TaxTMI 
TaxTMI 
2014 (8) TMI 486
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....before the Income Tax Appellate Tribunal, no relief was granted. On an application filed under Section 260(1) of the Act, the Tribunal referred the following question to this Court, for its opinion: Whether on the facts and circumstances of the case, the Tribunal was justified in confirming the addition despite the evidence placed on record that the payments were made only at the instance of the vendor when the genuineness of purchases is proved and the identity of payee is also established? Sri A.V. Krishna Kaundinya, learned Senior Counsel for the applicant submits that being new to the business, the applicant had to act as per the wishes of the supplier of raw-material, in the context of purchase, and accordingly the cost of the raw-material i.e. ground-nut kernel was paid in cash. He submits that the agency which supplied the ground-nut, namely, M/s Satyanarayana Trading Company was also an assessee in the same circle, and they have shown the amounts received from the applicant in their returns. Learned Senior counsel further submits that the insistence under Section 40A of the Act, as it stood then, was not absolute and the proviso itself made it clear that, if any am....
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....ed necessary material before the Assessing Authority is evident from the following portion of his order: A certificate was also furnished from M/s Sri Satyanarayana Trading Company confirming that in respect of credit sales of ground-nut as well as cash sales of ground-nut oil made to them, the recipient demanded cash only received payments in cash mostly in order to accommodate in turn the commission agent-creditors of the recipient who act on behalf of their agriculturist-principals from which the recipient purchased ground-nut, an agri.produce on credit basis. The assessee also filed a letter dated 20-03-1989 stating that it was purchasing ground-nut mainly and from M/s Sri Satyanarayana Trading Company who had given them credit facility. The assessee stated that M/s Sri Satyanarayana Trading Company were mainly dependent on them for business and this is the reason they allow some time for making payment. They however insisted on cash payment from the assessee at the time of making such payment in order that they can repay the dues to their creditors and also met other expenses. It was stated that in the circumstances, it has become impracticable to make payments otherwise th....
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.... Act. Clause (a) thereof exempts the payments made to, as many as 18 agencies made therein from the purview of the section. Relevant for the purpose of the present case, are clauses (f) and (j). They read as under: (f) where the payment is made for the purchase of (i) agricultural or forest produce; or (ii) the produce of animal husbandry (including hides and skins) or dairy or poultry farming; or (iii) fish or fish products; or (iv) the products of horticulture or apiculture; to the cultivator, grower or producer of such articles, produce or products; (j) in any other case, where the assessee satisfies the Income-tax Officer that the payment could not be made by a crossed cheque drawn on a bank or by a crossed bank draft- (1) due to exceptional or unavoidable circumstances, or (2) 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, and also furnishes evidence to the satisfaction of the Income-tax Officer as to the genuineness of the payment and the identity of the payee. Taking into account, t....
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....ess, besides being arbitrary. 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 sources. The terms of section 40A(3) are not absolute. Considerations of business expediency and other relevant factors are not excluded. Genuine and bona fide transactions are not taken out of the sweep of the section. It is open to the assessee to furnish to the satisfaction of the Assessing Officer the circumstances under which the payment in the manner prescribed in section 40A(3) was not practicable or would have caused ....