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TMI Blog2018 (7) TMI 2011X X X X Extracts X X X X X X X X Extracts X X X X ..... which stated that the order was rendered on reading pre-amended provisions of Rule 6DD which included sub clause(j), merits no consideration and the same is, therefore, dismissed. Even otherwise, we find, that despite the categorical observation of the jurisdictional high court that the parties are free to take appropriate action since the decision has not been rendered considering the exclusion of Rule 6DD(j),nothing was brought to our notice regarding any action taken by the Revenue against the said order by way of review petition filed or any other manner. It therefore stands to reason that the decision of the jurisdictional high court has been accepted as being applicable in the post amendment scenario of the Rules. We hold that the disallowance u/s 40A(3)( of the Act could not have been made for the reason that the business expediency was not covered in the circumstances enumerated in Rule 6DD of the Income Tax Rules, 1962. Alternate contention of the Revenue that the assessee was unable to prove business expediency, we are unable to agree with the same also. The assessee had contended that the land owners from whom land was purchased by the assessee and cash paid in li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore, contended that the payment was made on account of the said transaction in cash due to the said business expediency. The assessee contended that in view of the same, since the genuineness and business expediency of the transaction had been established, no disallowance u/s 40A(3) of the Act was warranted. Reliance in this regard was placed on the decision of the Hon'ble Supreme Court in the case of Attar Singh Gurmukh Singh Vs. ITO, Ludhiana 1991 SCR (3) 405 and the decision of the Hon'ble Punjab Haryana High Court in the case of Gurdas Garg Vs. CIT Bathinda, 63 Taxmann 289. 5. The Ld.CIT(Appeals) rejected the submissions made by the assessee stating that the decision of the Hon'ble Apex Court related to assessment year wherein the provisions of section 40A(3) were interpreted alongwith Rule 6DD(j) of the Income Tax Rules which was applicable in that assessment year and which having been amended and not being applicable for the impugned assessment year, the same were not applicable to the case of the assessee. The Ld.CIT(Appeals) also distinguished the decision of the Hon'ble Punjab Haryana High Court stating that the Hon'ble High Court had obs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt year 2009-10 which is the assessment year in question in this case the amendment appears to have been by a notification dated 10.10.2008 issue by the Ministry of Finance (Department of Revenue) CBDT. The opening part of the notification reads as follows;- S.O. 2431 (E) - In exercise of the powers conferred by section 295 read with proviso to sub section (3A) of section 40A of the Income Tax Act, 1961 (43 of 1961), the Central Board of Direct Taxes hereby made the following rules further to amend the Income Tax Rules, 1962, namely:- 1) These rules may be called the Income Tax (7th Amendment) Rules, 2008. 2) They shall come in to force w.e.f. AY 2009-10. 2. In the Income Tax Rules, 1962, for Rule 6DD the following rule shall be substituted namely :- Cases and circumstances in which a payment or aggregate of payments exceeding twenty thousand rupees may be made to a person in a day otherwise that by an account payee cheque drawn on a bank account of payee bank draft As we had already pronounced the judgment in open court, it is not open to us at this stage to examine the effect of the amendment to Rule 6DD. We express ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowable deduction. Similarly has been held by Hon'ble Patna High Court In the case of Narayan Bijoy Kumar vs. CIT 163 ITR 695 that assessee showed a certificate from the other party insisting for case payment which is not sufficient as no cause was shown necessitating cash payment. Therefore in view of the above, it is held that assessee has made cash purchases for his business and violated the provisions of section 40A(3) of the Act, Hence the disallowance made by the assessing officer of ₹ 38,98,380/- u/s 40A(3) is upheld. 6. Aggrieved by he same, the assessee has come up in appeal before us, raising the following grounds: 1. The order of learned assessing officer is bad in law and on facts. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in upholding the order of learned A.O. for making addition of ₹ 38,98,3807- by applying the provisions of section 40A(3) of the Income Tax Act, 1961. 3. The appellant craves leave to add or amend any grounds of appeal before the appeal is heard or is disposed off. 7. During the course of hearing before us, the Ld. counsel for assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntext of Rule 6DD(j) of the Income Tax Rules, read alongwith section 40A(3) of the Act, which was prevalent at that point of time and the same having since then been amended and deleted from the Rules, the said decision would not be applicable in the facts of the present case. 10. We have heard the contentions of both the parties and gone through the orders of the authorities below and also the documents and decisions cited before us. 11. The issue before us pertains to disallowance of expenditure made u/s 40A(3), which provides for disallowance of expenditures incurred other than by way of account payee bank draft or cheque ,beyond the prescribed limit. 12. The contention of the Revenue in support of the disallowance is two fold; a) the business expediency for violating the provision of section 40A(3),is not covered in any of the exclusionary circumstances listed in Rule 6DD of the Income Tax Rules, 1962, b) that even otherwise, the business expediency explained is unsubstantiated and, therefore, unacceptable. 13. As for the first contention of the Revenue, the same, we find, is unacceptable in view of the various judicia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other relevant factors: Provided further that in the case of payment made for plying, hiring or leasing goods carriages, the provisions of sub-sections (3) and (3A) shall have effect as if for the words twenty thousand rupees , the words thirty-five thousand rupees had been substituted. (4) Notwithstanding anything contained in any other law for the time being in force or in any contract, where any payment in respect of any expenditure has to be made by an account payee cheque drawn on a bank or account payee bank draft in order that such expenditure may not be disallowed as a deduction under sub-section (3), then the payment may be made by such cheque or draft; and where the payment is so made or tendered, no person shall be allowed to raise, in any suit or other proceeding, a plea based on the ground that the payment was not made or tendered in cash or in any other manner. 19. The aforesaid provisions have to be considered and interpreted in light of various authorities which have been quoted at the Bar and relied upon by the Id AR and Id DR in support of their respective contentions. 20. In case of Attar Singh Gurmukh Singh v. ITO (sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the business transactions and to prevent the use of unaccounted money or reduce the chances to use black-money for business transactions. - Mudiam Oil Co. v. ITO [1973] 92ITR 519 (AP). If the payment is made by a crossed cheque on a bank or a crossed bank draft, then it will be easier to ascertain, when deduction is claimed, whether the payment was genuine and whether it was out of the income from disclosed sources. In interpreting 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso 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. 25. Here, it is relevant to note that there has been no change in the provisions of section 40A(3) in so far as considerations of business expediency and other relevant factors are concerned, as existed at relevant point in time and as considered by the Hon'ble Supreme Court and the provisions of section 40A(3) as exist now and relevant for the impugned assessment year i.e. AY 2013-14. However, Rule 6DD(j) has been amended and by notification dated 10.10.2008, it now provides for an exception only in a scenario where the payment was required to be made on a day on which banks were closed either on account of holiday or strike. A question which arises for consideration is whether the legal proposition so laid down by the Hon'ble Supreme Court regarding consideration of business expediency and other relevant factors has been diluted by way of delegated legislation in form of Income Tax Rules when the parent legisla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ances as may be prescribed having regard to the nature and extent of the banking facilities available, consideration of business expediency and other relevant factors. In our view, given that there has been no change in the provisions of section 40A(3) in so far as consideration of business expediency and other relevant factors are concerned, the same continues to be relevant factors which needs to be considered and taken into account while determining the exceptions to the disallowance as contemplated under section 40A(3) of the Act so long as the intention of the legislature is not violated. We find that our said view find resonance in decisions of various authorities, which we have discussed below and thus seems fortified by the said decisions. 29. We refer to the decision of the Hon'ble Rajasthan High Court in case of Smt. Harshila Chordia vs. ITO (supra), where the facts of case were that the assessee had made certain cash payments towards purchase of scooter/mopeds which exceeded ₹ 10,000/- in each case to the principal agent instead of making payment through the cross cheques or bank draft. The Assessing Officer invoked the provisions of section 40A(3) a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rule 6DD as clarified by circular of the CBDT that whether the failure on the part of the assessee in adhering to requirement of provisions of section 40A(3) has any such nexus which defeats the object of provision so as to invite such a consequence. This is particularly so, because the consequence provided u/s 40A(3) for failure to make payments through bank is not absolute in terms nor automatic but exceptions have been provided and leverage has been left for little flexing by making a general provision in the form of clause (j) in rule 6DD. Thereafter, the Hon'ble High Court refers to the clause 6DD(j) and the circular dated 31st May, 1977 issued by the Board in the context of what shall constitute exceptional and unavoidable circumstances within the meaning of section Clause (j). The Hon'ble High Court observed that the circular in paragraph 5 gives a clear indication that rule 6DD(j) has to be liberally construed and ordinarily where the genuineness of the transaction and the payment and the identity of the receiver is established, the requirement of rule 6DD(j) must be deemed to have been satisfied. The Hon'ble High Court observed that apparently section 40A(3) w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Singh (supra). ..In our opinion, there is little merit in this contention. Sec.40A(3) must not be read in isolation or to the exclusion of r.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. Sec. 40A(3) only empowers the A.O. to disallow the deduction claimed as expenditure in respect of which payment is not made by crossed cheque or crossed bank draft. The payment by crossed cheque or crossed bank draft is insisted on to enable the assessing authority to ascertain whether the payment was genuine or whether it was out of the income from undisclosed sources. The terms of s.40A(3) are not absolute. Considerations of business expediency and other relevant factors are not excluded. Genuine and bona fide transactions are not taken out of the sweep of the section. It is open to the assessee to furnish to the satisfaction of the A.O. the circumstances under which the payment in the manner prescribed in s. 40A(3) was not practicable or would have caused genuine difficulty to the payee. It is also open to the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relied on cheque payments alone, it would have received the recharge vouchers delayed by 4/5 days and thereby severely affecting its business operations. We would find that the payments between the assessee and the Tata Tele Services Ltd. were genuine. The Tata Tele Services Ltd. had insisted that such payments be made in cash, which Tata Tele Services Ltd. in turn assured and deposited the amount in a bank account. In the facts of the present case, rigors of s. 40A(3) of the Act must be lifted. 23. We notice that the Division Bench of the Rajasthan High Court in case of Smt. Harshila Chord/a vs. ITO (2007) 208 CTR (Raj) had observed that the exceptions contained in r. 6DD are not exhaustive and that the said rule must be interpreted liberally. 34. In case of M/s Ajmer Food Products Pvt. Ltd., Ajmer vs. JCIT (supra), a similar issue has come up before the Coordinate Bench and speaking through one of us, it was held as under: 4.5 The genuineness of the transaction as well as the identity of the payee are not disputed. Further, the appellant has explained the business expediency of making the cash payments to both the parties which has not b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owever, held that the claim for deduction was not sustainable. In view of Section 40A(3) as the payments which were over ₹ 20,000/- were made in cash. The Hon'ble High Court accordingly observed that the Tribunal has not disbelieved the transactions or the genuineness thereof nor has it disbelieved the fact that payments having been made. More importantly, the reasons furnished by the appellant for having made the cash payments, which we have already adverted to, have not been disbelieved. In our view, assuming these reasons to be correct, they clearly make out a case of business expediency. 36. The Co-ordinate Bench in case of M/s Dhuri Wine vs DCIT (ITA No, 1155/chd/2013 others dated 09,10.2015) has held that the proposition so laid down by the Hon'ble High Court in case of Gurdas Garg (supra) is quite unambiguous to the effect that even if the case of the assessee does not fall in any of the clauses of Rule 6DD of the Income Tax Rules, invoking the provisions of section 40A(3) of the Act can be dispensed with if the assessee is able to prove the business expediency because of which it has to make the cash payments, the genuineness of the transactions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was brought to our notice regarding any action taken by the Revenue against the said order by way of review petition filed or any other manner. It therefore stands to reason that the decision of the jurisdictional high court has been accepted as being applicable in the post amendment scenario of the Rules. In view of the above, we hold that the disallowance u/s 40A(3)( of the Act could not have been made for the reason that the business expediency was not covered in the circumstances enumerated in Rule 6DD of the Income Tax Rules, 1962. 15. As for the alternate contention of the Revenue that the assessee was unable to prove business expediency, we are unable to agree with the same also. The assessee had contended that the land owners from whom land was purchased by the assessee and cash paid in lieu thereof, were all females and were in urgent need of funds and insisted the assessee to pay the consideration in cash and it was in these circumstances that the assessee made the payment in cash in excess of the limits specified u/s 40A(3) of the Act. The fact that the sellers of the land were females is confirmed by the copies of agreement to sell, which we find ha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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