2015 (11) TMI 3

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....nd office at Ahmedpur, district-Birbhum, West Bengal. On verification, the AO found that the assessee had paid huge sums of money in cash to M/s. Sarojit Kumar Dey, the supplier on various dates. The AO also records that the bulk of the cash is deposited in the supplier's bank account with State Bank of India, Berhampore. As such cash transaction, in excess of Rs. 20,000/-, was about 38 in number, the AO held that provisions of section 40A(3) are violated and consequently, 20% of the expenses were disallowed. Aggrieved, the assessee carried the matter in appeal without success. Further aggrieved, the assessee is before us. 3. I have heard Shri Anil Kochar, the ld. Counsel for the assessee and Smt. Sucheta Chattopadhyay, the ld. DR on behal....

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....y of country spirit to the retail vendors, established at convenient places by the Commissioner at the expense of the State Government, or at the expense of a person to whom the exclusive privilege of supplying or selling country spirit by wholesale has been granted u/s. 22 of the Act of a licensed wholesale vendor of country spirit. Further, it has been specifically identified that the authorised representative of the wholesale licensee shall realize the necessary amount of duty, cost price and bottling charge, if there be any, at the prescribed rate and such other imposition, as may be prescribed by law, from the retail vendor to whom the country spirit is to be issued from the concerned warehouse. It is also specifically mentioned in sec....

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....ule 6DD(b) of the I.T Rules 1962. In the circumstances, the addition as made by the AO and as confirmed by the ld. CIT(A) by invoking the provisions of section 40A(3) of the I.T Act 1961 stands deleted." 3.1 The ld. Counsel for the assessee submitted that, cash was directly paid into the bank account of the supplier and argued that there is no violation of section 40A(3). The ld. DR, on the other hand, relied on the judgment of the Hon'ble Madras High Court in the case of CIT, Madurai -vs- Venkatadhri Constructions 213 Taxmann 180 (Mad) and the judgment of Hon'ble Kerala High Court in the case of K. Abdu & Co. -vs- ITO 170 Taxmann 297 (Ker.) and submitted that payment of cash directly paid into the bank account of the supplier, does not g....

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....ule 6DD provides that an assessee can be exempted from the requirement of payment by a crossed cheque or crossed bank draft in the circumstances specified under the rule. It will be clear from the provisions of section 40A(3) and rule 6DD that they are intended to regulate business transactions and to prevent the use of unaccounted money or reduce the chances to use black money for business transactions. (See Mudiam Oil Co. v. ITO [1973] 92 ITR 519 (AP). If the payment is made by a crossed cheque drawn on a bank or crossed bank draft, then it will be easier to ascertain, when deduction is claimed, whether the payment was genuine and whether it was out of the income from disclosed sources. In interpreting a taxing statute, the court cannot b....

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....he same in the account of payee. In the result, it is ensured that the payee and payee alone receives the payment and the origin and conclusion of transaction is traceable. Thus payment of sum directly in the bank account of payee fulfils the criteria for ensuring the object of introduction of section 40A(3). This is not a direct payment to the payee but only to the credit of this bank account without the payee actually receiving the cash. We accordingly hold that such payment is not in violation of provision of section 40A(3) and hence no disallowance is called for." 3.4 The assessee has furnished the ledger copy, as maintained by the supplier, in their books of accounts. A perusal of the same demonstrates that supply of country liquor is....