TaxTMI 
TaxTMI 
2015 (11) TMI 1128
X X X X Extracts X X X X
X X X X Extracts X X X X
....the tune of Rs. 62,06,269/-. The books of accounts were not produced by the assessee before the Learned AO. Only certain details such as bank statements, debtors list, purchasers' name and address, copy of debit vouchers regarding carriage outwards, inventory details were produced for verification. The Learned AO sought to obtain information u/s 133(6) from one of the suppliers M/s Pickme Feeds from whom the assessee has purchased poultry feeds and from the ledger account of assessee as appearing in the books of Pickme Feeds produced by the said party , it was found that the assessee had made cash payments to the said party in excess of Rs. 20,000/- in a day in violation of section 40A(3) of the Act read with Rule 6DD of IT Rules. Accordingly, a sum of Rs. 62,06,269/- was disallowed u/s 40A(3) of the Act which was also confirmed by the Learned CITA. Aggrieved, the assessee is in appeal before us on the following grounds:- "1(a) That on the facts and in the circumstances of the case, Ld. CIT(Appeals) has erred in confirming the action of Assessing Officer who made disallowance u/s 40A(3) by referring to cash receipts recorded in assessee's ledger maintained by Pickme Fees. 1(b) T....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... and it practically takes 4-5 days for clearance of a single cheque issued by him to the supplier. The Learned AR further placed a letter dated 23.3.2007 from the supplier of Poultry Feeds M/s Pickme Feeds wherein the concerned supplier had mandated to receive only cash payments in order to have uninterrupted supply of poultry feeds to the assessee on a timely basis and in the event of payment by cheques, the supply of goods to the assessee would be made only after clearance of the cheques. He also argued that since the payments were directly deposited in the bank account of M/s Pickme Feeds by the supplier deputing his representatives to collect the sale proceeds of the assessee from his customers, the transactions should be treated as payments made by the assessee to his agent and accordingly would fall automatically under the exception clause provided in Rule 6DD(k) of the Income Tax Rules, 1962. In response to this, the Learned DR argued that purchase of poultry feeds does not fall under the category of agricultural produce and further relied on the orders of the lower authorities. 3.3. We have heard the rival submissions and perused the materials available on record. We find ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....al areas which is affected severely by swine flu. 3.3.3. We hold that since the genuinity of the payments made to the party is not doubted by the revenue, the provisions of section 40A(3) could not be made applicable to the facts of the instant case. It is observed that the assessee had taken enough precautions from his side to ensure that the payee also don't escape from the ambit of taxation on these receipts by directly depositing the cash in the bank account of the payee. This fact is also not disputed by the revenue. It will be pertinent to go into the intention behind introduction of provisions of section 40A(3) of the Act at this juncture. We find that the said provision was inserted by Finance Act 1968 with the object of curbing expenditure in cash and to counter tax evasion. The CBDT Circular No. 6P dated 6.7.1968 reiterates this view that "this provision is designed to counter evasion of a tax through claims for expenditure shown to have been incurred in cash with a view to frustrating proper investigation by the department as to the identity of the payee and reasonableness of the payment." 3.3.4. In this regard, it is pertinent to get into the following decisions on th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t payments are made to producers of hides and skin are also neither doubted nor disputed by the AO. On the basis of these facts it is not justified on the part of the AO to disallow 20% of the payments made u/s 40A(3) in the process of assessment. We, therefore, delete the addition of Rs. 17,90,571/- and ground no.1 is decided in favour of the assessee. " CIT vs Crescent Export Syndicate in ITA No. 202 of 2008 dated 30.7.2008 - Jurisdictional High Court decision "It also appears that the purchases have been held to be genuine by the learned CIT(Appeal) but the learned CIT(Appeal) has invoked Section 40A(3) for payment exceeding Rs. 20,000/- since it is not made by crossed cheque or bank draft but by hearer cheques and has computed the payments falling under provisions to Section 40A(3) for Rs. 78,45,580/- and disallowed @20% thereon Rs. 15,69,116/-. It is also made clear that without the payment being made by bearer cheque these goods could not have been procured and it would have hampered the supply of goods within the stipulated time. Therefore, the genuineness of the purchase has been accepted by the ld. CIT(Appeal) which has also not been disputed by the department as it ap....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ary object of enacting section 40A(3) was two fold, firstly, putting a check on trading transactions with a mind to evade the liability to tax on income earned out of such transaction and, secondly, to inculcate the banking habits amongst the business community. Apparently, this provision was directly related to curb the evasion of tax and inculcating the banking habits. Therefore, the consequence, which were to befall on account of non-observation of section 40A(3) must have nexus to the failure of such object. Therefore, the genuineness of the transactions it being free from vice of any device of evasion of tax is relevant consideration. In the instant case, the cash has been deposited directly in the bank account of the supplier i.e M/s Pickme Feeds by the assessee. 3.3.6. The Hon'ble Apex Court in the case of CTO vs Swastik Roadways reported in (2004) 3 SCC 640 had held that the consequences of non-compliance of Madhyapradesh Sales Tax Act , which were intended to check the evasion and avoidance of sales tax were significantly harsh. The court while upholding the constitutional validity negated the existence of a mens rea as a condition necessary for levy of penalty for non-co....