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TMI Blog2019 (9) TMI 721X X X X Extracts X X X X X X X X Extracts X X X X ..... he decision of ITAT, Delhi Bench in the case of ACIT, Central Circle-2, Faridabad vs. M/s. Marigold Merchandise (P) Ltd. [ 2017 (9) TMI 1633 - ITAT DELHI] is squarely applicable to the facts of the case, wherein the Tribunal has dismissed the Departmental Appeal - Decided in favour of assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... l before the Tribunal. 3. Ld. Counsel for the assessee submitted that consistently before the lower authorities assessee has been harping upon the factum of genuineness of payment where payee to whom payment is made by assessee in prohibited made u/s. 40A(3), is also assessed with ACIT, Circle-2, Meerut where assessee is also assessed at Meerut itself, where there is no doubt on payment being received by identified seller which stands thoroughly uncontroverted. It was further submitted that the sale deed are registered which evidences and confirms beyond pale of doubt the genuineness of payment aspect. He further submitted that these contentions were addressed to AO at first stage itself which has not been adverted by lower authorities. It was further submitted that once genuineness of payment is not in dispute and payee is identifiable from payment is duly confirmed, rigors of section 40A(3) stands discharged. He further stated that exactly similar issue has already been adjudicated and decided in favour of the assessee by the various decisions of the ITAT and the Hon'ble High Courts. In support of his contention, he filed the copy of the of ITAT, Delhi Bench in the case of ACIT, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... artmental Appeal. The relevant portion of the order of the Delhi Tribunal in paras-6 to 8 is reproduced as under : "6. We have heard both the parties and perused the records available on record especially the impugned order. With regard to disallowance u/s. 40A(3) of the Income Tax Act is concerned, we find that assessee has purchased the land at Village NangliUmarpur Distt. Gurgaon for a sum of ₹ 3.69 Cr. from the seller parties namely Sh. Pohap Singh, Sh. Chet Singh, Sh. Chandra, Sh. Kishan, Smt. Vidhya, Smt. Jagwati, Smt. Veerwati and Smt. Lali. The purchase of agriculture land is evidenced through sale deed and the payment is also evidenced by way of the sale deed executed before the Sub Registrar. There is no dispute on the fact that the identity of e payee is proved, the genuineness of the transaction is proved and the source payment is also established in as much as such amount is found to be withdrawn from the HDFC bank account of the appellant company. The AO's case is that the provisions of sec. 40A(3) are of mandatory nature whereas the assessee- relying on the decision of the Hon'ble Jurisdictional Rajasthan High Court in the case of Harshee a Chordia vs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could not be made applicable to the facts of the instant case. It will be pertinent to go into the intention behind introduction of provisions of section 40A(3) of the Act at this juncture. We find that the said provision was inserted by Finance Act 1968 with the object of curbing expenditure in cash and to counter tax evasion. The CBDT Circular No. 6P dated 6.7.1968 reiterates this view that "this provision is designed to counter evasion of a tax through claims for expenditure shown to have been incurred in cash with a view to frustrating proper investigation by the department as to the identity of the payee and reasonableness of the payment." 4.4. In this regard, it is pertinent to get into the following decisions on the impugned subject:- Attar Singh Gurmukh Singh vs. ITO reported in (1991) 191 ITR 667 (SC) "Section 40A(3) of the Income-tax Act, 1961, which provides that expenditure in excess of ₹ 2,500 (₹ 10,000/- after the 1987 amendment) would be allowed to be deducted only if made by a crossed cheque or crossed bank draft (except in specified cases) is not arbitrary and does not amount to a restriction on the fundamental right to carry on bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 08 - Jurisdictional High Court decision "It also appears that the purchases have been held to be genuine by the learned CIT(Appeal) but the learned CIT(Appeal) has invoked Section 40A(3) for payment exceeding ₹ 20,000/- since it is not made by crossed cheque or bank draft but by hearer cheques and has computed the payments falling under provisions to Section 40A(3) for ₹ 78,45,580/- and disallowed @20% thereon ₹ 15,69,116/-. It is also made clear that without the payment being made by beater cheque these goods could not have been procured and it would have hampered the supply of goods within the stipulated time. Therefore, the genuineness of the purchase has been accepted by the ld. CIT(Appeal) which has also not been disputed by the department as it appears from the order so passed by the learned Tribunal. It further appears from the assessment order that neither the Assessing Officer nor the CIT(Appeal) has disbelieved the genuineness of the transaction. There was no dispute that the purchases were genuine." Anupam Tete Services vs ITO in (2014) 43 Taxmann.com 199 (Guj) "Section 40A( 3) of the Income-tax Act, 1961, read with rule 6DD of the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsequence, which were to befall on account of non- observation of section 40A(3) must have nexus to the failure of such object. Therefore, the genuineness of the transactions it being free from vice of any device of evasion of tax is relevant consideration. 4.6. The Hon'ble Apex Court in the case of CIT vs Swastik Roadways reported in (2004) 3 SCC 640 had held that the consequences of noncompliance of Madhya Pradesh Sales Tax Act , which were intended to check the evasion and avoidance of sales tax were significantly harsh. The court while upholding the constitutional validity negated the existence of a mens rea as a condition necessary for levy of penalty for non-compliance with such technical provisions required held that "in the consequence to follow there must be nexus between the consequence that befall for non-compliance with such provisions intended for preventing the tax evasion with the object of provision before the consequence can be inflicted upon the defaulter." The Supreme Court has opined that the existence of nexus between the tax evasion by the owner of the goods and the failure of C & F agent to furnish information required by the Commissioner i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agent Mr.Arnit Dutta for purchase of sim cards and others and hence would fall under the exception provided in Rule 6DD(k) of the IT Rules. For the sake of convenience, Rule 6DD(k) is reproduced herein below:- "Rule 6DD(k) of the IT Rules 1962 6DD. No disallowance under sub-section (3) of section 40A shall be made and no payment shall be deemed to the profits and gains of business or profession under sub-section (3A) of section 40A where a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds twenty thousand rupees in the cases and circumstances specified hereunder, namely:- *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** (k) where the payment is made by any person to his agent who is required to make payment in cash for goods or services on behalf of such person;" The said rule says that if the payment is made by a person to his agent who is required to make payment in cash for goods and services on behalf of such person: Admittedly, Shri.Arnit Dutta is only the agent of Hutchison Essar Ltd and not the assessee as could be seen ver ..... X X X X Extracts X X X X X X X X Extracts X X X X
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