri Walvekar further submitted that condition (iv) on para 4 of CBDT circular does not apply as the assessee had already received the goods and could as well have insisted on payment through demand draft as in other cases. In particular in the case of M. Ramchandra the Departmental Representative pointed out that there is a very big gap between the date of payment in cash and actual supply of goods which took place only after payment made in cash. Regarding case law Shri Walvekar submitted that in Registhan (P.) Ltd. vs. CIT, Jaipur (1984) 40 CTR (Raj) 340 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the time gap for obtaining a demand draft. In commercial circles it is common to find that the assessee delays payment even of cash as much as possible so that he can utilise the amounts during the interregnum for more other profitable deals. Therefore, the fact that there is some gap between the date of withdrawal of amount from one party and the payment to another party in Bombay does not necessarily mean that the assessee had all the time and facility for insisting on payment by cheque. From the facts given above it is clear that wherever impugned cash payments have been made the same have been made under extraordinary and exceptional circumstances warranting application of the proviso to s. 40A(3), r. 6DD(j) and the Executive instructi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t possible to give details to ITO at the time of hearing. He, however, submitted that the CIT(A) has admitted that the work is of technical type which can be done only by the partners. As the amounts are reasonable the same should be allowed. 12. In reply Shri Walvekar submitted that past history is not quite relevant in view of the failure of the assessee to produce adequate proof regarding the business necessity and actually incurring of the impugned expenditure. Referring to p. 21 of the paperbook Shri Walvekar highlighted the fact that most of the expenditure is incurred buy the partners and not by the employees. He further submitted that the question of allowance has to be examined with reference to the character of the expenditure a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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