TaxTMI 
TaxTMI 
2008 (1) TMI 205
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....lding the disallowance of Rs. 3,08,503 in terms of sub-section (3) of section 40A of the Income-tax Act, 1961?" 2. The brief facts are that the assessee-firm is based at Shamshi, District Kullu, H.P. It used to purchase goods from certain outside parties, mainly from Chandigarh, Damtal and Palampur. The assessee made payments of more than Rs. 10,000 in a day to the parties. These payments were made in cash. The Assessing Officer disallowed payments of Rs. 3,57,239 on the ground that they had been made in cash whereas they should have been made by means of crossed cheque or draft. 3. The assessee filed an appeal and the Commissioner of Income-tax (Appeals) accepted a few contentions of the assessee and gave relief of Rs. 48,786 to it. Howe....
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....108 ITR (St.) 8). 8. The relevant portion of section 40A(3) of the Income-tax Act, at the relevant time, read as follows (3) Where the assessee incurs any expenditure in respect of which payment is made, after such date (not being later than the 31st day of March, 1969) as may be specified in this behalf by the Central Government by notification in the Official Gazette, in a sum exceeding ten thousand rupees otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft, such expenditure shall not be allowed as a deduction (substituted by the Finance Act, 1995, with effect from April 1, 1996, dated May 31, 1977)." 9. Reliance has also been placed on Circular No. 220 (see [1977] 108 ITR (St.) 8) which lays down certain exce....
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....d to restrict the business activities. There is no restriction on the assessee in his trading activities. Section 40A(3) only empowers the Assessing Officer to disallow the deduction claimed as expenditure in respect of which payment is not made by crossed cheque or crossed bank draft. The payment by crossed cheque or crossed bank draft is insisted on to enable the assessing authority to ascertain whether the payment was genuine or whether it was out of the income from undisclosed sources. The terms of section 40A(3) are not absolute. Consideration of business expediency and other relevant factors are not excluded. The genuine and bona fide transactions are not taken out of the sweep of the section. It is open to the assessee to furnish to ....
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....me Court held that if payments were made normally by crossed cheque or bank draft, then it would be easy to ascertain whether the deduction claimed is genuine or not. The court further held that the statute had been enacted to prevent the proliferation of black money in the country. In the present case, the officers have dealt with each and every contention of the assessee. The Income-tax Officer has dealt with the entire circular and rule 6DD and has come to the conclusion that the case of the assessee is not covered under any of the exceptions laid down in this circular. 13. The only explanation given by the assessee was that the purchasers and the assessee did not have bank accounts at Bhuntar / Shamshi and that the persons from whom th....
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....rities below have come to the conclusion that the assessee is telling lies. 16. Reliance placed by learned counsel for the applicant on Ramaditya Investments v. CIT [2003] 262 ITR 491 (Delhi) is totally misconceived. In that case, the payments made in cash were the payments made by the assessee acting as a commission agent where he was required to pay cash. It was in these circumstances that the court held that the case of the assessee was covered under clause (v) of the circular. 17. In Goenka Agencies v. CIT [2003] 263 ITR 145, the Calcutta High Court accepted the case of the assessee and permitted the deduction of the payments made in excess of the prescribed amount because it came to the conclusion that the payment was not disputed an....