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TMI Blog2019 (9) TMI 1228X X X X Extracts X X X X X X X X Extracts X X X X ..... nsactions and identity of the payee is established. Assessee has proved the pressing circumstances. The assessee acted with bona fide intention, as he made demand draft of the bank to make the payment to payee but later on it was cancelled on the request of the payee therefore, intention of the assessee was to make payment through banking channel only. This is exceptional circumstances where the assessee made payment in cash. It is observed that the assessee had taken enough precautions from his side.Hence, in the facts and circumstances as discussed above, the payment should not be disallowed as held in the case of Girdharilal Soni vs. CIT [ 1989 (3) TMI 84 - CALCUTTA HIGH COURT] - Decided in favour of assessee. Ad hoc additions - addition of purchases from 13 parties, carriage and wages and Transport charges - Non rejection of books of accounts - HELD THAT:- Here in this case,assessee submitted books of accounts and details during the assessment proceedings, however, the AO has passed order u/s 144/147 of the Act. The AO thus without rejecting the books of account of the assessee has gone for estimation on suspicion and conjectures that the assessee may be inflating its var ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sioner of Income Tax (Appeals)-7, Kolkata erred in confirming the addition of ₹ 3,56,114/- made by ld. A.O. being estimated 5% of the amount spent on transportation charges. 6. I crave leave to add, alter, amend or withdraw any grounds of appeal on or before the date of hearing. 3. Ground No.1 and 2 raised by the assessee relate to addition made by ld. A.O. u/s 40A(3) of the Act on account of payment in cash ₹ 5,00,000/-. 4. Brief facts qua the issue are that during the assessment proceedings, the Assessing Officer noticed that the assessee had made cash payment of ₹ 5,00,000/- to M/s Mahima Alekha Coal Traders on 30.04.2009. The information was called for u/s 133(6) of the Act by the assessing officer from various creditors. The AO issued letter to M/s Mahima Alekha coal Traders to confirm the transactions with the assessee. Accordingly, the said party (M/s Mahima Alekha Coal Traders) furnished the details before the Assessing Officer by letter dated 04.12.2015. On perusal of the reply vis- -vis, the details submitted by the assessee, it was observed by the Assessing Officer that the assessee had made cash paymen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther option but to make cash payment.At the first instance, the assessee made demand draft of the bank to make the payment through banking channel only, however, M/s Mahima Alekha Coal Traders refused to take the bank draft (vide PB-13). Therefore, the ld. Counsel submitted that at the request of the party the assessee has cancelled the demand draft of ₹ 5,00,000/- and made the cash payment of ₹ 5,00,000/- (PB- 13, vide bank statement and ledger account), hence it is a genuine business payment and should be allowed. 7.On the other hand, the ld. DR for the revenue submitted before us that ignorance of law is no excuse, and therefore provisions of section 40A(3) should be followed strictly. The ld DR has primarily reiterated the stand taken by the assessing officer and prayed the Bench that addition made by AO should be upheld. 8. We have heard both the parties and perused the material available on record. We note that the disallowance was made by the lower authorities only for the reason that the assessee was not able to establish the pressing circumstances which warranted the assessee to make payments in cash. There was evidence that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ped or restricted to that extent. The purpose of section 40A (3) is not to restrict the assessee`s genuine business activity. 10. At this juncture, it is appropriate to go through the CBDT Circular No. 6-P dated 6.7.1968 explaining the purpose behind introduction of section 40A(3) of the Act which reads as under:- Expenditure incurred in businesses and professions for which payment is made in an amount exceeding ₹ 2,500/-, otherwise than by a crossed cheque drawn on a bank or a crossed bank draft 76. Sub-section (3) of new section 40A makes a provision for the disallowance of expenditure incurred in businesses and professions for which payment is made in an amount exceeding ₹ 2,500/- , otherwise than by a crossed cheque drawn on a bank or a crossed bank draft. This provision will apply in respect of payments made after a date to be notified by Government, being a date not later than 31-3-1969. This provision is designed to counter evasion of 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 pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pediency and other relevant factors are not excluded. The genuine and bona fide transactions are not taken out of the sweep of the section. Itis open to the assessee to furnish 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] 92 ITR 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 sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #8377; 3,56,114/- 11. At the outset itself the ld. Counsel for the assessee submitted that the assessee s books of accounts were not rejected by the AO. Although, thereassessment was framed u/s 147/144 of the Act and the assessee submitted the books of accounts and details, therefore without rejecting the books of accounts the ad hoc disallowance should not be made. However, per contra the ld. D.R. for the revenue submitted before us that since the assessee has not submitted explanation for various expenses and there is always personal element in these expenses therefore the Assessing Officer did not have any option but to make estimated disallowance. Therefore, the order of Assessing Officer should be upheld. 12. We have heard both the parties and perused the material available on record. We note that the Assessing Officer did not find any mistake in the books of accounts and he did not examine the expenditure item wise therefore without rejecting the books of accounts, the ad hoc disallowance is not warranted. We note that the AO could have ventured into estimation only after rejecting the books of accounts of the assessee u/s 145(3). Here in this ..... X X X X Extracts X X X X X X X X Extracts X X X X
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