TaxTMI 
TaxTMI 
2020 (2) TMI 254
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....ernment of Rajasthan. We would like your kind attention on the decision of Hon'ble ITAT Jodhpur Bench in the case of Sumit Industries ITA No. 12/jodh/2008, where it has been held that Government of Rajasthan established Rajasthan Electricity Regulatory Commission in January, 2000 and AVVNL was declared body of Government of Rajasthan". 3. On the facts & circumstances of the case & in law, Ld. CIT(A) grossly erred in confirming the addition despite of his holding that judgment cited by the assessee are applicable to facts of this case." 2. Briefly stated, the facts of the case are that the assessee is engaged in business of mining and crushing of stones and sale of grits. The return of income was filed on 26.06.2015 declaring total income of Rs. 77,93,960/- which was taken up for limited scrutiny through CASS, the notice u/s 143(2) was issued and assessment completed u/s 143(3) dated 29.12.2017 where the addition of Rs. 71,55,130/- was made u/s 40A(3) of the Act. 3. During the course of assessment proceedings, the Assessing officer observed that the assessee has made payment towards electricity charges amounting to Rs. 71,55,130/- in cash to the Ajmer Vidyut ....
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.... book for respective dates and copy of instructions given on electricity bill were produced for verification. It was submitted that the assessee was having the bank account in Vijaya Bank at Jhunjhunu which is an outstation branch and Vijaya Bank do not have any branch in Udairpurwati. As per AVVNL directions, the cheque must be of local clearing bank only. Cheque issued by the Vijaya Bank, Jhunjhunu will be consider as outstation cheque and it will take 10 days to get the cheque cleared in account of AVVNL. It was practically not possible for the assessee to arrange the payments at least 10 days before the billing due date and moreover the AVVNL does not accept outstation cheque so the assessee was having a valid reason to make the payment in cash only. It was accordingly submitted that the assessee was having a valid business reasons which force him to make the electricity payment in cash and also the payer and the receipt are genuine and expenditure on electricity charges should not be disallowed u/s 40A (3) of the Act. 4. The submissions of the assessee were considered but not found acceptable to the Assessing Officer. As per the Assessing Officer, for availing the exemption....
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....finding, the assessee is now in appeal before us. 6. During the course of hearing, the ld. AR referring to the intent behind introduction of section 40A(3) stated that the payment has been made to a government company towards electricity charges and that too, under compelling business circumstances where AVVNL was not ready to accept cheque payments after the due dates and thus, there is no violation of intent. It was further submitted that AVVNL should be considered as Government for the purposes of section 40A(3) of the Act read with rule 6DD(b). It was further submitted as under:- "1. That all the electricity bills need to be deposited in AVVNL, Udairpurwati office only and the Assessee's mining site is 20 kms far from Udairpurwati. Apparently there is no bank branch at mining site of the assessee. 2. AVVNL, Udairpurwati accepts the cheques of local clearing banks i.e. State Bank of India, Udairpurwati only. 3. That the assessee does not have any account in State Bank of India. Assessee's bank account is with Vijaya Bank,Jhunjhunu and Vijaya bank does not have any branch at Udairpurwati. 4. All the above payments to AVVNL have been made ....
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.... (ITA No.12/Jodhpur/2018) , Usha Maheshwari (ITA no.187&188/Jodhpur/2013) and Shri Ayub Ali,Churu (ITA No.1045/JP/2017 dated 4th September 2018). 9. Per contra, the ld. DR relied on the findings of the lower authorities. It was submitted that AVVNL has been established under the Companies Act by the Govt. of Rajasthan and therefore, it is a separate legal entity and even though it is a Government Company, it cannot be equated with Government as provided in rule 6DD and for the purposes, reliance was placed on the Coordinate Bench decision in case of M/s Modi Levigated Kaolin Pvt. Ltd., Sikar vs. ACIT, Sikar (ITA No. 195/JP/2016 dated 15/05/2017) wherein it was held that "Clause (b) of Rule 6DD cannot be stretched to the extent of bringing every Government entity/company into the fold of exempt category. Therefore, had the intention of the legislation was to exempt the Government electricity company, it would have been mentioned in the Clause (b) of Rule 6DD". 10. It was further submitted that the village Chapoli is located only 13 km away from Tehsil Udairpurwati in Jhunjhunu District, Rajasthan where the banking facilities was available and the assessee could have made the c....
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....ount in local area and the assessee could have used net banking or other electronic payment option for payment to AVVNL. The assessee's submission in this regard is that it has been making regular payments to AVVNL within due dates, however for the payments under consideration, it was not having sufficient bank balance and thus was not in a position to make the payment within due date and as soon as the funds are realized from its business and credited to its bank account, it has made the withdrawals and made the payments after the due dates. We find force in the arguments of the ld AR that where it was not having sufficient bank balance, then in such circumstances, it was practically not possible to make payments within due date as so prescribed. At the same time, the nature of business activity of assessee is such that it requires continues supply of electricity and any disruption/disconnection due to non-payment of electricity charges will have significant business disruptions and adverse consequences. Therefore, we find that the test of business expediency is clearly established in the instant case which continues to be a relevant factor while examining the applicability of ....
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....t payee bank draft in order that such expenditure may not be disallowed as a deduction under sub-section (3), then the payment may be made by such cheque or draft; and where the payment is so made or tendered, no person shall be allowed to raise, in any suit or other proceeding, a plea based on the ground that the payment was not made or tendered in cash or in any other manner." 19. The aforesaid provisions have to be considered and interpreted in light of various authorities which have been quoted at the Bar and relied upon by the ld AR and ld DR in support of their respective contentions. 20. In case of Attar Singh Gurmukh Singh v. ITO (supra), the matter which came up for consideration before the Hon'ble Supreme Court, the facts of the case were that assessee had made payment in cash exceeding a sum of Rs. 2,500/- for purchase of certain stock-in-trade. Payments were not allowed as deductions in the computation of income under the head "profits and gains of business or professions" as the same were held to be in contravention of section 40A(3) read with that 6DD of the Income rules. In that factual background, the question regarding validity of section....
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....t they are intended to regulate the business transactions and to prevent the use of unaccounted money or reduce the chances to use black-money for business transactions. - Mudiam Oil Co. v. ITO [1973] 92 ITR 519 (AP). If the payment is made by a crossed cheque on a bank or a crossed bank draft, then it will be easier to ascertain, when deduction is claimed, whether the payment was genuine and whether it was out of the income from disclosed sources. In interpreting a taxing statute the Court cannot be oblivious of the proliferation of black-money which is under circulation in our country. Any restraint intended to curb the chances and opportunities to use or create black-money should not be regarded as curtailing the freedom of trade or business." 22. Further, the Hon'ble Supreme Court upheld the applicability of section 40A(3) to payment made for acquiring stock-in-trade and raw materials and also affirmed the decision of Hon'ble Rajasthan High Court in case of Fakri Automobiles v. CIT [1986] 160 ITR 504 (Raj) to the effect that the payments made for purchasing stock-in-trade or raw material should also be regarded as expenditure for the purposes of section 40A(3)....
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....ovisions of section 40A(3) as exist now and relevant for the impunged assessment year i.e. AY 2013-14. However, Rule 6DD(j) has been amended and by notification dated 10.10.2008, it now provides for an exception only in a scenario where the payment was required to be made on a day on which banks were closed either on account of holiday or strike. A question which arises for consideration is whether the legal proposition so laid down by the Hon'ble Supreme Court regarding consideration of business expediency and other relevant factors has been diluted by way of delegated legislation in form of Income Tax Rules when the parent legislation in form of section 40A(3) to which such delegated legislation is subservient has been retained in its entirety. Alternatively, can it be said that what has been prescribed as exceptional circumstances in Rule 6DD as amended are exhaustive enough and which visualizes all kinds and nature of business expediency in all possible situations. 26. If we look at the legislative history of section 40A(3) and Rule 6DD, we find that initially, section 40A(3) provides for disallowance of 100% of the expenditure unless the matter falls under ex....
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....n of the legislature is not violated. We find that our said view find resonance in decisions of various authorities, which we have discussed below and thus seems fortified by the said decisions. 29. We refer to the decision of the Hon'ble Rajasthan High Court in case of Smt. Harshila Chordia vs. ITO (supra), where the facts of case were that the assessee had made certain cash payments towards purchase of scooter/mopeds which exceeded Rs. 10,000/- in each case to the principal agent instead of making payment through the cross cheques or bank draft. The Assessing Officer invoked the provisions of section 40A(3) and held that they were no exceptional circumstances falling under rule 6DD which could avoid consequences of the provisions of section 40A(3) of the Act. The ld. CIT(A) held that such exceptional circumstances did exist. However, the findings of the ld. CIT(A) were reversed by the Tribunal and the matter came up for consideration before the Hon'ble High Court. 30. The Hon'ble High Court observed that the principal reason which weighed with the Tribunal in discarding the explanation furnished by the assessee was that the case of the assessee did not fall in a....
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....clause 6DD(j) and the circular dated 31st May, 1977 issued by the Board in the context of what shall constitute exceptional and unavoidable circumstances within the meaning of section Clause (j). The Hon'ble High Court observed that the circular in paragraph 5 gives a clear indication that rule 6DD(j) has to be liberally construed and ordinarily where the genuineness of the transaction and the payment and the identity of the receiver is established, the requirement of rule 6DD(j) must be deemed to have been satisfied. The Hon'ble High Court observed that apparently section 40A(3) was intended to penalize the tax evader and not the honest transactions and that is why after framing of rule 6DD(j), the Board stepped in by issuing the aforesaid circular and this clarification, in our opinion, is in conformity with the principle enunciated by the Supreme Court in CTO vs. Swastik Roadways reported in [2004] 2 RC 539; [2004] 3 SCC 640. 32. The legal proposition that arises from the above decision of the Hon'ble Rajasthan High Court is that the consequences, which were to befall on account of non-observation of sub-section (3) of section 40A must have nexus to the failure of such ....
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....r:- " 5. Considering the above facts in the light of the above decision, it is clear that the nature of business of the assessee is such that assessee is required continuous supply of electricity for which assessee shall have to make payment to Jodhpur Vidyut Vitaran Nigam Ltd. for smooth functioning of the business activity of the assessee. In case no payment is made in cash to the above Nigam, then the electricity would have been discontinued. Therefore, having regard to the nature of business activity of the assessee and that assessee did not have banking facility where payment of electricity bill is to be made and considering the business expediency and other factors, I am of the view the case of the assessee would clearly fall in exception to Rule and no disallowance should be made under section 40A(3) of Income Tax Act. The learned Accountant Member has, therefore, rightly followed the decision of the coordinate Bench on identical issue in the case of Shri Rahul Pancholi (supra) in which on identical facts and issue, the departmental appeal was dismissed. Interestingly, the learned Judicial Member who has dismissed appeal of the assessee on the same set of facts, was....