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TMI Blog2022 (9) TMI 1021X X X X Extracts X X X X X X X X Extracts X X X X ..... t of section 36(1)(vii) w.e.f. 01.04.1989, the condition precedent for allowance of deduction is actual writing off of the bad debts in the books of account. This is the ratio laid down in case of TRF Ltd. [ 2010 (2) TMI 211 - SUPREME COURT] - That being the position in law, we do not find any deficiency in the decision of the learned Commissioner (Appeals). Accordingly, ground raised is dismissed. Expenditure under the head property maintenance and under the head Miscellaneous Expenses - HELD THAT:- Disallowance on purely ad-hoc basis without any valid reasoning. As could be seen from the facts on record, the assessee is engaged in three business segments viz. electricity supply, estate management services and real estate division. The maintenance division is known as Sunrise Management Estate Services. As observed that the assessee has adopted this practice of raising bills in the name of Sunrise Management and Estate Services from past years and continuing with the same. As rightly observed by Commissioner (Appeals), all the details relating to the expenses were furnished before the AO and further, the payments were made through banking channel. In fact, the assessee h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to meet the merits of its case. 3. As could be seen from the grounds raised, the dispute is with regard to disallowance of an amount of Rs.1,06,50,000/-. Briefly the facts are, the assessee is a resident corporate entity. For the assessment year under dispute, the assessee filed its return of income on 28.11.2014 declaring income of Rs.8,50,68,370/-. In course of assessment proceeding, the Assessing Officer, on verifying the Tax Audit Report, observed that the assessee had made payments otherwise than by way of account payee cheques/bank drafts in relation to the expenses incurred, which are in violation of section 40A(3) of the Income-tax Act, 1961 (in short the Act ) read with Rule 6DD of the Income Tax Rules, 1962 (in short the Rules ). Accordingly, he called upon the assessee to show-cause as to why the amount of Rs.1,06,50,000/- should not be disallowed. In response to the show-cause notice, the assessee furnished its reply stating that the payment was made to Senior Citizen towards purchase of agricultural land. Further, it was submitted, the person concerned refused to receive the amount in cheque or draft and insisted for payment in cash. It was submitted, the paymen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contention, he relied upon the following decisions: 1. Anupam Tele Services (2014) 362 ITR 92 (Guj.) 2. A. Daga Royal Arts V. ITO ,[2018] 94 taxmann.com 401 (Jaipur Tribn.)] 3. KGL Network (P.) Ltd. Vs. ACIT [2018] 68 ITR (T) 371 (Del. Trib.) 4. Dhuri Wine Vs. DCIT [2017] 83 taxmann.com 20 (Chd. Trib.) 5. M/s. Ajmer Food Products Pvt. Ltd. Vs. JCIT, ITA No. 625/JP/14 (Ajmer Trib.) 5. Without prejudice, he submitted, where a seller of agricultural land insisted upon payment in cash, no disallowance under section 40A(3) can be made. In support of such contention, he relied upon the following decisions: 1. Smt. Sangeeta Verma Vs. CIT (284 Taxman 303) (Ald. HC) 2. A. Daga Royal Arts. Vs. ITO [2018] 94 taxmann.com 401 (Jaipur Trib.) 3. Vijayeta Builcon (P.) Ltd. Vs. ACIT [2021 186 ITD 493 (Jaipur Trib.) 6. Finally, he submitted, no disallowance under section 40A(3) of the Act can be made where no expenditure was claimed as deduction during the year. He submitted, in case of the assessee, the land purchased formed part of the closing inventory and the assessee has not claimed any deduction in respect of the same. That being th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n its original form from 01.04.1970 to 27.07.1995, prior to its amendment, reads as under: Rule 6DD: (j) in any other case where the assessee satisfies the Income-tax Officer that the payment could not be made by way of a crossed cheque drawn on a bank or by a crossed bank draft. a. Due to exceptional or unavoidable circumstances; or b. because payment in the manner aforesaid was not practicable, or would have caused genuine difficulty to the payee, having regard to the nature of the transaction and the necessity for expeditious settlement thereof. 10. Thus, on a reading of the first proviso to section 40A(3) read with Rule 6DD(j) as reproduced hereinabove, it is very much clear that no disallowance under section 40A(3) can be made, if the transaction for which the payment is made is genuine and due to business expediency and other compelling factors payment was required in cash. In case of Attar Singh Gurmukh Singh Vs. ITO, 191 ITR 667 (SC), the Hon ble Supreme Court while interpreting the provisions of section 40A(3) read with Rule 6DD has held as under: 6. As to the validity of section 40A(3), it was urged that if the price of the purchased mate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 or create black-money should not be regarded as curtailing the freedom of trade or business. 11. As could be seen from the aforesaid decision of the Hon ble Supreme Court, though, constitutional validity of section 40A(3) of the Act was upheld, however, the Hon ble Supreme Court observed that the provisions are not intended to restrict business activity and the restrictions provided are only intended to curb the chances and opportunities to use or create black money and the same should not be regarded as curtailing the freedom of trade or business. While interpreting the provisions of section 40A(3) and Rule 6DD(j), the Hon ble Supreme Court has held that the terms of section 40A(3) are not absolute. Consideration of business expediency and other relevant factors are not excluded. The genuine and bonafide transaction are not taken out of the sweep of section. It is open to the assessee to furnish to the satisfaction of the Assessing Officer, the circumstances under wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 19. It was because of these considerations that this Court in case of Hynoup Foods (P.) Ltd. (supra) observed that the genuineness of the payment and the identify of the payee are the first and foremost requirements to invoke the exceptions carved out in rule 6DD(j) of the Income-tax Rules, 1962. 20. In the present case, neither the genuineness of the payment nor the identity of the payee were in any case doubted. These were the conclusions on facts drawn by the Appellate Commissioner. The Tribunal also did not disturb such facts but relied solely on Rule 6DD (j) of the Rules to hold that since the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsel for the appellant also clarified that this appeal is confined to only the payments made to Tata Teleservices Limited and no others. 13. In case of A. Daga Royal Arts Vs. ITO (supra), the Coordinate Bench while dealing with identical issue has observed that even after amendment of Rule 6DD(j), the legal exposition propounded by the Hon ble Supreme Court regarding consideration of expediency and other relevant factors cannot be considered to be diluted as the rules framed by way of delegated legislation cannot override the substantive legislation in form of section 40A(3) which has not changed its character. Following observations of the Coordinate Bench would be of much relevance: 27. We do not believe that by virtue of these amendments, the legal proposition so laid down by the Hon'ble Supreme court regarding consideration of business expediency and other relevant factors has been diluted in any way. At the same time, we also believe that Rule 6DD as amended are not exhaustive enough and which visualizes all kinds and nature of business expediency in all possible situations and it is for the appropriate authority to examine and provide for a mechanism as original ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sustainable. Accordingly, we delete it. 16. In the result, the appeal is allowed. ITA No. 2958/Del/2018 (Appeal by Revenue) 17. In ground no. 1, the Revenue has challenged the deletion of disallowance of Rs.55,42,561/- representing provision of bad debts. Briefly the facts are, in course of assessment proceedings, the Assessing Officer while verifying the profit and loss account noticed that the assessee had debited an amount of Rs.55,42,561/- towards bad debts. Alleging that the assessee failed to furnish any documentary evidence to prove that income with regard to the corresponding bad debts has been recognized in the previous year to satisfy the condition of section 36(1)(vii) of the Act, the Assessing Officer disallowed the claim. While deciding the issue in appeal, learned Commissioner (Appeals), being convinced with the submission of the assessee, deleted the disallowance. 18. We have considered rival submissions and perused the materials on record. The facts emanating on record indicate that the assessee had actually written off the amount in dispute in its books of account. Further, it is evident, the bad debt written off pertains to the debtor to whom ma ..... X X X X Extracts X X X X X X X X Extracts X X X X
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