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TMI Blog2024 (7) TMI 947X X X X Extracts X X X X X X X X Extracts X X X X ..... eholding; there is an existence of deep and pervasive control of the State Government on the said undertaking, and the full control of their working, policy, and framework is vested with the State Government; therefore, they can safely be brought within the meaning of State. As regards the requirements contemplated in Rule 6DD(b) that the payment is required to be made in legal tender, we find that the term legal tender has not been defined in the Income-Tax Act - Dictionary meaning of legal tender, as mentioned in Aiyer s Law Terms and Phrases, is the coinage of a country in which debts may be paid and which the creditor is bound to accept. The dictionary meaning of the coin is; metal used for the time being as money and stamped and issued by the authorities of the state in order to be used. Therefore, it can be said that legal tender means the currency of a state to be used as money. Thus, the payments in question to the aforementioned State Government undertaking have been made by the assessee in Indian currency; therefore, it can safely be concluded that the same has been made in legal tender. Payments made by the assessee to the aforementioned Government undertaking, viz. Chha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... processed as such u/s. 143(1) of the Act. Subsequently, the case of the assessee was selected for scrutiny assessment u/s. 143(2) of the Act. 3. Assessment was, thereafter, framed by the A.O. vide his order passed u/s.143(3) r.w.s. 143(3A) & 143(3B) of the Act determining the income of the assessee at Rs.20,00,230/- after, inter alia, making the following additions/disallowances: - Sr. No. Particulars Amount 1. Disallowance u/s. 40A(3) of the Act of the assessee's claim for deduction of rent paid for four godowns at Raipur and Ambikapur Rs.3,84,000/- 2. Disallowance u/s. 40A(3) of the Act of assessee's claim for deduction of electricity charges. Rs. 3,63,642/- 4. Aggrieved the assessee carried the matter in appeal before the CIT(Appeals) but without success in so far the aforesaid two disallowances u/s. 40A(3) of the Act were concerned. For the sake of clarity, the observations of the CIT(Appeals) are culled out as under: "7. DECISION:- I have considered the submission of the appellant and the assessment order of the AO passed u/s 143(3) r.w.s. 143(3A) & 143(3B) of the I.T. Act 1961. AO has made following additions in the assessment order: 1. Electricity charge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wance of the godown rent of Rs. 3,84,000/- u/s. 40A(3) of the Act, I have thoughtfully considered the issue in hand in the backdrop of the contentions of the ld. authorized representatives of both parties. The Ld. A.R submitted that the payment towards godown rent was made with respect to the following godowns that the assessee had taken on rent from the following parties: Sr no- Name of landlord Location of godown Rent per month (in Rs.) Total month for the year (in Rs.) Tenure payment condition Remarks cash 1. Shri Krishna Mohan Choubey (Notarised Agreement) Near Vyas talab Vill Rawanbhata bhanpuri Raipur (200 Sq.ft) 5,800/- 69,600/- Payment with in 5 days after end of the month Each items less than 10,000 cash 2. Shri Krishna Mohan Choubey (Notarised Agreement) Near Vyas talab Vill Rawanbhata bhanpuri Raipur (200 Sq.ft) 7,700/- 92,400/- Payment with in 5 days after end of the month Each items less than 10,000 cash 3. Shri Manohar Lal Jindal (Notarised Agreement) Near Vyas talab Vill Rawanbhata bhanpuri Raipur (200 Sq.ft) 6,500/- 78,000/- Payment with in 5 days after end of the month Each items less than 10,000 cash 4. Shri Haricharan Vishwakarma ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eness of the expenses incurred by the assessee, I am unable to persuade myself to subscribe to the same. As the specific instance where the applicability of Section 40A(3) of the Act would stand suspended, has specifically been carved out by the legislature in all its wisdom in Rule 6DD of the Income Tax Appellate Tribunal Rules, 1962, therefore, the claim of the Ld. AR that in case the genuineness of the expenditure has not been doubted, then no disallowance u/s. 40A(3) of the Act was called for in the hands of the assessee does not merit acceptance. 12. In so far, the judgment of the Hon'ble High Court of Chhattisgarh in the case of ACIT Vs. M/s. R.P Real Estate Pvt. Ltd (supra) as has been pressed into service by the Ld. AR is concerned; the same supports my aforesaid view. On a careful perusal of the aforesaid judgment of the Hon'ble High Court, it transpires that the Hon'ble High Court had observed that as payment made by the assessee before them was to the villagers who had no bank account and, therefore, had insisted on cash payments, was covered by the Rule 6DD(g), therefore, disallowance u/s. 40A(3) of the Act was not called for in its case. The claim of the Ld. AR that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .10.2008, therefore, the said judicial pronouncement would by no means assist the case of the assessee before me. In fact, the aforesaid judgment of the Hon'ble High Court in the case of Gurdas Garg Vs. Commissioner of Income Tax (supra) supports my aforesaid conviction that Section 40A(3) of the Act would only not be applicable in a case/situation as has been explicitly carved out in Rule 6DD and not otherwise. 15. Thus, in terms of my aforesaid observations, I am unable to persuade myself to concur with the contention of the Ld. AR that as the genuineness of both the aforesaid expenses, viz. (i) payment of godown rent and (ii) payment of electricity expenses, had not been doubted by the lower authorities, therefore, the same could not have been disallowed u/s. 40A(3) of the Act. 16. Apropos the claim of the assessee that the respective payments made towards rent of four godowns were lower than Rs. 10,000/- each, therefore, no disallowance of the same could have been made in absence of violation of the mandate of Section 40A(3) of the Act, I am of the view that as observed by the CIT(Appeals), and rightly so, as there has been a shift in the claim of the assessee as regards the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count payee bank draft, exceeds twenty thousand rupees, no deduction shall be allowed in respect of such expenditure." However, the legislature, in all its wisdom, had carved out certain exceptions in Rule 6DD of the Income Tax Rules, 1962, wherein payments towards certain expenses, though made not as per the mandate of the provisions of section 40A(3) of the Act, would still be saved from the disallowance therein contemplated. As per Rule 6DD(b), where a payment is made by an assessee to the Government and, under the rules framed by it, such payment is required to be made in legal tender, then no disallowance of such payment would be called for u/s 40A(3) of the Act. For the sake of clarity, Rule 6DD(b) is culled out as under: "6DD. No disallowance under sub-section (3) of section 40A shall be made and no payment shall be deemed to be the profits and gains of business or profession under sub-section (3A) of section 40A where a payment or aggregate of the payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds twenty thousand rupees in the cases and circumstances specified hereunder, namely (a).&hellip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Prakash Rekhi Vs Union of India, AIR 181 SC 212, wherein the Hon'ble Apex Court had culled out certain tests for determining as to when a corporation should be said to be an instrumentality or agency of the Government, which read as under : "1. If the entire share capital of the corporation is held by the Government, it would go a long way towards indicating that the corporation is an instrumentality or agency of the Government. 2. Existence of deep and pervasive State control may afford an indication that the corporation is a State agency or instrumentality. 3. Whether the Corporation enjoys monopoly status which is State conferred or State protected. 4. If the functions of the corporation are of public importance and closely related to governmental functions. It would be a relevant factor in classifying the corporation as an instrumentality or agency of the Government. 5. If a department of a Government is transferred to a corporation, it would be a strong factor supporting this inference of the corporation being an instrumentality or agency of the Government." Also, we find that the aforesaid order of the Tribunal had thereafter been followed by the ITAT, Bench "A," K ..... X X X X Extracts X X X X X X X X Extracts X X X X
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