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TMI Blog2002 (12) TMI 69X X X X Extracts X X X X X X X X Extracts X X X X ..... the contentions raised by the petitioners and the original petitions are accordingly dismissed. - - - - - Dated:- 20-12-2002 - Judge(s) : C. N. RAMACHANDRAN NAIR. JUDGMENT C.N. RAMACHANDRAN NAIR J.-The petitioners in these original petitions are income-tax assessees engaged in business. They are challenging the provisions of section 40A(3) of the Income-tax Act, 1961, which provides for 20 per cent. disallowance of expenditure in excess of Rs. 20,000 where such payments are made other than through account payee cheques or demand drafts drawn on a bank. Section 40A(3) prior to its amendment with effect from April 1, 1997, provided for disallowance of entire expenditure subject to rule 6DD in excess of payments over Rs. 10,000 made ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Income-tax Rules which authorised the officer to allow the claim of expenditure made in cash over the limit prescribed in section 40A(3), if the officer was satisfied about the genuineness of payment. They further contend that the present provision authorising disallowance of 20 per cent. of expenditure over Rs. 20,000 made other than through account payee cheque or demand draft after deletion of rule 6DD(j) as it stood prior to its substitution by the Income-tax (Twenty First Amendment) Rules, 1995, is arbitrary and violative of the petitioners' rights under article 14 and 19(1)(g) of the Constitution of India. Therefore, according to counsel, the decision of the Supreme Court in Attar Singh Gurmukh Singh v. ITO [1991] 191 ITR 667 ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, according to them, business exigencies which required payments in the form of cash is something accepted by the Government and therefore there cannot be any further restriction in the form of disallowance of expenditure to the extent of 20 per cent. in such cases. It has to be noted that the Supreme Court has upheld the constitutional validity of section 40A(3) in Attar Singh Gurmukh Singh's case [1991] 191 ITR 667 referred to above. Of course, the Supreme Court was dealing with section 40A(3) prior to its amendment vide Finance (No. 2) Act, 1996, wherein the provision was for complete disallowance of expenditure if the same was in excess of the limit provided then under section 40A(3) which was Rs. 10,000. While considering the vali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt is made for the purchase of the products manufactured or processed without the aid of power in a cottage industry, to the producer of such products; (h) where the payment is made in a village or town, which on the date of such payment is not served by any bank, to any person who ordinarily resides, or is carrying on any business, profession or vocation, in any such village or town;... (j) where the payment is made by an assessee by way of salary to his employee after deducting the income-tax from salary in accordance with the provisions of section 192 of the Act, and when such employee- (A) is temporarily posted for a continuous period of fifteen days or more in a place other than his normal place of duty or on a ship; and (B) do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gayamma v. Union of India [1999] 239 ITR 687, upheld the validity of section 40A(3) even after the amendment of the Act and the rules which is now under challenge in this court. It was held by the Andhra Pradesh High Court that the mere fact that the rule making authority did not retain the old rule, does not make the main section itself unconstitutional. Learned counsel for the petitioners, on the other hand, contended that the Andhra Pradesh High Court does not lay down the correct position of law, but relies on the decision of the Supreme Court whereunder section 40A(3) was upheld in view of the then prevailing rule 6DD(j). It has, therefore, to be examined as to the scope of the new rules which have come in the place of the earlier rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Government has taken sufficient care to prescribe the rules under the proviso to rule 40A(3) to cover all cases where assessees have genuine difficulty to pay through cheque or demand draft. I feel, clause (h) of rule 6DD read with clause (k) itself provides sufficient liberalisation of the rigour of section 40A(3) which entitles the parties to claim full deduction on cash payments over Rs. 20,000 where banking services are not available in the place where the expenditure is incurred or on the day the expenditure is incurred. In other words, the statute and the rules insist for payment through account payee cheques or demand drafts only in cases where banking services are available to the parties. It cannot be said that insistence of mone ..... X X X X Extracts X X X X X X X X Extracts X X X X
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