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TMI Blog2008 (1) TMI 205X X X X Extracts X X X X X X X X Extracts X X X X ..... was delivered by DEEPAK GUPTA J. 1. The following identical question of law has been sent for the opinion of this court in the aforesaid reference petitions "Whether, on the facts and in the circumstances of the case and on a proper interpretation of rule 6DD of the Income-tax Rules, 1962, read With the Central Board of Director Taxes Circular No. 220, dated May 31, 1977 (see [1977] 108 ITR (St.) 8), the Tribunal was justified in upholding the disallowance of Rs. 3,08,503 in terms of sub-section (3) of section 40A of the Income-tax Act, 1961?" 2. The brief facts are that the assessee-firm is based at Shamshi, District Kullu, H.P. It used to purchase goods from certain outside parties, mainly from Chandigarh, Damtal and Palampur. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that the payments were of less than Rs. 10,000, but the Revenue wrongly clubbed the payments made in one day and came to the conclusion that more than Rs. 10,000 have been paid. It has also been urged by learned counsel for the applicant that since the assessee and the persons from whom it had taken supplies did not have bank accounts at Shamshi and Bhuntar, the assessee must be given benefit of the Board's Circular No. 220, dated May 31, 1977 (see [1977] 108 ITR (St.) 8). 8. The relevant portion of section 40A(3) of the Income-tax Act, at the relevant time, read as follows (3) Where the assessee incurs any expenditure in respect of which payment is made, after such date (not being later than the 31st day of March, 1969) as may be s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anation. This will, however, depend upon the facts and circumstances of each case. 11. The apex court in Attar Singh Gurmukh Singh v. ITO [1991] 191 ITR 667 (SC) ; AIR 1991 SC 2109, while dealing the question as to whether section 40A is valid or not, held as follows (page 672) "Section 40A(3) must not be read in isolation or of the exclusion of rule 6DD. 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 40A(3) only empowers the Assessing Officer to disallow the deduction claimed as expenditure in respect of which payment is not made by crossed cheque or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g a taxing statute the court cannot be oblivious of the proliferation of black-money which is under circulation in our country. Any restraint intended to curb the chances and opportunities to use or create black-money should not be regarded as curtailing the freedom of trade or business." 12. A perusal of the judgment of the apex court makes it clear that the apex court upheld the validity of section 40A(3) of the Act in view of the exceptions provided for in the circular. The Supreme Court held that if payments were made normally by crossed cheque or bank draft, then it would be easy to ascertain whether the deduction claimed is genuine or not. The court further held that the statute had been enacted to prevent the proliferation of bla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n which had already taken place the explanation of the assessee that he did not know that he had to pay two separate sums cannot be accepted. 15. The Assessing Officer has also found that many other dealers in Bhuntar, Shamshi, Kullu who were purchasing goods from same persons from whom the assessee had purchased goods made payments by crossed drafts to the said stockist. As such the story of the assessee that he was asked by the stockists to pay in cash cannot be accepted. In fact the authorities below have come to the conclusion that the assessee is telling lies. 16. Reliance placed by learned counsel for the applicant on Ramaditya Investments v. CIT [2003] 262 ITR 491 (Delhi) is totally misconceived. In that case, the payment ..... X X X X Extracts X X X X X X X X Extracts X X X X
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