TaxTMI 
TaxTMI 
2017 (6) TMI 728
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....ssee has incurred huge expenses in cash for the payment or an aggregate payment made to one party in a day which exceeded Rs. 20,000/-. Thus it was in violation of Section 40A(3) of the Act, and therefore, gave a notice mentioning the following : S. No. Name of party Amount disallowable u/s.40A(3) 1 M/s. Sujal Traders (purchase of cement) Rs. 77,23,933 2 M/s. Sangam Sales Corporation (purchase of cement) Rs. 36,79,555 3 M/s. Patil Petroleum (petrol purchase) Rs. 14,80,000 4 Others (cement, petrol, RD materials etc) Rs. 28,60,869 Total Rs.1,57,44,357 In response to the notice, assessee filed a reply and submitted as under : The AO was not satisfied with the explanation given by the assessee and has, therefore, disallowed an amount of Rs. 1,57,44,357/- u/s.40A(3) of the Act. Being aggrieved by the order passed by the AO, the assessee filed an appeal before the CIT (A). 04. The CIT (A) vide order dt.15.03.2013, dismissed the appeal of the assessee and confirmed the disallowance of Rs. 1,57,44,357/- made by the AO. Being aggrieved by the order passed by the CIT (A), assessee is in appeal before us, on the grounds stated herein above. 05. Befo....
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.... of the payments but has only disallowed the deduction u/s.40A(3) as the payment made in cash in one day was exceeding Rs. 20,000/- to one person. It was submitted that the AO was not justified in disallowing the entire cash payments made by the assessee. During the course of argument, the assessee drawn our attention to the tabulated statements placed at pages 34 to 64 of the paper book to show that in various cases the cash payments were made on weekly off, Sundays and Gazetted holidays. It was submitted that these payments were even otherwise required to be allowed being made on weekly off, Sundays and Gazetted holidays. 06. The Ld. AR relied upon the judgment of the Bengaluru Tribunal in the case of M/s. Ranka & Ranka v. JCIT [ITA No.578/Bang/2002, dt.04.07.2005] and has requested that the order passed by the lower authorities is required to be set aside. The Ld AR relied upon the judgment of Hon'ble Allahabad High Court in the case of CIT v. Chaudhary & Co [(1996) 217 ITR 431] and also on the judgment of Hon'ble jurisdictional High Court in the matter of ACIT v. Sri Saraswati Iron Foundry [(2006) 287 ITR 313]. 07. In the alternative, it was submitted that an amount of Rs. 29....
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.... to establish exceptional or unavoidable circumstances, which compelled the Assessee to make such payments in cash. He submitted that in the absence of establishing extraordinary circumstances, the payments made in cash were liable to be added to the income of the Assessee by virtue of Section 40A(3) of the Act. 28. Countering the submissions made on behalf of the Revenue, Ms Kapila submitted that not only the genuineness of the transactions had been established but the ITAT had also accepted, as a fact, that such payments were necessary in the course of conducting business. She also contended that it was necessary to look at the circumstances under which payments had been made and by keeping in view of the commercial constraints and the practicality of the circumstances which had to be dealt with by the Assessee as a businessman. She emphasised that the Assessee had made payments in cash keeping in mind the commercial necessity and the practicality of the business. 29. Before considering the rival contentions, it is necessary to observe (i) that there is no dispute as to the identity of the producers to whom cash payments have been made by the Assessee; and (ii) that the payment....
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....no disallowance under Sub-section 3 of Section 40A shall be made, inter alia, in circumstances specified thereunder. Clause (j) of Rule 6DD of the Rules (as applicable during the relevant assessment years) expressly provided that no disallowance under Section 40A(3) of the Act would be made in cases where the Assessee furnishes evidence to the satisfaction of the Incometax Officer as to the genuineness of the payment and the identity of the payee. And, the Assessee further satisfies the Income-tax Officer that payment could not be made by crossed cheque drawn on a bank or by a crossed bank draft "(a) due to exceptional or unavoidable circumstances; or (b) because payments in the manner aforesaid was not practicable, or would have cause genuine difficulty to the payee, having regard to the nature of transaction and the necessity for expeditious settlement thereof." 32. Apparently, several representations were received by the CBDT regarding difficulties that were being faced by tax payers due to the lack of uniformity in the interpretation of the aforesaid Rule. In the circumstances, the CBDT issued a circular - being Circular No. 220 dated 31st May, 1977, inter alia, providing as u....