TaxTMI 
TaxTMI 
2016 (5) TMI 590
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....Supreme Court decision in 191 ITR 667, there was no scope for disallowance under Section 40A(3)?" 2. Heard Mr.N.V.Balaji, learned counsel for the appellant/assessee and Mr.S.Rajesh, learned Junior Standing Counsel appearing for Mr.J. Narayanasamy, learned Senior Standing Counsel for the Department. 3. The assessee filed a return of income for the assessment year 1996-97. The return of income was processed under Section 143(1)(a) and was selected for scrutiny. A notice under Section 143(2) was issued. 4. Several issues were raised in the course of scrutiny assessment. But, we are concerned only with one issue in this appeal. This relates to cash payments to the total tune of Rs. 29,50,000/- made by the assessee to the sellers of certain lands. In terms of Section 40A(3) of the Income Tax Act, 1961, 20% of all cash payments in excess of Rs. 10,000/-, were disallowed. In other words, out of the total cash payment of Rs. 29,50,000/-, a sum of Rs. 5,90,000/- was disallowed and the same was added to the total income of the assessee. 5. The assessee filed a statutory appeal. In the appeal, they claimed that the lands were purchased from 46 persons under different sale deeds an....
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....han by a crossed cheque or by a crossed bank draft in the cases and circumstances specified therein. There are 10 types of cases and circumstances listed out under Rule 6DD, from Clauses (a) to (j). Clause (a) contains the list of institutions, the payment into which by way of cash will be exempted from disallowance. Clause (b) deals with the payment to Government. Clause (c) deals with the payment under any contract entered into before 01.4.1969. Clause (d) relates to the payment made by way of a letter of credit, mail transfer, book adjustment or by way of a bill of exchange. Clause (e) relates to the payment made by way of adjustment against the amount of any liability incurred for goods supplied or services rendered. Clause (f) relates to the payment made for the purchase of agricultural produce or produce of animal husbandry, etc. Clause (g) deals with payment made for the purchase of products manufactured or processed without the aid of power in a cottage industry. Clause (h) deals with payments made in a place where there is no banking facility, to a person ordinarily resident in that village. Clause (i) relates to payment of gratuity, retrenchment compensation and similar b....
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....re made for the purchase of agricultural lands. 16. Therefore, the two fundamental requirements, namely (a) the genuineness of the payment, and (b) the identity of the payee, stands satisfied in the case on hand. 17. That leaves us with the question whether the assessee had pleaded and proved either of the other two requirements, namely (a) existence of exceptional or unavoidable circumstances, or (b) impracticality or genuine difficulty arising out of the nature of the transaction and the necessity for expeditious settlement. 18. Unfortunately, neither the Commissioner of Income Tax (Appeals), nor the Tribunal went into this question. The Commissioner of Income Tax (Appeals) did not even consider the scope of Rule 6DD. The Commissioner of Income Tax (Appeals) proceeded on the basis of the judgment of the Supreme Court in Attar Singh Gurmukh Singh v. Income Tax Officer [191 ITR 667]. But, admittedly, the said case related to payments made for acquiring stock in trade or other raw materials. Since the assessee claimed that they were purchasing and selling lands and that the same would constitute stock in trade, the Commissioner of Income Tax (Appeals) confined his discussio....
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....ied by Circular No.220 dated 31.5.1977, the relevant portion of which reads as follows: "4. All the circumstances in which the conditions laid down in rule 6DD(j) would be applicable cannot be spelt out. However, some of them which would seem to meet the requirements of the said rule are : a. the purchaser is new to the seller, or b. the transactions are made at a place where either the purchaser or the seller does not have a bank account; or c. the transactions and payments are made on a bank holiday; or d. the seller is refusing to accept the payment by way of crossed cheque/draft and the purchaser's business interest would suffer due to non-availability of goods otherwise than from this particular seller; or e. the seller, acting as a commission agent, is required to pay cash in turn to persons from whom he has purchased the goods; or f. specific discount is given by the seller for payment to be made by way of cash." 24. In Walford Transport (Eastern India) Ltd. v. CIT [240 ITR 902], a Bench of the Gauhati High Court took a view that where the transaction is found to be genuine and the identity of the payee is est....