9911796707
TMI Blog2016 (1) TMI 941X X X X Extracts X X X X X X X X Extracts X X X X ..... visions of Section 40A(3) of the Act while justifying the disallowance at 20% of the total cash purchases made in the assessment year 2000- 2001 and 2001-2002? 4) Whether the Tribunal is correct in overlooking the business compulsions and expediency in making the cash purchases on the facts and in the circumstances of the case in the assessment years under consideration which would make the said provisions of Section 40A(3) of the Act inapplicable to make the disallowance contemplated? 5) Whether the Tribunal is correct in concluding that Rule 6DD of the Income Tax Rules, 1962, had no application to the cash purchases inspite of the fact that the fire crackers purchased by cash under compelling circumstances were manufactured without aid of power in a cottage industry?" 2. Heard Mr.S.Sridhar, learned counsel for the appellant and Mr.M.Swaminathan, learned standing counsel for the Department. 3. The appellant/assessee is carrying on business of dealing in stationery. It appears that during festive seasons, the appellant/assessee also carried on business in purchase and sale of crackers. 4. For the assessment year 2001-2002 the assessee purchased crackers for a value of Rs. 1, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that arose out of regular assessment proceedings in respect of the assessment year 2001-2002. Both the appeals were dismissed by the Income Tax Appellate Tribunal by a common order dated 26.10.2005. It is against the said common order, the assessee has come up with the above appeals. 11. Out of the five questions of law framed by this court on 26.6.2006 while admitting the above appeals, the first two questions revolve around the assumption of jurisdiction by the Commissioner under section 263. The third question relates to the applicability of section 40A(3). The fourth question relates to the issue of business expediency. The fifth question relates to the application of Rule 6DD. Therefore, we shall deal with these questions in the same order. 12. Questions 1 and 2:- The question of assumption of jurisdiction under section 263 can be disposed of without much ado. Section 263(1) empowers the Commissioner to call for and examine the record of any proceedings under the Act. If the Commissioner considers, upon such examination, that any order passed by the assessing officer was erroneous insofar as it is prejudicial to the interest of the Revenue, the Commissioner may pass an orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses or payments not deductible in certain circumstances. Under sub-section (3) of section 40A, any expenditure incurred by an assessee, if made to a person in a day, otherwise than by way of an account payee cheque drawn on a bank or account payee in excess of Rs. 20,000/-, no deduction can be allowed. The details furnished in the show cause notice dated 18.2.2005 by the Commissioner show that the assessee had admittedly made payments of Rs. 1,00,000/- on three different dates viz., 1.10.1999, 14.10.1999 and 20.10.1999. The assessee had made payments of Rs. 2,00,000 on 31.10.1999, 2.11.1999 and 3.11.1999. All those payments are indicated in the books of accounts of the assessee to have been made to a supplier by name "Standard Fireworks". Similarly payments have been made to another supplier by name "Sivakasi Fireworks". Since the name of one supplier mentioned in the books of accounts of the assessee himself to whom a payment of more than Rs. 20,000/- had been made on everyone of those days, the contingencies stipulated in sub-section (3) of section 40A have arisen. Hence, the third question is answered against the assessee. 18. Question No.4:- The fourth question revolves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evant factors that would justify such a payment. 21. In the case on hand, the books of accounts maintained by the assessee reflected that payments were made to three different suppliers. One was Standard Fireworks, the second was Indira Prints Pack and the third supplier was Sivakasi Fireworks. But, insofar as, Indira Prints Pack is concerned, payment was less than Rs. 20,000/-. Therefore, that has not led to any problem. But, insofar as the other two suppliers are concerned, the books of accounts reflect that payments in excess of Rs. 20,000/- to each one of those two suppliers was made on a day to day basis. This is seen from the tabulation given in the show cause notice under section 263, which reads as follows:- Name of supplier Date of payment by cash Amount Remarks Standard Fire Works 27.07.1999 1,200.25 01.10.1999 100,000 14.10.1999 100,000 20.10.1999 100,000 28.10.1999 150,000 31.10.1999 200,000 01.11.1999 159,000 02.11.1999 200,000 03.11.1999 200,000 04.11.1999 196,109.8 24.11.1999 150,00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, the fourth question of law is answered against the assessee. 25. Coming to the fifth question which revolves around Rule 6DD of the Income Tax Rules, 1969, it is seen that Rule 6DD speaks about exceptional circumstances. Some of the exceptional circumstances that would meet the requirements of the Rule are indicated in Circular No.220 dated 31.5.1977 that reads as follows:- "Illustrative situations of 'exceptional circumstances' - All the circumstances in which the conditions laid down in rule 6DD(j) would be applicable cannot be spelt out. However, some of them which would seem to meet the requirements of the said rule are: (a) the purchaser is new to the seller; or (b) the transactions are made at place where either the purchaser or the seller does not have a bank account; or (c) the transactions and payments are made on a bank holiday;or (d) the seller is refusing to accept the payment by way of crossed cheque/draft and the purchaser's business interest would suffer due to nonavailability of goods otherwise than from this particular seller; or (e) the seller, acting as a commission agent, is required to pay cash in turn to persons from whom he has pur ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
