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TMI Blog2018 (3) TMI 1880X X X X Extracts X X X X X X X X Extracts X X X X ..... ly fall within the scope of considerations of business expediency and other relevant factors as mentioned in the provisions itself (in the second proviso). The assessee is also right in its pleading that these aspects are to be judged from the point of prudent businessman. Thus, on the facts and on relying the purposive interpretation of ATTAR SINGH GURMUKH SINGH [ 1991 (8) TMI 5 - SUPREME COURT] the assessee has clearly made out a case in its favour and hence, we allow the assessee s appeal. - I.T.A. No. 1176/Chny/2017 - - - Dated:- 16-3-2018 - SHRI DUVVURU RL REDDY, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER For the Appellant : Shri. Ashok Jain, ITP For the Respondent : Shri. N. Madhavan, JCIT ORDER PER S. JAYARAMAN, ACCOUNTANT MEMBER: The assessee filed this appeal against the order of the Commissioner of Income Tax (Appeals)-2, Coimbatore in ITA No. 50/15-16 dated 27.02.2017 for assessment year 2005-06. 2. The assessment of M/s. Sumukha Synthetics, the assessee, a partnership firm, for assessment year 2005-06 was originally completed u/s. 143(3). It was subjected to revision proceedings u/s.263 on the ground that certain payments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... course of scrutiny assessment the details of payments made to M/s. Sitalakshmi Mills Ltd were also called for examined and accepted. 6. The Learned Assessing Officer failed to appreciate that the bank accounts of the recipient were frozen since they had defaulted in repayment of loans to various banks and it was not in a position to open and operate its bank accounts. 7. The Learned Assessing Officer failed to appreciate that M/s. Sitalakshmi Mills Ltd has been declared a sick unit by the BIFR and steps were initiated by the financial institutions for winding up of the company. 8. The Learned Assessing Officer ought to have appreciated that in view of the business expediency the assessee company was requested to make payments in cash. 9. The Learned Assessing Officer ought to have appreciated that cash payments were made to employees towards Salary and other statutory obligations and which could not be made by cheque. 3. The AR submitted that M/s. Sitalakshmi Mills Ltd., to which the impugned payments in cash was made towards conversion charges was declared as a Sick unit by the Board of Industrial and Financial Reconstruction (BIFR) on 14.12.2004 with directions t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 business transactions and to prevent the use of unaccounted money or reduce the chances to use black money for business transactions. and submitted that there is no doubt as to the genuiness of the payment nor the identity of the payee, the assessee was compelled to pay cash owing to the insistence of its principal and if it had not abided by the direction, its business would have suffered involved in trying to revive the sick company in the role of Co-Promotor and in the process salvage the huge investment already made in M/s. Sitalakshmi Mills Ltd. It was in the best interest of the assessee to ensure that M/s. Sitalakshmi Mills Ltd was deregistered from BIFR. This was finally achieved when the Hon ble Madurai bench of the Madras High Court ordered so, also with a word of appreciation for you humble assessee. It has been repeatedly submitted throughout the assessment and appeal proceedings that the cash payments were madewith the whole objective and primarily to protect the business intere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... king payment in cash. The payee company also did not show any genuine difficulty in accepting the payments in cheque other than stating that the bank accounts are frozen but the above circumstances of freezing of bank accounts cannot however be lost sight of. In the case of Attar Singh Gurumukh Singh, Hon'ble Supreme Court held that the assessee should furnish to the satisfaction of the AO the circumstances under which the payments in the manner prescribed in Sec.40A(3) was not practical or would have caused genuine difficulties to the payee. For the reasons discussed above, according to me, the appellant could not show such circumstances for making cash payments to the company. Therefore, I do not agree with the arguments that the payments in cash are covered under exceptions provided in Sec.40A(3) or under any of the clauses of Rule 600. Accordingly, the disallowance u/s.40A(3) is upheld and grounds are rejected. and pleaded that the order of the CIT(A) may be sustained. 4. We heard the rival submissions and gone through relevant material. Section 40A(3) as it stood during the relevant period is extracted as under: (3) Where the assessee incurs any expenditure in r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is open to theassessee 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 business transactions and to prevent the use of unaccounted money or reduce the chances to use black money for business transactions as extracted, supra. In this case, the genuineness of the payment and the identity of the payee are not disputed. The assessee pleads that it was compelled to pay cash owing to the insistence of its principal and if it had not abided by the direction, its business would have suffered involved in trying to revive the sick company in the role of Co-Promotor and in the process salvage the huge investment already made in M/s. Sitalakshmi Mills Ltd. It was ..... X X X X Extracts X X X X X X X X Extracts X X X X
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