TaxTMI 
TaxTMI 
2018 (4) TMI 998
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.... of coal, sourced both from within and outside India (under the name and style M/s. R. D. Brothers), was during the course of assessment proceedings observed to have claimed Rs. 1907.96 lacs (in the computation of business income u/s. 28) on account of freight and toll, incurred in cash. On being questioned qua the applicability of section 40A(3), reading as under, it was explained by the assessee that there was no violation of section 40A(3) as the payment of road freight - which aggregated to Rs. 661.83 lacs (the balance freight being to Railways, excepted under Rule 6DD of the Income Tax Rules, 1962 - the 'Rules' hereinafter), was staggered over a period of one to five days, so that the payment to each Trucker, i.e., for each consignment, on any single day, did not exceed the prescribed threshold limit of Rs. 35,000: 'Expenses or payments not deductible in certain circumstances. 40A. (1) The provisions of this section shall have effect notwithstanding anything to the contrary contained in any other provision of this Act relating to the computation of income under the head "Profits and gains of business or profession". (2)............. (3) Where the assessee incurs any....
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.... located at varying distances (from the assessee's location), entailing time, besides the time lost on account of logistic reasons. The same thus consumed from a low of one day (i.e., the same day) to normally three days, stretching to even five days in some cases, over which period the driver is paid in installments, not exceeding Rs. 35,000 per day, by the assessee's person who normally accompanies the truck to ensure proper delivery of the coal. In other words, the very process of delivery of goods, which is the assessee's responsibility, takes time, sufficient for the assessee to stagger the payments and, thus, escape the rigor of the provision. It cannot after all be faulted for spreading the cash payments over the time taken to effect delivery, being at the customers' location. That at the assessee's dumps - two in number, and from which supplies are made to parties in the vicinity, are no doubt unloaded invariably on the same day. However, these consignments are small, involving freight component below the threshold limit prescribed by the provision. In the view of the AO, while the consignments could possibly take up to three days for delivery, that beyond the said period ....
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....in discharge of the expenditure, as well as of the expenditure itself, being not in dispute, for the validity of the legal inference drawn. We are afraid, we do not find any basis in the clear and ambiguous language of the provision, reproduced supra, for the said construction. On the contrary, section 40A(3) gets attracted - under the circumstances specified therein, only where the genuineness of the expenditure is not in doubt, and the same (expenditure) is therefore otherwise allowable. A non-genuine expenditure would get ousted (for admissibility) at the threshold. This is as it would stand to be disallowed under the relevant section granting deduction itself, as section 37(1) in the instant case, so that there is no occasion to travel to the non obstante provision of section 40A(3), which seeks to impose an additional condition as to the mode of payment where it exceeds a specified sum (on a single day) for its allowability. In that sense, it is a fiscal measure intended to discourage payments in cash or, alternatively, encourage transmission of funds having income implication - one man's expenditure being the other man's income, through the banking channel. How could then, on....
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..../4/1968), over time, read along with rule 6DD, as it is to be (refer: Attar Singh Gurmukh Singh (supra)), shows a gradual phasing out of the avenues where a breach of the monetary limit imposed (for cash payments, or per other than the prescribed mode/s) was allowed, i.e., the excepting circumstances, in view of the business exigencies; the peculiar practice/s in a particular trade/sector of economy - as agriculture, animal husbandary, etc.; the increasing spread of and accessibility to banking in the economy, et. al. The provision, which initially permitted payments through a negotiable instrument, was in time limited to account payee instrument only, presumably to enable tracking. Responding to a practice of splitting a payment into several (on the same day), each below the prescribed limit, the restriction was amended with reference to the aggregate of payments made during a day. Expenditure could thus be paid in cash (or other proscribed modes) over several days, i.e., without attracting the provision. Why, the limit of Rs. 35,000 (per day) for freight payments is itself a departure from the norm of Rs. 20,000 (scaled down to Rs. 10,000 per day from AY 2018-19 onwards), conside....
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....case falls within any of the cls. (a) to (m) of r. 6DD. Burden would be upon the assessee to establish under which particular clause his case falls.-CIT vs. Tara Agencies _2007 292 ITR 444 (SC) and CIT vs. Anjum M.H. Ghaswala & Ors. _2001 252 ITR 1 (SC) relied on. Clause (j) of rule 6DD was originally cast in general terms, excepting genuine circumstances warranting payment in other than the prescribed mode. The Apex Court alluded to this rule while upholding the constitutionality of the provision in Attar Singh Gurmukh Singh (supra). The Rule has since been amended in wake of the ubiquitous banking, and now reads as under: '(j); where the payment was required to be made on a day on which the banks were closed either on account of holiday or strike;' Section 40A(3) is no doubt open to challenge in view of the provision getting more restrictive. Whether it constitutes more than a reasonable restraint on trade - permissible under Article 19(1)(g) of the Constitution, is for a constitutional Court to examine and declare in appropriate proceedings before it. Given the constitutionality of the provision, the same has to be read on its terms, even as the explained by the....
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....h the law becomes applicable. Saving in the form of excepting circumstances, precluding ss. 40A(3)/(3A), is provided per first proviso thereto read with the relevant rule (r. 6DD), which is to be therefore strictly adhered to. The same are based on considerations of availability of banking facilities; business expediency; and other relevant factors. These circumstances, despite the same parametric considerations (which include business exigencies), guiding their enumeration by way of delegated legislation (r. 6DD), have witnessed changes from time to time during the long history of the provision. However, 'exceptional and unavoidable circumstances'; 'impracticability of payment'; or 'genuine difficulty', present earlier per r. 6DD (j), obtain no longer. These, therefore, cannot be read into the clear enumeration of specified circumstances, as has been by the ld. CIT(A). Considerations of equity cannot be imported, particularly in a situation as the present case where the same operate to defeat the very purpose of or the object that the provision stands to achieve/attain. In fact, we observe no exceptional or unavoidable circumstance, nor any stands even contended at any stage, incl....
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....ressing any view on the amended law. Reference in this regard may be made to paras 9 thro' 15 (excluding paras 11 - 14) of the judgment. How could then, one may ask, the said decision be construed as an authority on the amended law, or as a binding judicial precedent qua the said law? In fact, as we subsequently discover, the decision has since been recalled by the Hon'ble High Court for fresh adjudication (vide order dated 30/9/2016 / copy on record), so that it exists no more. As regards the decision by the other Hon'ble High Courts, the same, as noted by the Hon'ble jurisdictional High Court, were also led through a wrong (since amended) provision. We have already noted, with reference to rule of interpretation, as elucidated by the Apex Court, that there is no scope for travelling outside the scope of the provision where its language is clear and unambiguous, as in the instant case, besides being non obstante, or of reading it down, by drawing on consideration of genuineness of expenditure or of a business exigency, not specifically provided, i.e., given the clear terms of the provision, which has had a long journey, and which is itself indicative of the legislative int....
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....The delivery in any case is to be taken by the BKO, only on receipt by which - on the basis of gross and tare weight of the delivering truck, would the trucker be entitled to freight, which may otherwise stand to be adjusted against the shortage in goods. Why, there could be more than one such truck on a given day/s, so that more than one employee (of the assessee) would have to be spared for the purpose, increasing the manpower cost of taking delivery, the prime responsibility of which is in any case of the concerned BKO. Again, it will, in that case, have to necessarily give the total amount (of freight & toll) to the employee on day 1 and, therefore, the availability of cash shall have to be reckoned on that basis. The explanation, despite the oddities afore-referred, has however been accepted by the AO, and we must say, very fairly. Though her order is not binding on us, we are disinclined to interfere with the said acceptance as, clearly, the delivery to the BKOs could be over days, extending beyond a single day. Besides, an assessee is entitled to arrange his affairs in a manner that the rigor of the provision is avoided. The AO's stance that it cannot be accepted that each ....
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.... posts/check points on the way; arrival at its' destination (and weighment - gross and tare); unloading at site; journey back to the assessee's premises/work station, etc. would all stand to be evidenced. Subject to this factual verification, we approve the assesee's claim, i.e., in principle. The burden to prove its' return, and the claims preferred thereby, is only on the assessee (CIT v. Venkataswamy Naidu [1956] 29 ITR 529 (SC); CIT v. Calcutta Agency Ltd. [1951] 19 ITR 191 (SC)). The Assessing Officer shall, accordingly, adjudicate the matter, issuing definite findings of fact, on the basis of the material on record, and after allowing the assessee a reasonable opportunity to substantiate its' case. We decide accordingly. 7. Ground 2 by the Revenue is in respect of a disallowance at Rs. 94,000/-, being 1/7th of the total expenditure (of Rs. 6.56 lacs) under several heads of expenditure, viz. entertainment; langer; festival expenses; labour welfare; etc., incurred in cash and supported by self-made vouchers, so that the expenditure was not fully verifiable. Relief stands allowed by the first appellate authority on the ground that no specific defect stands pointed out by the AO....