TaxTMI 
TaxTMI 
2011 (6) TMI 502
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...., as a matter of business policy, does not extend any credit against the supply of goods, which thus is to be paid for in advance. The nature of the assessee's business yields cash collection, which may also be for small amounts. Accordingly, the entire cash has to be banked, and which is deposited in the bank account opened by the principal, M/s. Reliance Communications Infrastructure Ltd., with the assessee's bank. The payment made is thus only to the bank, which acts as an agent for the payee-principal and, therefore, the mode of payment satisfies the test of s. 40A(3), i.e., is made through the banking channel. The apex court in the case of Attar Singh Gurmukh Singh v. ITO [1991] 191 ITR 667 (SC), upheld the constitutional validity of the section on the basis that it is not cast as an absolute rule and, therefore, it does not operate to restrict the trade, yielding to constraints of business expediency/hardship, and other relevant factors, so that genuine and bona fide transactions are not taken out of the sweep of the section. The Bangalore Bench of the Tribunal has in the case of Shri Renukeswara Rice Mills Ltd. v. ITO, 93 ITD 263 (Bang.) under similar circumstances, and afte....
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....apter IV-D, so that the contention as raised works at cross purposes with the scheme of the Act. Would that mean that a non-genuine expenditure could be, but for s. 40A(3), claimed as a deduction?. The same would rather attract a total disallowance, as against a partial one (20%) u/s. 40A(3), which would, if so, on the contrary, work to the benefit of the unscrupulous assesses, claiming bogus payments to a substantial extent (80%), and to the detriment of the Revenue. The provision mandates a disallowance only on the basis of the mode of payment, and not qua the expenditure per se, which has to be genuine and incurred for the purposes of the business or profession. The provision has to be read following the standard rules and principles of interpretation, i.e., by giving it a fair and reasonable interpretation, with no room for intendment, where the language, as in the instant case, is clear and unambiguous; a statute being an edict of the Legislature [Refer: Britannia Industries Ltd. v. CIT [2005] 278 ITR 546 (SC); Padmasundara Rao (Deed.) and Ors v. State of Tamil Nadu [2002] 255 ITR 147 (SC); CIT v. Gotla (J.H.) [1985] 156 ITR 323 (SC); Narayanan & Co. v. CIT, 223 ITR 209 (Ker.)....
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.... on behalf of the account holder, the payee, who has, thus, been paid in cash by the assessee. The payment by the assessee to its principal in cash is both factual as well as constructive. That the payee in turn instructs the assessee (i.e., assuming so), to deposit the same in its bank account is a different matter, and which is equivalent to depositing the cash itself, i.e., without reference to the assessee or to the services by the assessee in the matter. It is not the identity of the person depositing cash per se, which is in fact unproved, but the capacity in which he so does, that is relevant. The said clause is thus not applicable in the present case. In fact, it was posed by the Bench, that why, that being the case, does not the assessee deposit the cash in its own bank account with the same bank, to which it had necessarily to go for the purpose, and transfer the funds to the payee's bank account on, say, a daily basis, which would take place immediately. In fact, even outstation cheques are now cleared within a couple of hours under NEFT/RTGS, so that the fund transfer is no longer an issue. The assessee has nowhere shown the payment to be in advance, as contended, which....
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....idered as violation thereof. Toward this, we may state that, firstly, as afore-noted, we have, with reference to the ingredients or the defining attribute of a bank transfer, clarified of the said transaction to not satisfy the test of a payment through the banking channel (also refer paras 3.2 & 3.3 above). As regards the interpretation of the section with reference to its object, where the language employed is clear and unambiguous, the same is not permissible (also refer: CIT v. Tara Agencies [2007] 292 ITR 344 (SC)). The matter has been considered at length by the Special Bench of the tribunal per its decision in the case of I.T.O. v. Kenaram Saha and Subash Saha, 116 ITD 1 (Kol.) (SB) [301 ITR (AT) 171], also relied upon by it in the case of S. Rahumathulla (supra). The Special Bench has, among others, clarified that the assessee would get exemption from the rigor of s. 40A(3) only if he is able to establish that his case falls under any of the clauses, (a) to (m), of r. 6DD. The decision in the case of Chrome Leather Co. Pvt. Ltd. (supra) stands also considered by the Special Bench. The cited order by the tribunal would, thus, be of no assistance to the assessee's case, both ....