TaxTMI 
TaxTMI 
TaxTMI 
2018 (6) TMI 1273
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....urn filed sales/gross receipts of Rs. 34,74,81,586/- was shown. Corresponding purchases were for Rs. 34,68,15,452/-. Assessee was required to explain how purchases of such huge volume could be made when his capital in the business was only Rs. 22,67,797/-. Thereupon assessee submitted that a group of persons who wanted to participate in the auctions held by M/s. Manappuram Finance Ltd formed a syndicate. As per the assessee, he was participating in the auction for such syndicate. Contention of the assessee was that if the bid made by him was successful, he collected the money from prospective purchasers who were the members of the syndicate, and remitted it to M/s. Manappuram Finance Ltd. As per the assessee, M/s. Manappuram Finance Ltd collected 1% tax at source from such payments made by him for the old gold ornaments. In other words, explanation of the assessee was that money collected from prospective purchasers were used by him for effecting payments in accordance with bid and old gold ornaments received from M/s. Manappuram Finance Ltd was distributed among such syndicate members. 3. Ld. Assessing Officer put the assessee on notice as to why Section 40A(3) of the Act should ....
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....h payment as I was a new customer to M/s Manappuram Finance Limited. 2. The Company is a NDFC Company recognised by RBI and are into acceptance of deposit and lending finance on security and are not into any manufacturing or trading company. 3. Already I am over burdened with financial crises due to highly volatile market conditions and my prior commitments are huge and led to several cases of cheque bounce against me. 4. The business of gold is done on a minimum margins with huge financial dealing and the addition u/s 40(A)(3) for the purchasers will be a very big financial burden with such a little margin and 1 will not be able to meet the demand through out my life and will made my life miserable and lead tounwarranted action which will not only spoil me and put my entire family's future at stake. 5, Hence I pray not to invoke the section and matter be dropped''. Assessee also relied on Rule 6DD of the Income Tax Rules, 1962 (in short ''the Rules'') for justifying the payments made in cash. 4. However, ld. Assessing Officer was not impressed by the above reply. According to him, assessee's payments were not covered by any of the clauses in Rule 6DD of the Rules. He ....
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....in the case of Shri.Mahabir Industries vs. CIT, 220 ITR 459, that of Allahabad High Court in the case of CIT vs. Suresh Kumar Agarwal, 249 ITR 113, that of Hon'ble Madhya Pradesh High Court in the case of CIT vs. Rajendra Rice Mill, 232 ITR 217 and CIT vs. Mahavir Stores, 232 ITR 300 and that of Hon'ble Apex Court in the case of Attar Singh Gurmukh Singh vs. ITO, 191 ITR 667. 6. Ld. Commissioner of Income Tax (Appeals) was not impressed by any of the above arguments made by the assessee. Ld. Commissioner of Income Tax (Appeals) noted that assessee could not justify the expenditure in cash by demonstrating how he fell within any of the limbs of Rule 6DD. According to him, Section 40A(3) of the Act stood attracted even when the payments were genuine and this was clear from the judgment of Hon'ble Apex Court in the case of Attar Singh Gurmukh Singh (supra). As per the ld. Commissioner of Income Tax (Appeals) genuineness of the payments was not a factor which was to be considered for application of Section 40A(3) of the Act. According to him, assessee having not established how he stood exempt from the application of Section 40A(3) of the Act, the disallowance made by the ld. Assessin....
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....Manappuram Finance Ltd were in cash and exceeded threshold limit of Rs. 20,000/- in each case. Contention of the assessee is that there were unavoidable circumstance which required him to pay the bid amount in cash and this was a relevant factor which needed to be considered while deciding whether Section 40A(3) of the Act was to be applied or not. Section 40A(3) of the Act, which is apposite is reproduced hereunder:- ''(3) Where the assessee incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds twenty thousand rupees, no deduction shall be allowed in respect of such expenditure. (3A) Where an allowance has been made in the assessment for any year in respect of any liability incurred by the assessee for any expenditure and subsequently during any previous year (hereinafter referred to as subsequent year) the assessee makes payment in respect thereof, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, the payment so made shall be deemed to be the profits and gains of business or profession and accord....
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....in legal tender ; (c) where the payment is made by- (i) any letter of credit arrangements through a bank, (ii) a mail or telegraphic transfer through a bank ; (iii) a book adjustment from any account in a bank to any other account in that or any other bank ; (iv) a bill of exchange made payable only to a bank ; (v) the use of electronic clearing system through a bank account ; (vi) a credit card ; (vii) a debit card. Explanation.-- For the purposes of this clause and clause (g), the term "bank" means any bank, banking company or society referred to in sub-clauses (i) to (iv) of clause (a) and includes any bank [not being a banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949)], whether incorporated or not, which is established outside India ; (d) where the payment is made by way of adjustment against the amount of any liability incurred by the payee for any goods supplied or services rendered by the assessee to such payee ; (e) where the payment is made for the purchase of- (i) agricultural or forest produce ; or (ii) the produce of animal husbandry (including livestock, meat, hides and skins) or dairy or po....
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....le 6DD, still Section 40A(3) of the Act could not be applied, since business expediency and other relevant factors necessitated such payments. To a specific question raised by the Bench, it was stated by the ld. Counsel for the assessee that advertisements placed by M/s. Manappuram Finance Ltd for selling its old gold ornaments by auction, did not have any condition as to payments to be in cash mode only. However, according to him, assessee had to collect money from the syndicate members and business expediency required him to collect such money then and there, and pay it to M/s. Manappuram Finance Ltd. In our oponion, assessee failed to demonstrate that conditions of the bid required it to effect payments in cash, then and there, and payments could not have been made by cheque or demand draft or any other mode. It may be true that assessee had to collect money from the syndicate members whom he was representing. However, there is no explanation as to what stopped the assessee from effecting payments through banking channels. Agreement with syndicate members if any, was not produced by the assessee before any of the lower authorities, or in other words, assessee could not demonstra....