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TMI Blog2014 (8) TMI 486X X X X Extracts X X X X X X X X Extracts X X X X ..... the cash payment - Rule 6DD provides that an assessee can be exempted from the requirement of payment by a crossed cheque or crossed bank draft in the circumstances specified under the rule - section 40A(3) and rule 6DD that they are intended to regulate business transactions and to prevent the use of unaccounted money or reduce the chances to use black money for business transactions. There existed some justification for the traders, at least at the relevant point of time, in insisting the payment of amounts, in cash - The reason is that the banking activity was not that prominent and popular, and instances of cheques issued by agencies or persons, in the course of business being bounced, were not infrequent - The delay in receiving the consideration for any material supplied by a trader would have its own cascading effect on the business activities - It is only when both the parties to the contract are known to each other so intimately, and the seller is very confident not only of the solvency of the purchaser, but also his business ethics, that he would be inclined to receive the consideration through cheque. The Assessing Authority has taken a hyper-technical view and fai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee in the same circle, and they have shown the amounts received from the applicant in their returns. Learned Senior counsel further submits that the insistence under Section 40A of the Act, as it stood then, was not absolute and the proviso itself made it clear that, if any amount exceeding ₹ 2,500/- is made otherwise than through crossed check, and in such cases and in such circumstances, as may be prescribed, shall not be disallowed. He contends that Rule 6DD clearly enumerated the circumstances under which the exemption is allowed for under the proviso to Section 40A, and the case of the applicant is covered under more heads than one, such as clauses (f) and (j) thereof. He has also placed reliance upon the circular dated 31-05-1977, issued by the Central Board of Direct Taxes (CBDT) and submits that the view taken by the Assessing Authority, Appellate Authority, and the Tribunal are contrary to law, and that the question framed by the Tribunal deserves to be answered in favour of the applicant. Sri J.V. Prasad, learned Standing Counsel for the respondent, on the other hand, submits that the applicant deliberately made the payments otherwise than in accordance w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time for making payment. They however insisted on cash payment from the assessee at the time of making such payment in order that they can repay the dues to their creditors and also met other expenses. It was stated that in the circumstances, it has become impracticable to make payments otherwise than by way of cash. The assessee has also stated that the recipient had to make payment to commission agents who in turn pay back the same to agriculturist-principals. In these circumstances, it was stated that their case falls both directly and indirectly under both clauses of (f) and (j) of rule 6DD of I.T. Rules, 1962. However, by taking the view that a sum of ₹ 9,33,720/- was paid in contravention of Section 40A(3) of the Act, the amount was disallowed. The Appellate Authority verified the records and partly allowed the appeal to the extent of ₹ 3,32,920/-, and the balance was disallowed. The Tribunal confirmed the said order. The answer to the question referred to us, depends upon the interpretation to be placed upon Section 40A(3), Rule 6DD and the purport of the circular issued by the CBDT. It is no doubt true that the objective underlying the introduction of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have caused genuine difficulty to the payee, having regard to the nature of the transaction and the necessity for expeditious settlement thereof, and also furnishes evidence to the satisfaction of the Income-tax Officer as to the genuineness of the payment and the identity of the payee. Taking into account, the experience in the process of implementation of the Act and the Rules in this behalf, the CBDT issued certain directions through circular dated 31-05-1977. Paragraph 3 of the circular reads: The Board has said that all the circumstances in which the conditions laid down in rule 6DD(j) would be applicable cannot be spelt out, although some of them which meet the requirements of the said rule, would be as under:- (i) The purchase is new to the seller; or (ii) The transactions are made at a place where either the purchaser or the seller does not have a bank account; or (iii) The transactions and payments are made on a bank holiday; or (iv) The seller is refusing to accept the payment by way of crossed cheque/draft and the purchasers business interest would suffer due to non-availability of goods otherwise than from this particular seller; or (v) The seller, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ors are not excluded. Genuine and bona fide transactions are not taken out of the sweep of the section. It is open to the assessee to furnish to the satisfaction of the Assessing Officer the circumstances under which the payment in the manner prescribed in section 40A(3) was not practicable or would have caused genuine difficulty to the payee. It is also open to the assessee to identify the person who has received the cash payment. Rule 6DD provides that an assessee can be exempted from the requirement of payment by a crossed cheque or crossed bank draft in the circumstances specified under the rule. It will be clear from the provisions of section 40A(3) and rule 6DD that they are intended to regulate business transactions and to prevent the use of unaccounted money or reduce the chances to use black money for business transactions. Several High Courts followed this dictum and took the view that the provision must be interpreted liberally and the assessees cannot be subjected to undue rigor. The Rajastan High Court in Smt. Harshila Chordia v. Income-tax Officer [2008] 298 ITR 0349 went a step further, and held that the circumstances mentioned in the circular of the CBDT cannot b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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