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TMI Blog2021 (2) TMI 677X X X X Extracts X X X X X X X X Extracts X X X X ..... ,664/-. On a perusal of the Purchase deed of Plot nos. 164 and 165, the AO observed that the plots were purchased from one Mr. Devikinandan Hariprasad Agrawal for a consideration of Rs. 9,52,000/- in cash. The plots were admittedly stock in trade of the assessee. On being called upon to explain as to why disallowance u/s.40A(3) of the Act be not made for equal sum, the assessee failed to furnish any satisfactory explanation. Considering the fact that the assessee was engaged in the land plotting business and had purchased the plots as stock-in-trade, the AO made disallowance of Rs. 9,52,000/- u/s.40A(3) of the Act. During the course of the first appellate proceedings, the assessee contended that Mr. Devikinandan Hariprasad Agrawal, the seller of the plots, was a senior citizen and it was at his insistence that the payment was made in cash. In support of this contention, an affidavit from Mr. Devikinandan Hariprasad Agrawal was also filed. This additional evidence was sent back to the AO, who submitted a remand report dated 08-03-2015 which has been reproduced at page 5 onwards of the impugned order. In the remand proceedings, the AO required the assessee to prove that his case was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (3) of section 40A, disallowance is required in respect of such expenditure. 6. Now I need to ascertain if the assessee can get any succour under the first proviso to section 40A(3A), which carves out exceptions to the main provision of sub-section (3) as well and mandates: `that no disallowance shall be made ... where a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque .... exceeds ten thousand rupees, in such cases and under such circumstances as may be prescribed, having regard to the nature and extent of banking facilities available, considerations of business expediency and other relevant factors." On going through the language of the proviso, it becomes explicitly clear that a window has been given for non-disallowance even when the payment exceeding Rs. 10,000/- is made otherwise than through account payee cheque etc. in the cases and circumstances as may be prescribed having regard to the nature and extent of bank facilities available, considerations of business expediency and other relevant factors. Pursuant to section 295 of the Act, the CBDT has prescribed the `cases and circumstances' in which a payment or aggregate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been different if the proviso to section 40A(3A) had mandated exclusion itself, inter alia, on the ground of business expediency rather than requiring the rule making authority to prescribe cases and circumstances falling within the exception clause. 9. At this juncture, it is relevant to note that the CBDT cannot transgress the corresponding section while formulating the relevant rules. In other words, the Rules cannot provide for fresh or additional obligations, which are absent in the enabling provision under the Act. At the same time, it is equally essential to comprehend that there is a difference between two situations, viz., one where the rules provide certain fresh and additional disabilities for which there is no sanction in the parent section and two, where the rules provide the disabilities which are within the scope of the corresponding enabling section and not de hors the same. What is crucial to note is that prescription of rule 6DD falls under the second situation, which cannot be expanded or diluted by the Tribunal. The sum and substance of the above is that only when a case falls within any of the specific clauses of Rule 6DD, that it would qualify for immunity f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mad.), the Hon'ble Karnataka High Court in Nam Estates Pvt. Ltd. Vs. ITO (2020) 428 ITR 186 (Kar.) and the Hon'ble Calcutta High Court in Bagmari Tea Company Ltd. Vs. CIT (2001) 251 ITR 640 (Cal.) have confirmed the disallowance where the payment was made in cash exceeding the stipulated amount notwithstanding the genuineness of the transaction. 13. Let me consider the judgment of the Hon'ble jurisdictional High Court in Madhav Govind Dulshete (supra) a little more elaborately. The assessee therein was engaged in the business of sale of Kerosene which was purchased from notified dealers. The assessee made purchases of Kerosene from certain companies. Some of the payments were made in cash while others were in cheque. The AO made disallowance by invoking section 40A(3) in respect of cash payments exceeding the limit by noticing that both the assessee and seller had banking facilities. The CIT(A) affirmed the assessment order. The Tribunal echoed the AO's view by finding that both the buyer and sellers had bank accounts. The Hon'ble High Court countenanced the view of the Tribunal sustaining the disallowance thereby repelling the assessee's contention of a genuine business transacti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In support of such contention, he invited my attention towards page 28 of the paper book on which some calculation has been made showing interest bearing funds and interest free funds available with the assessee. It is observed that the authorities below did not accept the contention, in principle, by opining that interest free funds available with the assessee could not be deemed to have been utilised for making investments in sources yielding exempt income. In this regard, it is noticed that the Hon'ble Supreme Court in CIT (LTU) Vs. Reliance Industries Limited (2019) 410 ITR 466 (SC) has approved the view that where interest free funds available with the assessee were sufficient to meet its investment and at the same time loan was raised, it can be presumed that the investments were made from interest free funds and hence, no disallowance of interest should be made to that extent. In view of the above decision, I deem it appropriate to send the matter back to the file of AO for examining the assessee's contention about the availability of interest free funds available with him and then decide the amount of interest disallowable u/s.14A. Insofar as the remaining amount of Rs. 91, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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