TaxTMI 
TaxTMI 
2016 (8) TMI 356
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....in not properly considering provisions of Sec. 144/145 of the IT Act." 2. The inter-connected issues are that Ld CIT(A) erred in confirming the order of AO by disallowing of the purchases of Rs. 73,48,251/- u/s 40(A)(3) of the Act. 3. Brief facts of the case are that assessee is an individual and engaged in the business of country liquor. During the year, assessee has made the purchase from IFB Agro industries Ltd. Against the aforesaid purchases assessee has made the payment in cash by depositing money directly to the bank account of the aforesaid companies. The AO observed that the payment for the purchase was exceeding Rs. 20,000/- which was the clear violation of the provisions of Section 40(A)(3) of the Act. During the assessment proceeding, AO held that the payment made by the assessee in cash has clearly violated the provisions of Section 40(A)(3) of the Act. The AO also observed that the case of assessee does not fall under the exceptions provided in clause 6DD of income Tax Rules of the IT Rules 1962. Therefore, he has disallowed a sum of Rs. 73,48,251/- and added it to the total income of the assessee. 4. Matter was carried before the First Appellate Authority, wherei....
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....d before the ITO for claiming Tax Credit. (TAN No: of the party CALl0l584G / 59(2) the WHOLESALER AGENT OF W.B. GOVT. is clear from TCS Certificate issued. The provision of Section 40A(3) was introduced in the act by Finance Act, 1968. As per the explanatory note para-73 "the provision is designed to counter evasion of 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 the reasonableness of the payment." Earlier also rule 6DD was enacted which read as under :- " in any other case where the assessee satisfied the income tax officer that the payment could not be made by a cross cheque drawn on a bank or by a cross cheque bank draft a) Due to exceptional or unavoidable circumstances, b) Because payment in the manner in aforesaid was not practicable, 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". The law amended and foll....
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....claim exemption from operation of See. 40A(3) of the Act. AND NOT THE CUMULATIVE CONDITION. IN THIS CASE the condition" Consideration of Business expediency & other relevant factors" has been fully satisfied which entitle the assessee to claim exemption of operation of See. 40A(3) of the I. T. Act. SECONDLY 4A. In this case the assessee has been able to proof (A) identity of the payee wholesaler AGENT of WB. Govt. having IFB Agro Industries Ltd having PAN No: AAACI6487L Bank A/e. No: 10306876975 with SBI, City Centre, Durgapur, Excise Regn. No: 19200052155, VAT No: 19200052058, CST No: 19200052252, TAN No: CALl01584C and also reasonableness of the payment. (B) As price is determined by the West Bengal Govt. and is subject to check by the Excise Authorities. (C) Payment has been made by the assessee directly to the suppliers Bank A/e. on the printed stationery supplied by the wholesaler Agent of W.B. Govt. IFB Agro Industries Ltd. and which is the proof the consideration of the business expediency. 4B. The ITO has verified the total transaction from the suppliers by issue of notice u/s. 133(6) of the Act and got reply thereto, confirming the entire transaction and also the fact ....
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.... the facts of the case and hearing the rival contentions of both the parties we find that the AO has disallowed the purchases where the payment was exceeding more than Rs. 20,000/- in accordance with the provision of section 40A(3). In our view this issue needs to be adjudicated from different dimensions as enumerated below : 1) What were the provisions of section 40A(3) then applicable for the assessment year 2008-09. 2) The purpose of introduction of the section 40A(3) in the Income Tax Act. 3) Case laws of various courts. The provisions of the section 40A(3) of the Act then applicable for the assessment year 2008-09 reads as under : 40A.(1)... (2).... (3)(a) Where the assessee incurs any expenditure in respect of which payment is made in a sum exceeding twenty thousand rupees otherwise than by an account payee cheque drawn on a bank or account payee bank draft, no deduction shall be allowed in respect of such expenditure; (3)(b)Where an allowance has been made in the assessment for any year in respect of any liability incurred by the assessee for any expenditure and subsequently during any previous year (hereinafter referred to as subsequent year) the assessee makes p....
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....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 06.07.1968 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." 7.2 In this regard, it is pertinent to get into the following decisions on the impugned subject:- Attar Singh Gurmukh Singh vs ITO reported in (1991) 191 ITR 667 (SC) "Section 40A(3) of the Income-tax Act, 1961, which provides that expenditure in excess of Rs. 2,500 (Rs.10,000 after the 1987 amendment) would be allowed to be deducted only if made by a crossed cheque or crossed bank draft (except in specified cases) is not arbitrary and does not amount to a restriction on the fundamental right to carry on business. If read together with Rule 6DD of the Income-tax Rules, 1962, it will be clear that the provisions are not intended to restrict business activities. There is no restriction on....
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....r 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 appears from the order so passed by the learned Tribunal. It further appears from the assessment order that neither the Assessing Officer nor the CIT(Appeal) has disbelieved the genuineness of the transaction. There was no dispute that the purchases were genuine." Anupam Tele Services vs ITO in (2014) 43 taxmann.com 199 (Guj) "Section 40A(3) of the Income-tax Act, 1961, read with rule 6DD of the Income-tax Rules, 1962 - Business disallowance - Cash payment exceeding prescribed limits (Rule 6DD(j)-Assessment year 2006-07 - Assessee was working as an agent of Tata Tele Services Limited for distributing mobile ca....