2017 (4) TMI 458

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.... payments to its suppliers. It relied upon the banker's cheques/pay orders issued for the purpose. The Assessing Officer was of the opinion that banker's cheques were not covered in any of the provisions of Rule 6DD of the Income Tax Rules as they were the account payee demand drafts under Section 40A()3) of the Act. The Commissioner of Income Tax (Appeals) [CIT(A)] found that the expenses were genuine but agreed with the interpretation of the AO, which was concurred with by the Tribunal. This Court is of the opinion that the literal construction of Section 40A(3) sought to be canvassed by the Revenue is narrow and contrary to the provisions of the Negotiable Instruments Act, 1881, especially Section 5 thereof. Furthermore in Punjab & Sind....

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....s of advantage. We may point out that the said section falls within Chapter VII under the title "Of discharge from liability on notes, bills and cheques". Section 85A deals with drafts drawn by one branch of a bank on another branch of the same bank. The section says that: "85-A. Where any draft, that is, an order to pay money, drawn by one office of a bank upon another office of the same bank for a sum of money payable to order on demand, purports to be endorsed by or on behalf of the payee, the bank is discharged by payment in due course." It is evident that the section renders such draft a negotiable instrument. 10. Section 131A, which was introduced in the statute by Act 33 of 1947, makes all the provisions for crossing of cheques a....