AI Drafter 
TaxTMI 
TaxTMI 
2003 (9) TMI 31
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....ssee claimed deduction of a total sum of Rs. 10,98,698 as transport and coolie charges for transporting raw cashewnuts. The Assessing Officer held that out of the said expenses payment of Rs. 10,28,350 had to be subjected to the provisions of section 40A(3) by the Act as the payments were made otherwise than by way of crossed cheques or bank drafts. Since the assessee had effected payment of the said amount in cash in violation of the provisions of section 40A(3) the said amount was disallowed. In appeal filed by the assessee the Commissioner of Income-tax (Appeals) upheld the said disallowance stating that the assessee has not proved that the said payment will come within the exclusionary provisions of rule 6DDG) of the Income-tax Rules. In further appeal by the assessee the Income-tax Appellate Tribunal allowed the claim. Hence, the reference. We have heard Sri P.K.R. Menon, learned senior counsel (Government of India) taxes appearing for the applicant, and Sri P. Balachandran, learned counsel appearing for the respondent. Senior counsel submitted that in regard to the payment of Rs. 10,28,350 towards transportation and coolie charges, admittedly, the payments were made otherw....
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....rovisions of clause (i) of rule 6DD(j). Counsel on that basis submitted that no question of law does arise from the order of the Tribunal requiring adjudication by this court. We have considered the rival submissions and had also perused the orders of the Assessing Officer and the two appellate authorities. The Assessing Officer had noted that the assessee had made 16 payments in cash above Rs. 10,000 for a total amount of Rs. 10,63,350 mostly for transporting charges and gunny bag purchase. The assessee had explained before the officer that the lorry drivers and second hand gunny bag dealers will not accept cheques. The Assessing Officer referred to two decisions of the Andhra Pradesh High Court regarding the scope of rule 6DD(j) of the Rules which held that a mere assertion that the recipient was unwilling to accept payment by cheque is not sufficient, but the assessee had to furnish evidence to establish this point and that after establishing the existence of a genuine difficulty the assessee must then furnish evidence of the identity of the payee and genuineness of the transaction. The assessing authority then observed that in the instant case the assessee had not establi....
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.... If the assessee had to make the payments in cash to the drivers even though ultimately the money reached the Kerala Road Transport Co., it would not be correct to say that the assessee's case does not fall within the exceptional clause in rule 6DD(j). Rule 6DD(j) provides that no disallowance shall be made in a case where the assessee satisfies the Assessing Officer that the payment could not be made by crossed cheques or bank drafts due to exceptional or unavoidable circumstances. If the truck drivers who were transporting raw nuts from Orissa to the assessee's factories in Kanyakumari District insisted on the payment in cash, that would definitely be exceptional or unavoidable circumstance to make the payment eligible for exclusion under clause (i) of rule 6DD(j). The genuineness of the payment has not been disputed by the revenue authorities. The fact that the assessee had got the raw nuts transported in the trucks belonging to the Kerala Road Transport Co. was also not disputed. The learned representative of the assessee has explained the reason why the assessee could not get evidence or confirmation letters from the truck driver to whom the payment was made. In exceptional an....
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.... or (2) because payment in the manner aforesaid was not practicable, or would have caused genuine difficulty to the payee, having regard 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." The aforesaid rule would reveal that it sets out four circumstances in which the rigour of the provision contained in sub-section (3) has to be relaxed, namely, where the assessee satisfies the Income-tax Officer that the payment could not be made by a crossed cheque or by a crossed bank draft due to (1) exceptional circumstances, (2) unavoidable circumstances, (3) it was not practicable having regard to the nature of the transaction and the necessity for expeditious settlement thereof, and (4) it would have caused genuine difficulty to the payee having regard to the nature of the transaction and the necessity for expeditious settlement thereof. The assessee has to further satisfy the Assessing Officer by furnishing evidence regarding the genuineness of the payment and the identity of the payee. The existence of exce....
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....out of income from disclosed sources. While interpreting the provisions of this section, the above mischief which was sought to be remedied will have to be borne in mind." It was further observed as follows: "...The rigour of the rule contained in this sub-section is, however, relaxed to some extent by the second proviso to the said sub-section which provides that no disallowance under the said sub-section shall be made where any such payment is made otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft, in such cases and under such circumstances as may be prescribed, having regard to the nature and extent of banking facilities available, considerations of business expediency and other relevant factors. As pointed out by the Finance Minister in his speech in the Lok Sabha while introducing the Finance Bill of 1968, this proviso was introduced in order to obviate any difficulties in payment by cheques or bank drafts in rural areas and in certain other cases and circumstances. For that purpose, power was conferred to enact rules to prescribe cases and circumstances in which no disallowance under sub-section (3) shall be made where any payment in a sum ex....
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.... 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. Considerations of business expediency and other relevant factors are not excluded. Genuine and bona fide transactions are not taken out of the sweep of the section. It is open to the assessee to furnish to the satisfaction of the Assessing Officer the circumstances under which the payment in the manner prescribed in section 40A(3) was not practicable or would have caused genuine difficulty to the payee. It is also open to the assessee to identify the person who has received the cash payment. Rule 6DD provides that an assessee can be exempted from the requirement of payment by a crossed cheque or crossed bank draft in the circumstances specified under the rule. It will be clear from the provisions of section 40A(3) and rule 6DD that they are intended to regulate business tran....
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....he genuineness of the transport and the identity of the dealer had been established by the assessee. What remained was only the production of a confirmatory letter from the transporters regarding the fact that they insisted for the payment of the charges in cash. The Tribunal, we note, after adverting to the explanation of the assessee, observed thus: "If the truck drivers who were transporting raw nuts from Orissa to the assessee's factories in Kanyakumari District insisted on the payment in cash, that would definitely be exceptional or unavoidable circumstances to make the payment eligible for exclusion under clause (i) of rule 6DD(j). The genuineness of the payment has not been disputed by the revenue authorities. The fact that the assessee had got the raw nuts transported in the trucks belonging to the Kerala Road Transport Co was also not disputed. The learned representative of the assessee has explained the reason why the assessee could not get evidence or confirmation letters from the truck drivers to whom the payment was made. In exceptional and unavoidable circumstances, if the assessee had to make the payment in cash, we are of the view that such payments could not be ....