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TMI Blog2016 (6) TMI 216X X X X Extracts X X X X X X X X Extracts X X X X ..... 08-09 is met by the assessee. The primary object of enacting section 40A(3) were two folds, firstly, putting a check on trading transactions with a mind to evade the liability to tax on income earned out of such transaction and, secondly, to inculcate the banking habits amongst the business community. Apparently, this provision was directly related to curb the evasion of tax and inculcating the banking habits. Therefore, the consequence, which were to be fallen on account of non-observation of Section 40A(3) must have nexus to the failure of such object. Therefore, the genuineness of the transactions being free from vice of any device of evasion of tax is relevant consideration. With regard to the purpose of bringing the provisions of section there is no doubt about the identity of the party. The ld. AR has directly deposited the cash in the account of the companies and has produced the sales bills of the company. The AO has also verified the transactions from the companies by issuing notice under Section 133(6) of the Act. So in the instant case, there is no evasion of tax by claiming the bogus expenditure in cash. Thus we are inclined to reverse the order of lower authoriti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ai Pachwai CS Shop the decision is in favour of the assessee though the issue was the same. Similarly, the judgment of Hon ble Madras High Court in the case of CIT, Madurai vs. Venkatadhri Constructions and the judgment of Hon ble Kerala High Curt in the case of K. Abdu Co. vs. ITO Wd.3, Cabbabire were given in favour of revenue whereas, the judgment of Hon ble Punjab Haryana High Court in the case of CIT vs. Smt. Shelly Passi was given in favour of assessee on the same issue. Since the decisions given by the ITAT, Kolkata Benches and different High Courts are in conflict and the issue involved has huge ramifications in terms of revenue involved as well as it may also be a subject-matter before ITATs at other places, therefore it was requested for the Constitution of Special Bench at ITAT Kolkata u/s 255(3) of Act subject to approval. Accordingly the Hon ble President vide letter dated 11.12.2014 Ref: U.O. No. F-1.-Jd/(ATK)/2014 dated 18.11.2014 directed the registry of ITAT Kolkata Benches to place the matter before Hon ble Kolkata Bench to consider the justification of constituting a Special Bench and if so found fit, then refer the matter accordingly through proper channel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was not satisfied with the payments made to TRUCK DRIVERS. In this case, the entire amounts were deposited with bank account of payee and who acknowledged the receipt of the amount. Hence the facts in Kerala case with this case are different. (f) ITAT is silent in the order about identification and admission of receipt of payment by the payee in its bank account. (g) ITAT did not consider the fact of TCS deducted by the seller and the fact that credit of such TCS had been allowed by the ITO himself. 4. We have heard the rival parties and perused the material available on record. It is beyond doubt that there are conflict decisions on the aforesaid grounds of appeal. However if we read the rigorous provisions of the aforesaid section in the context of the object of the section we find that its object is of curbing expenditure in cash and to counter tax evasion. The CBDT Circular No. 6P dated 06.07.1968 reiterates this view that this provision is designed to counter evasion of a tax through claims for expenditure shown to have been incurred in cash with a view to frustrating proper investigation by the department as to the identity of the payee and reasonableness of the pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the provisions of Section 40(A)(3) of the Act. During the assessment proceeding, AO held that the payment made by the assessee in cash has clearly violated the provisions of Section 40(A)(3) of the Act. The AO also observed that the case of assessee does not fall under the exceptions provided in clause 6 DD of income Tax Rules of the IT Rules 1962. Therefore, he has disallowed a sum of ₹2,15,47,820/- and added it to the total income of the assessee. 8. Matter was carried before the First Appellate Authority, wherein various contentions were raised on behalf of the assessee and having considered the same the Ld CIT(A) confirmed the action of AO. Being aggrieved by the order of Ld CIT(A) the assessee is in second appeal before us. Shri K.K.Khemka, Ld. Authorized Representative appearing on behalf of assessee and Shri Sital Chandra Das, Ld. Departmental Representative appearing on behalf of Revenue. 9. Before us Ld. AR filed paper book which is running into pages from 1 to 196 and submitted that the Assessee is Authorized Retailer Agent (franchise) of country sprit of West Bengal Government under Bengal Excise Act Rules. The payments were made by way of deposi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e payee and the reasonableness of the payment. Earlier also rule 6DD was enacted which reads as under:- in any other case where the assessee satisfied the income tax officer that the payment could not be made by a cross cheque drawn on a bank or by a cross cheque bank drafta) Due to exceptional or unavoidable circumstances, for b) Because payment in the manner in aforesaid was not practicable, would 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 2. The law amended and following provisions were introduced by the Finance Act 2007 w.e.f. 1.4.2008 and explanatory NOTES there under provides provided that no disallowances shall be made and no payment shall be deemed to be the profits and gains of business or profession under this sub-section where any payment in a sum exceeding 20000- rupees is made otherwise than by an account payee cheque drawn on a bank or payee bank draft, in such cases and under such circumstances as may b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f (A) identity of the payee wholesaler AGENT of WB. Govt. having IFB Agro Industries Ltd having PAN No: AAACI6487L Bank A/e. No: 10306876975 with SBI, City Centre, Durgapur, Excise Regn. No: 19200052155, VAT No: 19200052058, CST No: 19200052252, TAN No: CALl01584C and Asansol Bottling Packaging Pvt Ltd. PAN No. AAECA2535R Bank A/c. with SBI, Asansol, VAT No. BA/13650, CST No. 6940 (BA)C, TAN no. CALA0578E and also reasonableness of the payment. (B) As price is determined by the West Bengal Govt. and is subject to check by the Excise Authorities. (C) Payment has been made by the assessee directly to the suppliers Bank A/e. on the printed stationery supplied by the wholesaler Agent of W.B. Govt. IFB Agro Industries Ltd. and Asansol Bottling Packaging Pvt. Ltd., which is the proof the consideration of the business expediency. 4B. The ITO has verified the total transaction from the suppliers by issue of notice u/s. 133(6) of the Act and got reply thereto, confirming the entire transaction and also the fact of bank deposit through its bill. THIRDLY 5A. The payments by way of deposit of cash directly in the Bank A/c of the wholesaler Agent of West Bengal Government ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was exceeding more than ₹ 20,000/- in accordance with the provision of section 40A(3). In our view this issue needs to be adjudicated from different dimensions as enumerated below : 1) What were the provisions of section 40A(3) then applicable for the assessment year 2008-09. 2) The purpose of introduction of the section 40A(3) in the Income Tax Act. 3) Case laws of various courts. The provisions of the Section 40A(3) of the Act then applicable for the assessment year 2008-09 reads as under : 40A.(1) (2) . (3)(a) Where the assessee incurs any expenditure in respect of which payment is made in a sum exceeding twenty thousand rupees otherwise than by an account payee cheque drawn on a bank or account payee bank draft, no deduction shall be allowed in respect of such expenditure; (3)(b)Where an allowance has been made in the assessment for any year in respect of any liability incurred by the assessee for any expenditure and subsequently during any previous year (hereinafter referred to as subsequent year) the assessee makes payment in respect thereof, otherwise than any an account payee cheque drawn on a bank or account payee bank draft, the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the object of curbing expenditure in cash and to counter tax evasion. The CBDT Circular No. 6P dated 06.07.1968 reiterates this view that this provision is designed to counter evasion of a tax through claims for expenditure shown to have been incurred in cash with a view to frustrating proper investigation by the department as to the identity of the payee and reasonableness of the payment. 11.2 In this regard, it is pertinent to get into the following decisions on the impugned subject:- Attar Singh Gurmukh Singh vs ITO reported in (1991) 191 ITR 667 (SC) Section 40A(3) of the Income-tax Act, 1961, which provides that expenditure in excess of ₹ 2,500 (Rs.10,000 after the 1987 amendment) would be allowed to be deducted only if made by a crossed cheque or crossed bank draft (except in specified cases) is not arbitrary and does not amount to a restriction on the fundamental right to carry on business. If read together with Rule 6DD of the Income-tax Rules, 1962, it will be clear that the provisions are not intended to restrict business activities. There is no restriction on the assessee in his trading activities. Section 40A(3) only empowers the Assessing Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue or bank draft but by hearer cheques and has computed the payments falling under provisions to Section 40A(3) for ₹ 78,45,580/- and disallowed @ 20% thereon ₹ 15,69,116/-. It is also made clear that without the payment being made by bearer cheque these goods could not have been procured and it would have hampered the supply of goods within the stipulated time. Therefore, the genuineness of the purchase has been accepted by the ld. CIT(Appeal) which has also not been disputed by the department as it appears from the order so passed by the learned Tribunal. It further appears from the assessment order that neither the Assessing Officer nor the CIT(Appeal) has disbelieved the genuineness of the transaction. There was no dispute that the purchases were genuine. Anupam Tele Services vs ITO in (2014) 43 taxmann.com 199 (Guj) Section 40A(3) of the Income-tax Act, 1961, read with rule 6DD of the Income-tax Rules, 1962 Business disallowance Cash payment exceeding prescribed limits (Rule 6DD(j)-Assessment year 2006-07 Assessee was working as an agent of Tata Tele Services Limited for distributing mobile cards and recharge vouchers Principal company Tata insis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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