TaxTMI 
TaxTMI 
2017 (6) TMI 831
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.... to disallow the claim of the appellant in respect of Rs. 21.37 lakhs in respect of payments made in excess of Rs. 10,000/- in cash?" 3. This appeal relates to Assessment Year 1991-92. 4. The appellant has its factory at village Devada in Bhandara district. The village Devada has no banking facilities. In that view of the matter, the appellant had occasion to make cash payments to contractors, labourers etc. Some of the payments made were in excess of Rs. 10,000/- (the upper limit during the subject assessment year). The above payment in excess of Rs. 10,000/- in cash aggregated to Rs. 21.37 lakhs to labourers, contractors etc. Hence the appellant claimed that the above payments would be entitled to deduction even under Section 40A(3) of the Act as it satisfied the second proviso thereto. Therefore, along its return of income for the subject Assessment Year, the appellant submitted a Chartered Accountant's audit report which indicated the fact that village Devada is not served by the Bank and that the payment in excess of Rs. 10,000/- made in cash was exempted as it satisfied the condition under Rule 6DD(h) of the Rules in accord with the second proviso to Section 40A(3) of t....
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....pport of the payment were also not produced. As a result, for the subject assessment year, the claim of Rs. 21.37 lakhs was disallowed under Section 40A(3) of the Act by the Assessing Officer and confirmed by the CIT (A) and the Tribunal for the subject Assessment Year. 8. Before dealing with the rival submissions, it would be useful to reproduce the statutory provisions and the Rules as in force during the subject assessment year, as under:- "40A(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:- Provided that where an allowance has been made in the assessment for any year not being an assessment year commencing prior to 1.4.1969, in respect of any liability incurred by the assessee for any expenditure and subsequently during any previous year the assessee makes any payment in respect thereof i....
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.... to the nature of the transaction and the necessity for expeditious settlement thereof, and also furnishes evidence to the satisfaction of the Assessing Officer as to the genuineness of the payment and the identity of the payee". 9. Mr. Bhattad, learned counsel appearing in support of the appeal submits as under:- (A) The payments made in cash in excess of Rs. 10,000/- to transporters, contractors and suppliers of rice straw were excluded from the rigour of Section 40A(3) of the Act by virtue of Rule 6DD(h) of the Rules. This is so as even though these people did not have a permanent place of establishment in the village, they were carrying on business in village Devada which did not have the facility of banking. Consequently these payments were also covered by Rule 6DD(h) of the Rules. (B) The impugned order has incorrectly invoked Rule 6DD(j) of the Rules to disallow the benefits of payments made in excess of Rs. 10,000/- in cash. This for the reason that Rule 6DD(j) is a residuary clause and would only apply when the payments made in cash are not covered by the earlier clauses. In view of the above, it is submitted that the substantial question as raised herein....
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....rwise then by way of a crossed cheque drawn on a bank or by a crossed bank draft, are provided in Rule 6DD of the Rules. Therefore, only on satisfaction of the same, will such a payment be allowed. 12. In terms of Rule 6DD(h) of the Rules, a person who makes the payment in a village, which does not have the facility of banking, to a person who ordinarily resides therein or is carrying on business therein, will be allowed the benefit of deduction even when the expenditure is not paid by a crossed cheque drawn on a bank or by a crossed bank draft. However, it is for the assessee who seeks to claim the benefit of the second proviso of Section 40A(3) of the Act and Rule 6DD of the Rules to establish that its case falls within the precincts of Rule 6DD(h) of the Rules. Admittedly, the appellant-assessee has led no evidence before the Authorities under the Act to show that the transporters, contractors and suppliers of rice straw to whom the payment is made in cash, were carrying on business in village Devada. 13. Mr. Bhattad, learned counsel for the applicantassessee states that the transporters, contractors and suppliers of rice straw who carried on business in village Devada, wh....