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TMI Blog2015 (12) TMI 1693X X X X Extracts X X X X X X X X Extracts X X X X ..... Rajasthan High Court in the case of Smt.Harshila Chordia vs ITO reported in (2006 (11) TMI 117 - RAJASTHAN HIGH COURT) had held that the exceptions contained in Rule 6DD of Income Tax Rules are not exhaustive and that the said rule must be interpreted liberally. Thus no hesitation in deleting the addition u/s 40A(3) - Decided in favour of assessee. - ITA No. 391/Kol/2014 - - - Dated:- 11-12-2015 - Mahavir Singh (Judicial Member) And Waseem Ahmed (Accountant Member) For the Appellant : Mihher Bandhopadhy, AR For the Respondent : Arjan Prasad Roy, JCIT-DR ORDER Waseem Ahmed (Accountant Member) This appeal by the assessee is arising out of order of Commissioner of Income Tax (Appeals)-XXXIII, Kolkata in appeal No.96/CIT(A)-XXXIII/ACIT, Cir. Haldia/13-14 dated 22.01.2014. Assessment was framed by ACIT, Circle- Haldia u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act ) vide his order dated 18.03.2013 for assessment year 2010-11. 2. Only issue raised by assessee in this case is that Ld. CIT(A) erred in confirming the addition of ₹29,42,357/- by invoking the provision of Sec. 40A(3) of the Act. 3. Briefly stated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as well as the Tribunal was that there were no unavoidable circumstances for payment by cheque or bank draft. When there were no compelling circumstances or the assessee was not compelled to make payment in cash, in such circumstances we find no infirmity in the order of the Tribunal. Thus, the Hon'ble Calcutta High Court has clearly held that the provisions of section 40(3) would become redundant if all genuine payments were taken out of the purview of the requirements of Section 40A(3). Therefore, according to the Hon'ble High Court the payments would be hit by the provisions of section 40A(3) unless there are unavoidable circumstances for payment in cash. The case laws relied upon by the appellant were in the context of the erstwhile Rule 6DD which read as under:- (j) in any other case, where the assessee satisfies the Income-tax Officer that the payment could not be made by a crossed cheque drawn on a bank or by a crossed bank draft (1) Due to exceptional or unavoidable circumstances, or (2) Because payment in the manner aforesaid was not practicable, or would have caused genuine difficulty to the payee, having regard to the nature of the transaction a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he labourers do not have bank account with the warning that the appellant s business could face problems if request was not heeded to. The appellant has not explained as to how this request letter could override the elaborate memorandum of settlement entered into by various contractors with the worker s union as ratified by the Additional Labour Commissioner. It is difficult to understand as to how the appellant was pressurized only by this letter to make the payment in cash in contravention of the law of the land when an elaborate procedure of arriving at a uniform multi party settlement was followed simply for agreeing upon the nature and amount of dues payable to the workers. It is also not the case of the appellant that all the workers were not having bank accounts and it has not been established during the assessment proceedings or the appellate that the appellant or the workers were not covered by banking facilities. Hence, I hold that the appellant was not compelled by any unavoidable circumstances to make the payments to the workers otherwise than by a account payee cheques. The appellant has not been able to show that his case is covered any of cases and circumstances list ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment of arrear of wages in cash by invoking the provision of section 40A(3) of the Act. Though the ld. AR submitted that the payment was made under unavoidable circumstances and such situation is covered for the payment in cash in the exception provided in rule 6DD of Income Tax Rules 1962. However we find that there is no such exception in rule 6DD for allowing the payment in cash in the circumstances discussed above. We find the from the assessment year 2009-10, the earlier ceiling of ₹ 20000.00 for cash payment per transaction has been amended. Now the ceiling of ₹ 20000.00 will be aggregate in one day of all such transactions. The list provided under rule 6DD is exhaustive and not inclusive. However, we also find from the order of lower authorities that genuinety of expenses has not been doubted. Therefore in our view, the provisions of section 40A(3) could not be made applicable to the facts of the instant case because it is observed that the assessee had taken enough precautions from his side to ensure that the payee also don t escape from the ambit of taxation on these receipts by directly depositing the bearer in the bank account of the payee. This fact is al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rossed 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. CIT vs CPL Tannery reported in (2009) 318 ITR 179 (Cal) The second contention of the assessee that owing to business expediency, obligation and exigency, the assessee had to make cash payment for purchase of goods so essential for carrying on of his business, was also not disputed by the AO. The genuinity of transactions, rate of gross profit or the fact that the bonafide of the assessee that payments are made to producers of hides and skin are also neither doubted nor disputed by the AO. On the basis of these facts it is not justified on the part of the AO to disallow 20% of the payments made u/s 40A(3) in the process of assessment. We, therefore, delete the addition of ₹ 17,90,571/- and ground no.1 is decided in favour of the assessee. CIT vs Crescent Export Syndicate in ITA No. 202 of 2008 dated 30.7.2008 Jurisdictional High Court deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessee submitted that her made payment in cash because seller insisted on that and also gave incentives and discounts Further, seller also issued certificate in support of this Whether since assessee had placed proof of payment of consideration for its transaction to seller, and later admitted payment and there was no doubt about genuineness of payment, no disallowance could be made under section 40A(3) Held, yes [Para 23] [ In favour of the assessee] CIT vs Smt. Shelly Passi reported in (2013) 350 ITR 227 (P H) In this case the court upheld the view of the tribunal in not applying section 40A(3) of the Act to the cash payments when ultimately, such amounts were deposited in the bank by the payee. 5.3 It is pertinent to notice that the primary object of enacting section 40A(3) was 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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