TaxTMI 
TaxTMI 
2019 (9) TMI 685
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....Charges" paid in cash. The facts of the case are that the appellant is an authorized Book Maker of Royal Calcutta Turf Club for 'Horse Racing' and he is carrying on this business for the last two decades. However, he runs authorized business of Book Maker in form of two entities, MI s H.D. Som(A) & Co. and H.D. Som(B) & Co. The appellant is the proprietor of both the entities and maintains consolidated P&L AI c under his proprietorship. 4.1 During the year, the Ld. A.O. found that the appellant had paid Operational Charges to the tune of Rs. 65,70,374/- to M/s Royal Calcutta Turf Club(RCTC) out of which cash amounting to Rs. 49,43,544/- was paid in violation of section 40A(3). When confronted, the AIR argued that both the entities under the proprietorship business of the appellant are separate entities with separate agreements with RCTC and with separate staff. Thus, the clubbing of deposits made in cash on a single day for both the entities by the A.O. as he has done at Table-l of page 3,4 & 5 of the assessment order is incorrect and the case of the appellant is therefore, not covered u/s 40A(3). The A.O. at Para 4.6 of his order at Page No.6 refuted such....
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....o concerns have separate, independent legal entity. From the perusal of the deposition made by RCTC in response to your notice under 133(6) of 1. T. Act, it is evident that they have also maintained separate accounts (ledgers) for both the entity, in respect to transaction with the assessee. Moreover, RCTC issued separate documents (FMPL) to both the entities for payment of operational charges and other charges. Thus in a particular day the payments of 'operational charge' by H.D. Som & Co. (A) and H.D. Som & Co. (B) are independent transactions. Thus, the assessee 'operational charge' paid for by H.D. Som & Co. (A) and H.D. Som & Co. (B) are separate expenditure. The section 40A(3) of the Income Tax Act, 1961 provides "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 bank or account payee demand draft exceeds twenty thousand rupees, no deduction shall be allowed in respect of such expenditure". Since during the year under scrutiny, no single expense on account of operational charge exceeded Rs. 20,000/ -, provision u/ s 40{....
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.... A A B B Total Sunday 733142 115465 729758 113876 1692241 Saturday 478817 - 472234 15169 966220 Holiday 100284 - 103093 - 203377 Total 1312243115465 115465 1305085 129045 2861838 3. Reliance is placed on the following citations: 119 ITD 62(Kol) (TM) Shanta Ram Mehta Meaning of in a sum in S. 40A(3) - provisions refers to single payment & not aggregate of payments, irrespective of any number of payments where the amount does* not exceed the limit, the rigour of S. 40A(3) will not apply. 366 ITR122(Guj.) Anupan Tele Services v ITI A. Y. 2006-07 - S. 40A(3) must be read with Rule 6DD - Payment in cash at the request of payee - Transaction genuine - Reasonable explanations for payment in cash - payments could not be disallowed. 4.4 During the appellate proceedings, Remand Report was called for from the A.O. and such report dt.Ol.08.2017 was received in this office. As far as addition of Rs. 49,43,544/- u/s. 40A(3) of the Act is concerned, the A.O. stated that all the issues raised by the appellant have been duly considered in the course of assessmen....
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.... Kolkata where banking facility is widely available, Rule 6DDU) can at all be invoked when the appellant would have easily issued cheque from his bankers. In short, there existed, there no compelling circumstances for the assessee to make payment in cash alone of a banking holiday when cheque payments could have been easily made. In the case of Jai Talkies v. ITO(ITAT, Del.) 57 TTJ 745 it has been held that making payment on bank holiday do not ipso facto permit the assessee to make cash payment. I am of the view that there existed no special circumstance where the appellant was compelled to make cash payment and cash alone to the exclusion of draft or a cheque. The appellant has also taken shelter in certificate issued by RCTC that during the Financial Year 2012-13 there were receiving operational charges from the Book Maker in cash. This certificate, I am of the view, is only self-serving the certificate. The internal regulation of any club will not have any overriding bearing on the provisions of the Income Tax Act which is legislated by the Parliament of India. In the case of Narayan Bijoy Kumar v. CIT(Patna) 163 ITR 895, the Hon'ble Patna High Court considered the certific....
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....tions only made the assessee to pay operational charges to the club in cash at the earliest in order to avoid appropriate actions. 6. This tribunal 's co-ordinate bench's decision in ITA No. 1448/Kol/2011 A/y 2008-09 Sri Manoranjan Raha v/s. ITO decided on 18-11-2015 holds that impugned disallowance provision does not apply in case of overwhelming genuine payments coupled with business exigencies which may go beyond the prescribed rule 6DD of the Income Tax Rules, 1962 as follows:- 3. The only issue to be decided in this appeal is as to whether the disallowance u/s 40A(3) of the Act could be made in the facts and circumstances of the case amounting to Rs. 1,14,52,363/- (60,50,890 + 54,01,473). 4. The brief facts of this case is that the assessee is a distributor of Hutch Sim Cards and derives income from trading of wholesale and retail sale of mobile sets and top up charges apart from distribution commission for sim cards under the name and style of 'Shibani Hutch Communication', a proprietary concern. The assessee had also shown interest income on fixed deposits and Kisan Vikas Patras. The books of account were not produced by the assessee before the L....
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....for the purpose of adjudication herein. 4.2. The Learned AR reiterated the facts stated before the lower authorities. He argued that the genuineness of the cash payments made by the assessee is not disputed by the revenue and hence no disallowance u/s 40A(3) of the Act could be made. He argued that the assessee has made payment to his agent Mr.Amit Dutta and hence payments would fall under the exception provided in Rule 6DD(k) of the IT Rules. In response to this, the Learned DR vehemently supported the orders of the lower authorities. 4.3. We have heard the rival submissions and perused the materials available on record. We find that the payments made by cash in violation of section 40A(3) of the Act have been duly acknowledged by the recipient Shri.Amit Dutta who had deposed before the learned AO and confirmed the fact of receipt of monies in cash. Hence the genuinity of payments made by the assessee stands clearly established beyond doubt. Even for the amounts enhanced by Learned CITA in the sum of Rs. 54,01,473/-, the genuineness of the payments and the necessity to incur the said expenditure for the purpose of business of the assessee was never dispu....
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....ajan Raha 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 transactions and to prevent the use of unaccounted money or reduce the chances to use black money for business transactions." CIT vs CPL Tannery reported in (2009) 318 ITR 179 (Cal) The second contention of the assessee that owing to business expediency, obligation and exigency, the assessee had to make cash payment for purchase of goods so essential for carrying on of his business, was also not disputed by the AO. The genuinity of transactions, rate of gross profit or the fact that the bonafide of the assessee that payments are made to producers of hides and skin are also neither doubted nor disputed by the AO. On the basis of these facts it is not justified on the part of the AO to disallow 20% of the payments made u/s 40A(3) in the....
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....1961, read with Rule 6DD of the Income-tax Rules, 1962 - Business disallowance - Cash payment exceeding prescribed limit (Rule 6DD) - Assessee made certain payment of purchase of ground nut in cash exceeding prescribed limit - Assessee submitted that her made payment in cash because seller insisted on that and also gave incentives and discounts - Further, seller also issued certificate in support of this - Whether since assessee had placed proof of payment of consideration for its transaction to seller, and later admitted payment and there was no doubt about genuineness of payment, no disallowance could be made under section 40A(3) - Held, yes [ Para 23] [In favour of the assessee]" CIT vs Smt. Shelly Passi reported in (2013) 350 ITR 227 (P&H) In this case the court upheld the view of the tribunal in not applying section 40A(3) of the Act to the cash payments when ultimately, such amounts were deposited in the bank by the payee. 4.5. It is pertinent to note that the primary object of enacting section 40A(3) was two fold, firstly, putting a check on trading transactions with a mind to evade the liability to tax on income earned out of such transaction and, secondly....