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TMI Blog2013 (12) TMI 959X X X X Extracts X X X X X X X X Extracts X X X X ..... ORDER:- PER : D.K. Srivastava The appeal bearing ITA No. 1315/Rjt/2010 filed by the assessee relating to assessment year 2007-08 arises out of the order passed by the ld. Commissioner of Income-tax (Appeals)-III, Rajkot on 26.06.2010 while the other appeal bearing ITA No.433/Rjt/2011 filed by the assessee arises out of another order passed by the ld. Commissioner of Income-tax (Appeals)-IV, Ahmedabad on 05.09.2011 relating to assessment year 2008-09. Facts, issues and the grounds of appeal in both the appeals are common. It is therefore convenient to dispose of both the appeals by a consolidated order. 2. In ITA No.1315/Rjt/2010, the assessee has taken the following grounds of appeal: "1. The Commissioner of Income Tax (Appeals) erred in confirming the disallowance of Rs. 2672198/- under the provisions of section 40(A)3 of the Act. The disallowance is not justified." 3. In ITA No. 433/Rjt/2011, the assessee has taken the following grounds of appeal: "1. The Commissioner of Income Tax [Appeals] erred in confirming the disallowance of Rs. 80,00,384/- under the provisions of section 40(A)3 of the Act. The confirmation of the disallowance is not justi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s made in a sum exceeding twenty thousand rupees otherwise than by an Account Payee cheque drawn on a Bank or by a Account payee Bank Draft, twenty percent of such expenditure shall not be allowed as an expenditure." 4.7 Analysing the above sections before and after 13.07.2006, I find that the assessee Firm has violated the provisions of section 40A(3)(a) by making payment otherwise than by A/c. payee cheque after 13.07.2006. The details submitted by the assessee do not conclusively substantiate the claim of the assessee that the payments were made by an A/c Payee cheques. The report of the ADIT(Inv) also support the stand of the Department. 4.8 Therefore, the payments made by the assessee to M/s. Shree Swaraj Oil Mill, Jam-Khambhalia after 13.07.2006 amounting to Rs. 1,33,60,988/- are otherwise than by a A/c. Payee cheque and thereby violate the provisions of Section 40A(3)(a) of the Act. Since the submission made by the assessee in response to the show cause notice dtd. 18.12.2009 is not acceptable and considering the findings made by the ADIT (Investigations)-2, Rajkot, I, therefore, disallow 20% of the payments made, which comes to Rs.26,72,198/- and add to the to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The decision of Hon'ble ITAT Pune Bench makes it clear that only because of transaction is genuine, and identity of party is established, if claim is allowed, it would amount to defeating the objective of enactment. Keeping in view the objectives of the enactment as discussed above, which is to curb proliferation of black money, no concession can be granted to the appellant on the grounds of commercial expediency. To highlight the issue, further observations of the Hon'ble Supreme Court in the case of Attar Singh Gurmukh Singh are re-produced hereunder: "The Tribunal in Sri Renukeswara Rice Mills v. ITO (2005) 93 TTJ (Bang) 912 referring to the decision of the Supreme Court in Attar Singh Gurmukh Singh v. ITO [1991] 191 ITR 667 (SC), observed: The Hon'ble Supreme Court noted that the intention to make payment by crossed cheque or crossed DD is to enable the assessing authority to ascertain that the payment is genuine and not out of the undisclosed source. It is also noted that section 40A(3) is intended to regulate business transactions and to prevent the use of unaccounted monies or to reduce the chances of use of black money for business transactions. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) mandated disallowance of 20% of any expenditure if payment exceeding twenty thousand rupees was made, against such expenditure, otherwise than by "a crossed cheque drawn on bank or by a crossed bank draft". The aforesaid provisions were amended with effect from 13th July 2006 to substitute the expression 'a crossed cheque drawn on a bank or by a crossed bank draft' in sub-sections (3) and (4) of section 40A, by 'an account payee cheque drawn on a bank or account payee bank draft'. The reasons for amendments made in section 40A(3) and the purpose that they seek to achieve have been explained in Circular No. 1/2007 dated 27.4.2007 issued by the Central Board of Direct Taxes as under: "14. Expenses or payments not deductible in certain circumstances - Section 40A(3) 14.1 The existing provisions contained in sub-section (3) and sub-section (4) of section 40A provide that twenty per cent. of the expenditure shall not be allowed as a deduction if payment in a sum exceeding twenty thousand rupees is made, against such expenditure, otherwise than by a crossed cheque or crossed bank draft. 14.2 A crossed cheque or crossed bank draft is not a non-negotiable instrument. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of section 40A(3). We are unable to agree with the aforesaid submissions. Circular issued by the CBDT (supra) refers to the instructions issued by the Reserve bank of India to the banks in which the difference between a crossed cheque and account payee cheque has been brought out. While account payee cheque is credited by the drawee bank to the bank account of the payee and none else, crossed cheque can be negotiated and thus can be credited by the drawee bank to the bank account of a person other than the payee. Account payee cheque is well covered by the definition of "cheque" as given in section 6 of the Negotiable Instruments Act read with section 5 thereof. In this view of the matter, payments made by a crossed cheque cannot be considered as payment by account payee cheque. Law requires payments to be made by an account payee cheque and not by a crossed cheque. In this view of the matter, all the arguments taken by the assessee in this behalf are rejected. 13. Another submission of the assessee at the time of hearing was that the purchases in respect of which impugned payments have been made were genuine and therefore section 40A(3) cannot be invoked. Such a plea cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X
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