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TMI Blog2009 (6) TMI 903X X X X Extracts X X X X X X X X Extracts X X X X ..... the view that the payments have been split into amounts below Rs. 20,000 to escape the rigour of section 40A(3). He had, further, opined that even prior to the amendment of section 40A(3), the intention of the Legislature was to disallow cash payments exceeding Rs. 20,000 effected on a single day to one party though it was not clearly worded to that effect. He drew strength from the finding of the hon'ble Himachal Pradesh High Court in the case of CIT v. Dalip Chand and Sons [2008] 301 ITR 276 and resorted to make the said disallowance, brushing aside the following case law on which the assessee-firm had strong reliance : (i) CIT v. Aloo Supply Co. [1980] 121 ITR 680 (Orissa) ; (ii) CIT v. Triveniprasad Pannalal [1997] 228 ITR 680 (MP) ; and (iii) CIT v. Kothari Sanitation and Tiles P. Ltd. [2006] 282 ITR 117 (Mad). This was vehemently opposed by the assessee-firm before the learned Commissioner of Income-tax (Appeals). It was contended that the amendment of section 40A(3) through Finance Act, 2008, bringing aggregate payments totalling over Rs. 20,000 in a day to the same party within the ambit of section 40A(3) is prospective in nature and cannot be applied retrospectivel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the sellers will prefer to do business with a buyer who tenders hard cash. Strong reliance was placed on the following case law : (i) CIT v. Aloo Supply Co. [1980] 121 ITR 680 (Orissa) ; (ii) CIT v. Triveniprasad Pannalal [1997] 228 ITR 680 (MP) ; and (iii) CIT v. Kothari Sanitation and Tiles P. Ltd. [2006] 282 ITR 117 (Mad). On the other hand, the learned Departmental representative had vehemently argued that, as rightly pointed out by the Assessing Officer, the assessee-firm had made the cash payment exceeding Rs. 20,000 on a particular day to a particular party but spilt the cash payment into two or more in order to show that each cash payment on a particular day does not exceed Rs. 20,000. It was, further, submitted that the assessee-firm had intentionally split the cash payment on a particular day to multiple payments below Rs. 20,000 which was nothing but an act to circumvent the provisions of section 40A(3). It was pleaded that the order of the Assessing Officer is well-netted which has been ratified by the first appellate authority in a judicious manner and as such, it requires no interference at this stage. To buttress his argument, the learned Departmental repres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n'ble Madras High Court after considering the issue, had concluded that "the cash payments were made to small time vendors, who came from surrounding villages to sell the skin to the assessee and that the cash payments were indispensable". (ii) In the case of CIT v. Chrome Leather Co. P. Ltd. [1999] 235 ITR 708, the hon'ble Madras High Court has held that "no disallowance under section 40A(3) could be made in view of the fact arrived at by the Tribunal that it was not practicable always to make payments by crossed cheques and the identity of the payee and genuineness of the payments were successfully established." (iii) In the case of CIT v. Ashoka Steel Industries and Flour Mills [2007] 293 ITR 192, the hon'ble Punjab and Haryana High Court has held that "the genuineness of the transaction is not disputed. The court is not to substitute its own option simply for the reason that other view is also possible. Cash transactions on exceptional or unavoidable circumstancesspecial circumstances." (iv) In the case of CIT v. Kothari Sanitation and Tiles P. Ltd. [2006] 282 ITR 117, the hon'ble Madras High Court has held that "in a sum" in section 40A(3) refers to a single sum. Therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the cash payments have been made against the bills, amounting to less than Rs. 20,000. However, the Assessing Officer had alleged in the assessment order that "4. . . . it would appear that the assessee has intentionally split the cash payment made on a particular day to multiple payments below Rs.20,000 in order to circumvent the provisions of section 40A(3)". The sweeping allegation of the learned Assessing Officer without any documentary evidence to substantiate it does not carry any conviction. In our considered opinion, disallowance cannot be made for the sake of disallowance without proper application of mind. When the Assessing Officer had not doubted the genuineness of the transactions and the identity of the payee and the genuineness of the payments were established in the case on hand, the Assessing Officer should not have invoked the provisions of section 40A(3). As ruled in the case of CIT v. Kothari Sanitation and Tiles P. Ltd. [2006] 282 ITR 117 (Mad), irrespective of the number of transactions, if the amount in each transaction did not exceed the limit prescribed in section 40A(3), the rigour of section 40A(3) will not apply. In the case of CIT v. Triveniprasad P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the identity of the payee(s) and the genuineness of the payments were successfully established, the assessee-firm's case does not fall within the ambit of section 40A(3). Moreover, a large number of judicial pronouncements, as elaborately discussed supra, are squarely applicable to the facts of the case on hand. With respect, we have perused the hon'ble Tribunal's finding in I. T. A. Nos. 257, 258 and 259/Bang/2005, dated February 28, 2006 in the case of Lancy Constructions, Mangalore for the assessment year 2001-02. The hon'ble Tribunal had held that the assessee made payments in cash in excess of the limit for the purpose of running its business smoothly and effectively and such payments have been made for business expediency. Even though rule 6DD(j) is deleted from the rules, as per the second proviso to section 40A(3), the Assessing Officer has to consider by having regard to the nature and the extent of banking facilities available, conside ration of business expediency and other relevant factors. Even from this angle also payment is allowable. If the sellers have insisted on payment of cash and no cheques they received in certain cases, the assessee-firm had no option ..... X X X X Extracts X X X X X X X X Extracts X X X X
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