TaxTMI 
TaxTMI 
2014 (2) TMI 30
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....ssessee made such payment through account payee cheques till 22nd August 2005, when a circular was issued by Tata Teleservices Limited requiring the appellant to deposit cash at the company's office at Surat. During scrutiny assessment, the Assessing Officer noticed that the assessee had made a total payment of Rs. 33,10,194/= during the year under consideration to Tata Teleservices Limited by cash on different dates and such payment exceeded Rs. 20,000/= each. He also noticed that similar payments exceeding Rs. 20,000/= in cash were made to one Rajvi Enterprises totalling Rs. 1,37,368/= and one payment to Messrs. R.D Infotech of Rs. 31,350/=. Prima facie believing that such cash payments exceeding Rs. 20,000/= would be hit by section 40A(3) of the Income-tax Act, 1961 {"Act" for short}, the Assessing Officer issued a notice to the assessee why such expenses should not be disallowed. In response to such notice, the assessee contended that it was purchasing recharge vouchers from Tata Teleservices Limited. The said company issued a Circular dated 22nd August 2005 and instructed the assessee to deposit cash at its office at Surat. Yet another letter was written on 1st Septem....
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....pt in mind. The factum of payment made to the Tata Tele Services Limited is not disputed. The transactions are genuine. The assessee had filed a copy of account of Tata Tele Services Limited which clearly supports that the payments were made. It has been held by the various courts that where genuineness of transactions and identity of receivers is established the payments should not be disallowed. It is not the case of the Assessing Officer that the transactions are not genuine nor the payments were not made. Considering the circumstances, the assessee took a very practical step in making the payment to stay in business in a competitive environment. It is not a case where by making such payments the objective underlined in section 40A(3) has been frustrated. The objective of section 40A(3) requiring such payments to be made by crossed cheques or drafts has been repeatedly stressed by the Courts as per example in Walford Transport [Eastern India] v. CIT (1999) 240 ITR 902 (Gua) as under : "From a perusal of the decision of different High Courts referred to above, it clearly emerges that the purpose of section 40A(3) of the Act is not to penalized the assessee for making cas....
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....the assessee. Since the lower authorities have not examined the issue in hand in the light of this decision, we are of the considered opinion that the matter should go back to the file of the A.O for fresh adjudication to decide the issue in the light of the decisions of Kenaram Saha & Subhas Saha [Supra]. This ground of the revenue is allowed for statistical purpose. 16. In the combined result, assessee's appeal is allowed and Revenue's appeal is allowed for statistical purpose." The assessee is therefore in appeal before us. Learned advocate Shri J.P Shah appearing for the appellant has submitted that any payment made in cash to Tata Teleservices Limited was on account of the directives issued by the said Company. The assessee had a bank account in a cooperative bank which resulted in delayed release of the amount in favour of the principal. This in turn would delay the assessee getting the recharge vouchers. M/s. Tata Teleservices Limited had indicated that such payments would be deposited on behalf of the assessee in the bank account. He, therefore, submitted that there was no breach of section 40A (3) of the Act. The whole intention behind enactment of the said ....
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.... "16. Whether in the circumstances of the present case is it possible to state that the case of the assessee is governed by the exceptions carved out by Rule 6DD(j) of the Rules ? The Rule has to be read in the context of the second proviso to subsection (3) of Section 40A of the Act whereunder a disallowance is not permissible if on consideration of business expediency an assessee is able to satisfy the Assessing Officer that he was required to make payment in cash due to exceptional or unavoidable circumstances, or because payment by a crossed cheque or bank draft was not practicable, and/or would have caused genuine difficulty to the payee, having regard to the nature of the transaction and the necessity for expeditious settlement thereof, and further furnishes evidence to the satisfaction of the Assessing Officer as to the genuineness of the payment and the identity of the payee. Thus, the position is that even if business expediency is established by the assessee concerned, the assessee would be required to show that payment by a crossed cheque or bank draft was not possible due to exceptional or unavoidable circumstances and also furnish evidence to establish genuineness of ....
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....utors in the State stating that the distributors will pay only through demand draft drawn on nationalized bank or through bank deposit slips and where the distributor had a bank account with cooperative bank, the payment should be made in cash., In consonance with such Circular, Tata Teleservices Limited wrote a letter to the assessee and stated as under : "We further intimate you that your bank is "The Saraswat Cooperative Bank Limited. We treat D.D/Pay order from your bank as a cheque and your invoice processes done after credit balance in Company's account. It will take 4/5 days. It will suffer our business. So please deposit cash at Public Office of Company in Surat and get immediate delivery to avoid suffering of market. We will deposit your cash in our bank on behalf of you. You are very well known that we cannot suffer our business at any cost." In terms of such circular and letter, the assessee thereafter made cash payments to Tata Teleservices Limited. About the genuineness of payments made, there is no dispute. The full account of the assessee as well as Tata Teleservices Limited were placed on record. The assertion of the assessee that such monies were to be ....
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.... on account of holiday or strike; It could be appreciated that Section 40A and in particular subclause (3) thereof aims at curbing the possibility of onmoney transactions by insisting that all payments where expenditure in excess of a certain sum [in the present case twenty thousand rupees] must be made by way of account payee cheque drawn on a bank or account payee bank draft. As held by the Apex Court in case of Attar Singh Gurmukh Singh [Supra], "..In our opinion, there is little merit in this contention. Section 40A(3) must not be read in isolation or to the exclusion of rule 6DD. The section must be read along with the rule. If read together, it will be clear that the provisions are not intended to restrict the business activities. There is no restriction on the assessee in his trading activities. Section 40A(3) only empowers the Assessing Officer to disallow the deduction claimed as expenditure in respect of which payment is not made by crossed cheque or crossed bank draft. The payment by crossed cheque or crossed bank draft is insisted on to enable the assessing authority to ascertain whether the payment was genuine or whether it was out of the income from undisclosed ....