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TMI Blog2023 (11) TMI 989X X X X Extracts X X X X X X X X Extracts X X X X ..... ovie rights have been considered by the revenue authority with respect to the other transaction namely, for the other part of the amount which was paid through the banking channel , then the transaction cannot be doubted by the revenue authorities. In our view, once the transaction has not been doubted by the revenue authority, then for the purposes of violation of provision of section 40A(3), we may fruitfully rely upon on the decisions of Basu Distributor (P) Ltd[ 2012 (2) TMI 307 - DELHI HIGH COURT] , HONEY ENTERPRISES [ 2015 (12) TMI 519 - DELHI HIGH COURT] and CPL TANNERY [ 2008 (8) TMI 356 - CALCUTTA HIGH COURT] we hereby allow the appeal of assessee and direct the Assessing Officer to delete the addition - Assessee appeal allowed. - SHRI R.K. PANDA, VICE PRESIDENT AND SHRI LALIET KUMAR, JUDICIAL MEMBER For the Appellant : Shri Somnath Ghosh, Advocate. For the Respondent : Shri Kumar Adithya, Sr. A.R ORDER PER LALIET KUMAR, J.M. This appeal is filed by the assessee, feeling aggrieved by the order of Commissioner of Income Tax (Appeals) 1, Hyderabad dt.29.08.2016 invoking proceedings under section 143(3) of the Income Tax Act, 1961 for the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 26,32,410/-. The case was selected for scrutiny under CASS, accordingly, a notice u/s 143(2) of the Act was issued and duly served on the assessee. In response to the notice, assessee furnished information from time to time. After verification of the information provided by the assessee, Assessing Officer found from the ledger account of purchase that the assessee had made some payments i.e., Rs. 2 crores to Sudha Cinema, Rs. 1.20 crores to Lucky Media etc., totaling to Rs. 5,90,00,000/- by way of cash, violating the provisions of section 40A(3) of the Act, and hence, the Assessing Officer disallowed the entire amount invoking provisions of section 40A(3) of the Act. Assessing Officer also found that though assessee claimed deduction u/s 80C to an extent of Rs. 1,00,000/- however, failed to produce proof for the claim made. With these observations, Assessing Officer had completed the assessment u/s 143(3) of the Act on 02.03.2016 determining the total income at Rs. 6,17,32,410/- interalia making addition of Rs. 1,00,000/- u/s 80C and Rs. 5,90,00,000/- under section 40A(3) of the Act. 4. Feeling aggrieved with the order passed by the assessing officer, assessee filed appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. CIT (1988) 173 ITR 340 (AP), Attar Singh Gurmukh Singh Vs. ITO reported in 191 ITR 667 etc., 6.3 Ld. AR further submitted that provision of section 40A(3) as well as Rule 6DD are not intended to restrict business activities and that the terms of section 40A(3) of the Act are not absolute. Ld. AR further submitted that assessee did not fall within the exclusion clause in Rule 6DD, section 40A(3) of the Act will not apply as there was no doubt about the genuineness of the payment nor the identity of the payee and that he was compelled to pay cash owing to the insistence of its principal and that the exceptions in rule 6DD are not exhaustive and the rules must be interpreted liberally. 6.4 On the other hand, ld.DR relied upon the order passed by lower authorities. He has drawn our attention to Page 5 of the assessment order more particularly, clause (g) and (h) of the assessment order and he has also drawn our attention to Page 15 of the ld.CIT(A) s order. 7. We have heard the rival contentions and perused the material available on record. In the assessment order, the Assessing Officer in Para (g) at Page 5 mentioned as under : (g) It is also a fact that the assessee, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing cases: 1. In Basu Distributor (P) Ltd Vs. ACIT reported in (2012) 19 taxmann.com 111 (Delhi), the Hon ble High Court has observed as under: 8. In the present case, the appellant assessee had filed before the Tribunal a copy of their bank account statements as well as ledger account of the parties to whom the payment was required to be made. It is apparent that the appellant-assessee was not doing well in its business and was facing liquidity and financial crunch. An examination of the bank account statement shows that whenever cash deposit was made in the bank account, it was immediately thereafter utilized to issue cheques towards the expenditure. The explanation of the appellant- assessee was that payments were made in cash, as preparation of a bank instrument or issue of cheque would have resulted in a missed opportunity or failure of a favourable or good business deal with the third parties. The provisions of Section 40A (3) and Rule 6 DD (j) have been incorporated in the Act in order to check the incurring of bogus and fictitious expenses to non existing parties. In the present case, the appellant-assessee had furnished explanations on the basis of the bank stateme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne difficulty to the payee, having regard to the nature of transaction and the necessity for expeditious settlement thereof. 32. Apparently, several representations were received by the CBDT regarding difficulties that were being faced by tax payers due to the lack of uniformity in the interpretation of the aforesaid Rule. In the circumstances, the CBDT issued a circular being Circular No. 220, dated 31 st May, 1977, inter alia, providing as under: 4. All the circumstances in which the conditions laid down in rule would be applicable cannot be spelt out. However, some of them which would seem to meet the requirements of the said rule are ; (i) The purchaser is new to the seller; or (ii) The transactions are made at a place where either the purchaser or the seller does not have a bank account; or (iii) The transactions and payments are made on a bank holiday ; or (iv) The seller is refusing to accept the payment by way of crossed cheque/draft and the purchaser's business interest would suffer due to non-availability of goods otherwise than from this particular seller ; or (v) The seller, acting as a commission agent, is required to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot suddenly change and they, in our considered opinion, remain producers of hides and skin in this year also. The reasoning of the CIT(A) that products of hides and skin cannot be regarded as products an animal husbandry because the produces are not directly connected to live animals at some point of time, is, in our opinion, far- fetched. The plain reading of the rule suggests that the words (including hides and skin) are specifically inserted in the rule to describe products of animal husbandry. When the plain reading of the rule is unambiguous, the principles of interpretation suggests that there is no necessity to derive other meanings of the rule by looking into dictionary meaning or otherwise. This contention of the CIT(A) is not acceptable. The contention of the assessee that he purchased goods from suppliers who are producers of hides and skin, has not been refuted either by the Assessing Officer or by the CIT(A). The second contention of the assessee that owing to business expediency, obligation and exigency, the assessee had to make cash payment for purchase of goods so essential for carrying on of his business, was also not disputed by the Assessing Officer. The genuinit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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