AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2015 (12) TMI 1693
X X X X Extracts X X X X
X X X X Extracts X X X X
....ent employees for more than Rs.20,000/- in a day. The assessee explained the reason to the AO during assessment proceedings that there was a labour dispute and political pressure for making such payment. Therefore, assessee had no option except to make the payment in cash. However, AO disregarded the claim of assessee and disallowed a sum of Rs.29,42,357/- u/s 40A(3) of the Act and added it to the income of assessee. 4. Aggrieved, assessee preferred appeal before Ld. CIT(A) who upheld the action of Assessing Officer by observing as under:- "I have considered the facts of the case and the appellant's submission. The appellant has not denied that the payments were made to the workers otherwise than by account payee cheques. As per the provisions of section 40A(3), such payments are not allowed as deductions. Rule 6DD provides the list of cases and circumstances in which a payment in aggregate exceeding twenty thousand rupees to a person in a day otherwise than by an account payee cheque drawn on a bank or by an account payee bank draft. The nature of arrear wage payments made by the appellant to the labours are not covered in such cases and circumstances. The list provided under R....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the case of Pranaj Kr. Moulik Vs Income-tax Officer Wd 41(3) Kolkata (2011) 11 Taxmann.com 401(Kol), the Hon'ble ITAT Kolkata Bench C held that genuine and bona fide payments cannot be taken out of the purview of section 40A(3) of the Act after amendment of the rules by the Finance Act 1995, which was clarified vide Board's Cricular no. 117 dated 14.08.1995. In that case the assessment year concerned was 2004-05 and cash payments made to BPL were disallowed as the appellant could not bring his case under any of the clauses or the residuary clause of the rules. In view of this legal position, the appellant cannot now take the cover of unavoidable and exceptional circumstances which is no longer provided under Rule 6DD. Be that as it may, what, at best, now needs to be examined is whether the appellant was compelled by any compelling circumstances to contravene the provisions of section 40A(3) of the Income-tax Act, 1961. The arrear wage payments were made in view of the so called bipartite settlement dated 24.11.2009 entered into before the Additional Labour Commissioner, West Bengal. The appellant has furnished a copy of the memorandum of settlement. This memorandum of settlem....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d appeal before us on the following grounds of appeal. "1. That on facts and circumstances of the case the Ld. CIT(Appeals) was not justified to confirm the addition amounting to Rs. 29,42,357/- by invoking section 40A(3) of the I.T Act 1961 without considering the written submission made before him. For the end of justice the addition of Rs. 29,42,357/- should be deleted." Shri Miher Bandhopadhay, Ld. Authorized Representative appearing on behalf of assessee and Shri Anjan Prasad Ray, Ld. Departmental Representative appearing on behalf of Revenue. 5. We have heard rival contentions of both the parties and perused the materials available on record. Ld. AR submitted paper book running in pages from 1 to 82 and contented that there was a bi-partite settlement on dated 24- 11-2009 with the labour for the arrear payment of wages in the presence of Additional Labour Commissioner, West Bengal. When the assessee decided to pay the arrear of wages by account payee cheques then workers raised hue and cry and denied to accept account payee cheques. The ld. AR also submitted that most of the labours were poor and had no bank account. The labours started creating the hindrance in the wor....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lar 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." 5.2 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 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 cross....
X X X X Extracts X X X X
X X X X Extracts X X X X
....8,45,580/- 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 cards and recharge vouchers - Principal company Tata insisted that cheque payment from assessee's co-operative bank would not do, since realization took longer time and such payments should be ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... reported in (2004) 3 SCC 640 had held that the consequences of noncompliance of Madhyapradesh Sales Tax Act , which were intended to check the evasion and avoidance of sales tax were significantly harsh. The court while upholding the constitutional validity negated the existence of a mens rea as a condition necessary for levy of penalty for non-compliance with such technical provisions required held that "in the consequence to follow there must be nexus between the consequence that befall for non-compliance with such provisions intended for preventing the tax evasion with the object of provision before the consequence can be inflicted upon the defaulter." The Hon'ble Supreme Court has opined that the existence of nexus between the tax evasion by the owner of the goods and the failure of C & F agent to furnish information required by the Commissioner is implicit in section 57(2) and the assessing authority concerned has to necessarily record a finding to this effect before levying penalty u/s 57(2). Though in the instant case, the issue involved is not with regard to the levy of penalty, but the requirement of law to be followed by the assessee was of as technical nature as wa....