TaxTMI 
TaxTMI 
TaxTMI 
2020 (9) TMI 543
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....n'ble Supreme Court in the case of Attar Singh Gurumukh Singh as applicable in the assessee's case without appreciating that the decision was with reference to Rule 6DD(j) which was omitted w.e.f. 01.04.1996?" 3.The assessee is a partnership firm filed its return of income for the relevant assessment year AY 2005-06 on 31.03.2005 declaring a total income of Rs. 23,29,830/-. The assessment was completed under Section 143(3) of the Act. The Commissioner of Income Tax exercised his power under Section 263 of the Act on the ground that certain payments made by the assessee to M/s.Sitalakshmi Mills Ltd. ['M/s.SLM' for brevity] towards conversion charges paid by cash were omitted to be disallowed under Section 40A(3) of the Act. After hearing the assessee, the Commissioner set aside the assessment order and directed the Assessing Officer to make fresh assessment after considering the applicability of Section 40A(3) of the Act. On such direction, the Assessing Officer made an addition of Rs. 61,32476/- under Section 40A(3) being 20% of total cash payment of Rs. 3,06,62,382/-. Aggrieved by the same, the assessee preferred appeal to the Commissioner of Income Tax (Appeals)[....
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....9c0 of section 5 of the Banking Regulation act, 1949 (10 of 1949) (ii) the State Bank of India or any subsidiary bank as defined in section 2 of the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959) (iii) any co-operative bank or land mortgage bank (iv) any primary agricultural credit society or any primary credit society as defined under section 56 of the Banking Regulation Act, 1949 (10 of 1949) (v) the Life Insurance Corporation of India established under section 3 of the Life Insurance Corporation Act, 1956 (31 of 1956); (b) where the payment is made to the Government and under the rules framed by it, such payment is required to be made 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 (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 compan....
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....currency or travellers cheques in the normal course of his business. Explanation:- For the purposes of this clause, the expressions "authorised dealer" or "money changer"means a person authorised as an authorised dealer or a money changer to deal in foreign currency or foreign exchange under any law for the time being in force. In terms of the above provision, the assessee is prohibited from effecting cash payments over and above Rs. 20,000/-. Rule 6DD states that no disallowance under Sub-section (3) of Section 40A shall be made and no payment shall be deemed to be the profits and gains of business or profession under sub-section (3A) of section 40A where 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 an account payee bank draft exceeds Rs. 20,000/- in the case and circumstances specified in clauses (a) to (l) of Rule 6DD. 6.It is the argument of the revenue that none of the contingencies mentioned in clauses (a) to (l) in Rule 6DD are attracted in the instant case. Further, it is submitted that the Assessing Officer rightly held that the decision in th case of Attar Singh Gurumukh Singh vs. ITO [(1991....
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....pplied by the Tribunal as in the said case while testing the vires of Section 40A(3), the Hon'ble Supreme Court has explained the reason behind the introduction of the said provision and has held that where the payment is genuine there cannot be denial of deduction of genuine and bonafide business expenditure merely because the assessee could not make the payment as provided under Section 40A(3) of the Act. The learned counsel for the assessee placed reliance on the decision in the case of Walford Transport (Eastern India) Ltd. vs. Commissioner of Income Tax [(1999) 240 ITR 902][Para 10], CIT vs. Rhydburg Pharmaceuticals Ltd. [(2004) 269 ITR 561][Para 2]. Further it is argued that Rule 6DD of the Rules merely sets out the circumstances under which the assessee can claim exemption provided under Section 40A(3) and it is illustrative and not exhaustive in this regard and reliance was placed on the decision in the case of CIT vs. Chrome Leather Co. Pvt. Ltd. [(1999) 235 ITR 708][Para 8] and Giridharlal Goenka vs. CIT [MANU/WB/0114/1988][Para 14]. 8.Further it is submitted that there is adequate evidence to prove that the assessee was compelled to make cash payment for the convers....
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....fter considering the object of the section held that the payment by crossed cheque or crossed bank draft is insisted upon to enable the assessing authority to ascertain whether the payment was genuine or whether it was out of income from undisclosed sources. The Supreme Court also held that consideration of business expediency and other relevant factors are not excluded in examining the applicability of the provisions of section 40A(3) of the Income-tax Act. Genuine and bona fide transactions, as held by the Supreme Court, are not taken out of the sweep of the section, and 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 under section 40A(3) was not practicable or would have caused genuine difficulty to the payee. The Supreme Court also held that it is open to the assessee to identify the person who has received the cash payment. It is relevant to notice that rule 6DD of the Income-tax Rules provides that an assessee can be exempted from payment by crossed cheque or crossed bank draft in the circumstances specified in the rule. The above decision of the Supreme Court makes it clear ....
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....ecord and came to the conclusion that there was no justification to disallow the entire payment, merely because cash payments have been made. As regards the other amount of Rs. 6,50,303, the Tribunal examined the materials with reference to itemwise expenditure and found that there was justification for the payments to be made in cash. The Tribunal also found that the identity of the payee was established and the genuineness of the payment was established beyond doubt, and the requirements of section 40A(3) of the Income-tax Act and rule 6DD of the Income-tax Rules were fully satisfied. The finding recorded by the Appellate Tribunal is a finding arrived at on the facts of the case. The Tribunal has accepted the materials produced before it in support of its finding that only at the time of purchase, the actual amount would be known and the identity of the party was successfully established and the decision of the Tribunal is based entirely on the facts of the case." 9.The above is the legal principle which has been consistently adopted in all matters. What is crucial while testing such a claim and the applicability of Section 40A(3) is the facts of each particular case. Therefore....