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TMI Blog2016 (6) TMI 417X X X X Extracts X X X X X X X X Extracts X X X X ..... wing interest u/s.36(1)(iii), on interest free advances made to related parties from interest bearing borrowed funds. The ground No.9 is general in nature. The Ld. Authorised Representative submitted at the outset that he would not be pressing grounds relating to disallowance of interest u/s.36(1)(iii) of the Act. In view of the statement made at Bar by the Ld. Authorised Representative of the assessees, ground Nos. 6 to 8 in the appeals are dismissed as 'not pressed'. 3. The facts in brief as emanating from records in these appeals are : The assessees are engaged in the business of purchase and sale of scrap from various Government organizations. During the course of scrutiny assessment proceedings the AO made addition/disallowance in the income returned by the assessees inter-alia on the ground that the assessees have made cash payments exceeding Rs. 20,000/- for the purchase of scrap from MSRTC. These cash payments are in violation of the provisions of section 40A(3) of the Act. 4. Aggrieved by the assessment orders in the impugned assessment years, the assessees filed appeals in the respective cases before the Commissioner of Income Tax (Appeals). The CIT(A) upheld the findi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore the provisions of section 40A(3) will not apply on the cash payments made by the assessee to MSRTC. 6. The Ld. Authorised Representative further submitted that the Department, has not raised any doubt over the genuineness of the payments. The only objection raised by the Department is that there is violation of the provisions of section 40A(3) of the Act. The genuineness of the payments are not doubted by the Department, therefore, no disallowance could be made. In support of his submissions the Ld. AR placed reliance on the following decisions : 1. ITO and another Vs. K.N. Pramod reported as 328 ITR 669 (Kar.) 2. Sri Laxminarayanan Oil Mill Vs. CIT reported as 367 ITR 200 (AP) 3. Gurudas Garg Vs. CIT reported as 63 taxmann.com 289 (P&H) 7. On the other hand Shri Aseem Sharma representing the Department vehemently supported the findings of the CIT(A). The Ld. Departmental Representative submitted that the CIT(A) in a detailed and well reasoned order after considering various judgements on the issue, has rightly come to the conclusion that MSRTC is not a "State" and thus the payments made in cash to MSRTC by the assessees will fall within the purview of section 40A(3) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, the State Government is only having power to appoint the Chairman and other Members in the Managing body. There is a full control of the State Government on the policy decisions as well as management. In our opinion, if we apply the test of the control and management as well as the equity participation, MSRTC is a State within Article 12 of the Constitution. Applying the above test, the Hon'ble Supreme Court has held, as discussed hereinabove, that the autonomous bodies like State Road Transport Corporation or Warehousing Corporation where there is a full control by the Government, either Central or State, these are the instrumentalities of the Government only. 12. The term Government is very much wide under the constitutional set up. Government may be Central or State, or it may be Local Government which is envisaged by our Constitution, like Zilla Parishad, Municipal Corporations, Municipal Councils, Panchayat Samithis, etc. The Public Works Department is part of the Government. In our opinion, this aspect has not been considered by the authorities below and they have closed door to the assessees to make out the case for examination under Rule 6DD. We are, therefore, of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erence of the corporation being an instrumentality or agency of the Government." After applying the cumulative effect of all the relevant factors mentioned above, if the body is found to be an instrumentality of the agency of the Government, it would be an authority included in term "State" under Article 12 of the Constitution of India. However, the tests indicated by the Hon'ble Apex Court in the case of Som Prakash Rekhi are merely indicative and not absolute and thus, have to be applied discretely. If any body or organisation falls within the criteria as laid down by the Hon'ble Apex Court it can be considered that it falls within the term "State". 12. If these tests are applied on the MSRTC, we observe that the Corporation satisfies majority of the conditions. The entire share capital of MSRTC is owned by State and Central Government. The State has full control over the working, policies and the framework of the Corporation. The Corporation is providing public transport facility to the subjects of the State, even in for remote areas, where sometimes it is not economically viable to provide transport service. Thus, it is providing vital function of public importance. 13. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty to ascertain whether the payment was genuine or whether it was out of the income from undisclosed sources. The terms of section 40A(3) are not absolute. Considerations of business expediency and other relevant factors are not excluded. Genuine and bona fide transactions are no 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." 17. In the case of Gurudev Garg Vs. CIT the Hon'ble Punjab & Haryana High Court has held that where genuineness of transaction made in c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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