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TMI Blog2013 (12) TMI 1114X X X X Extracts X X X X X X X X Extracts X X X X ..... se presence the payments in cash were made. 2. That without prejudice to above, in any case the disallowance u/s 40A(3) under appeal is totally unjust, unlawful and deserves to be deleted. " 3. Briefly stated the facts of the case giving rise this appeal are that the case was selected for scrutiny and notices u/ss. 143(2) and 142(1) of the Income Tax Act, 1961 (for short the Act) were served on the assessee. During the assessment proceedings, the Assessing Officer observed and held that the assessee has made payments for purchase of land in cash, therefore, provisions of section 40A(3) of the Act got attracted and the Assessing Officer determined the disallowance @ 20% of total cash payment of Rs. 16,37,440 amounting to Rs.3,27,488/-. The Assessing Officer also made a disallowance pertaining to the payments in cash to Meerut Development Authority for external development etc. for houses @ 20% of total cash payment of Rs.99,716 amounting to Rs.19,943/-. Finally, the Assessing Officer made a disallowance of Rs. 3,47,431 u/s 40A(3) of the Act. 4. Being aggrieved by the above assessment order, the assessee preferred an appeal before the Commissioner of Incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceived by them are necessarily in cash. These amounts are collected and in turn handed over to the assessee. The assessee in terms of its contract is bound to maintain constant supplies in the trains and ensure that at no point in time can the passengers be deprived of these articles (which are food articles, soft drinks and other items necessary for travel). In the course of such transactions, it sources these articles from M/s Shruti Enterprises. Apparently, that concern is also a small time one and insists on cash payments for ensuring continuity and timely supplies. Whilst, the Court is conscious and does not in any manner wish to comment adversely on the larger public interest element embedded in Section 40A and the underlying principle, at the same time, the Court also notes that the proviso seeks to relieve to a certain extent, the measure of hardship which might be imposed upon small businesses and professionals who are engaged in activities and are dependent entirely on timely cash flow. It is in such cases that Rule 6DD - which was formulated as a proviso to Section 40A (3) - steps in to aid such assessees and concerns. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interpreted keeping in view the object of the main provision. The second proviso to s. 40A(3) refers to "the nature and extent of banking facilities available, considerations of business expediency and other relevant factors", which means that the object of the legislature is not to make disallowance of such cash payments which have to be compulsorily made by the assessee in view of absence of banking facilities at the place of payment. In the present case, even if it is assumed that the payment was made at the District headquarter, the admitted position is that the sellers did not have any bank accounts at such town and they did not reside or carry on any business or farming activity at such town. The AO and the learned CIT(A) have observed that the appellant company could have opened bank accounts at such town in the name of the sellers. In our view, it would be too much to expect that the appellant company would be able to compel the villagers to open bank accounts at the town which ultimately they will not be able to operate as they do not reside at such town. If such a myopic view is taken regarding the interpretation of r. 6DD(h), in our view, the very object of the legislat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the sellers at their villages or at the town where the sale deed was registered. 11. Considering the entire facts and proposition that the payments were made at villages where banking facilities did not exist is accepted. After careful consideration of practical situation, we also observe that even if it is assumed that payments were made at a town where banking facilities were available, the case of the appellant company would still fall under the exception of Rule 6DD(h). We further observe that Rule 6DD(h) of the Rules has to be interpreted liberally so as not to frustrate the object of the legislature. The object of s. 40A(3) is not to disallow genuine payments and r. 6DD has to be interpreted keeping in view the object of the main provision. The second proviso to s. 40A(3) refers to "the nature and extent of banking facilities available, considerations of business expediency and other relevant factors", which means that the object of the legislature is not to make disallowance of such cash payments which have to be compulsorily made by the assessee in view of absence of banking facilities at the place of payment. As per submissions of the DR if it is assumed that the payme ..... X X X X Extracts X X X X X X X X Extracts X X X X
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