TaxTMI 
TaxTMI 
2016 (1) TMI 941
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....ibunal is correct in confirming the applicability of the provisions of Section 40A(3) of the Act while justifying the disallowance at 20% of the total cash purchases made in the assessment year 2000- 2001 and 2001-2002? 4) Whether the Tribunal is correct in overlooking the business compulsions and expediency in making the cash purchases on the facts and in the circumstances of the case in the assessment years under consideration which would make the said provisions of Section 40A(3) of the Act inapplicable to make the disallowance contemplated? 5) Whether the Tribunal is correct in concluding that Rule 6DD of the Income Tax Rules, 1962, had no application to the cash purchases inspite of the fact that the fire crackers purchased by cash under compelling circumstances were manufactured without aid of power in a cottage industry?" 2. Heard Mr.S.Sridhar, learned counsel for the appellant and Mr.M.Swaminathan, learned standing counsel for the Department. 3. The appellant/assessee is carrying on business of dealing in stationery. It appears that during festive seasons, the appellant/assessee also carried on business in purchase and sale of crackers. 4. For the....
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....63 in relation to the assessment year 2000-2001, it was taken alongwith I.T.A.No.272 of 2005 that arose out of regular assessment proceedings in respect of the assessment year 2001-2002. Both the appeals were dismissed by the Income Tax Appellate Tribunal by a common order dated 26.10.2005. It is against the said common order, the assessee has come up with the above appeals. 11. Out of the five questions of law framed by this court on 26.6.2006 while admitting the above appeals, the first two questions revolve around the assumption of jurisdiction by the Commissioner under section 263. The third question relates to the applicability of section 40A(3). The fourth question relates to the issue of business expediency. The fifth question relates to the application of Rule 6DD. Therefore, we shall deal with these questions in the same order. 12. Questions 1 and 2:- The question of assumption of jurisdiction under section 263 can be disposed of without much ado. Section 263(1) empowers the Commissioner to call for and examine the record of any proceedings under the Act. If the Commissioner considers, upon such examination, that any order passed by the assessing officer was erroneou....
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....he third question relates to the applicability of the provisions of section 40A(3). Section 40A deals with expenses or payments not deductible in certain circumstances. Under sub-section (3) of section 40A, any expenditure incurred by an assessee, if made to a person in a day, otherwise than by way of an account payee cheque drawn on a bank or account payee in excess of Rs. 20,000/-, no deduction can be allowed. The details furnished in the show cause notice dated 18.2.2005 by the Commissioner show that the assessee had admittedly made payments of Rs. 1,00,000/- on three different dates viz., 1.10.1999, 14.10.1999 and 20.10.1999. The assessee had made payments of Rs. 2,00,000 on 31.10.1999, 2.11.1999 and 3.11.1999. All those payments are indicated in the books of accounts of the assessee to have been made to a supplier by name "Standard Fireworks". Similarly payments have been made to another supplier by name "Sivakasi Fireworks". Since the name of one supplier mentioned in the books of accounts of the assessee himself to whom a payment of more than Rs. 20,000/- had been made on everyone of those days, the contingencies stipulated in sub-section (3) of section 40A have arisen. Henc....
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.... make payment in cash (2) consideration of business expediency that compelled him to make payments in cash and (3) any other relevant factors that would justify such a payment. 21. In the case on hand, the books of accounts maintained by the assessee reflected that payments were made to three different suppliers. One was Standard Fireworks, the second was Indira Prints Pack and the third supplier was Sivakasi Fireworks. But, insofar as, Indira Prints Pack is concerned, payment was less than Rs. 20,000/-. Therefore, that has not led to any problem. But, insofar as the other two suppliers are concerned, the books of accounts reflect that payments in excess of Rs. 20,000/- to each one of those two suppliers was made on a day to day basis. This is seen from the tabulation given in the show cause notice under section 263, which reads as follows:- Name of supplier Date of payment by cash Amount Remarks Standard Fire Works 27.07.1999 1,200.25 01.10.1999 100,000 14.10.1999 100,000 20.10.1999 100,000 28.10.1999 150,000 31.10.1999 200,000 ....