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TMI Blog2015 (8) TMI 569X X X X Extracts X X X X X X X X Extracts X X X X ..... individual name. As noted in the assessment order, during the course of assessment proceedings, the details of the closing stock as on 31.03.2009 alongwith details of sales/purchases were placed on record. The consideration, which in respect of each of the transactions was admittedly in excess of Rs. 20,000/-, was paid in cash. Payment by demand draft was made only in respect of one of the transactions. These payments in cash were disallowed by the Assessing Officer and the order in this regard was upheld by the Tribunal. The CIT(Appeals) had allowed the deductions. Section 40A(3) of the Act reads thus:- "40A(3) Where the assessee incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds twenty thousand rupees, no deduction shall be allowed in respect of such expenditure." It is important to note the following proviso to the Section:- "Provided that no disallowance shall be made and no payment shall be deemed to be the profits and gains of business or profession under sub-section(3) and this sub-section where a payment or aggregate of pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions and arguments made by the assessee and has deleted the addition, which is against the facts of the case and against the provisions of law. 6. Rule 6DD(j) is not exhaustive of the circumstances in which the proviso to Section 40A(3) is applicable. It is only illustrative. 7. The respondent/assessee's case is supported by several judgments. The Rajasthan High Court in Smt. Harshila Chordia vs. Income Tax Officer, (2008) 298 ITR 349 held as under:- "14. About this clause, many doubts were raised and enquiries were directed to the Board as to what shall constitute exceptional and unavoidable circumstances within the meaning of Clause (j). That led to issuance of Circular by the Board on May 31, 1977 ([1977] 108 ITR (St.) 8), which is published in Taxmann, Vol. 1, 1988 Edition. Significantly paragraph 4 of the aforesaid Circular shows very clearly that all the circumstances in which the conditions laid down in Rule 6DD(j) could be applicable cannot be spelt out. However, some of them which will seem to meet the requirements of the said rule are as follows: a. the purchaser is new to the seller; or b. the transactions are made at a place whether either the purchaser or the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Rule 6DD (j), the Board stepped in by issuing the aforesaid circular. 19. This clarification, in our opinion, is in conformity with the principle enunciated by the Supreme Court in CTO v. Swastik Roadways as noticed above. 20. In this case, there is no dispute about the genuineness of the transactions and the payment and identity of the receiver are established. Therefore, the case clearly fell within the parameters of paragraphs 4 and 5 of the aforesaid circular read together." 8. The respondent's case is also supported by the judgment of the Supreme Court in Attar Singh Gurmukh Singh vs. ITO, (1991) 4 SCC 385. After referring to Rule 6DD, the Supreme Court held:- "7. In our opinion, there is little merit in this contention. Section 40-A(3) must not be read in isolation or to the exclusion of Rule 6-DD. The section must be read along with the rule. If read together, it will be clear that the provisions are not intended to restrict the business activities. There is no restriction on the assessee in his trading activities. Section 40-A (3) only empowers the assessing officer to disallow the deduction claimed as expenditure in respect of which payment is not made by crossed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11. The appellant had admittedly advanced an aggregate amount of Rs. 97,79,200/- between the period 01.04.2008 and 04.12.2008. The amounts were repaid in the year 2009. The appellant contended that he had at his disposal substantial amounts of interest free funds. This fact has been accepted by the Assessing Officer. The Tribunal has not found otherwise. The assessment order sets out the details of the amounts advanced by the appellant as well as the interest free funds received by the appellant. The Tribunal however, upheld the addition made by the Assessing Officer observing that "nothing has been brought on record how the interest free funds which have been claimed to have been available for advancing these loans to various persons were actually available for advancing to these persons". The Tribunal further observed that it had not been pointed out as to how interest free funds available were advanced to the said persons. 12. It is a little difficult to understand these observations. It has not been denied that interest free funds were available. Nor has it been denied that interest free advances were made by the appellant. In fact, the latter has been accepted by the Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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