TaxTMI 
TaxTMI 
TaxTMI 
2019 (4) TMI 1907
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....he previous year relevant to impugned assessment years, audit reports in Form 3CB filed by the assessees mentioned payments made in violation of Section 40A(3) of the Act. Ld. AO required the assessee to explain why cash payments made for purchasing film rights should not be disallowed under the above Section. Assessees thereupon submitted that such payments were made in cash on account of business expediency. As per the assessees, agreements with producers were reached just prior to release date of the film, that too, after the banking hours in many cases. Contention of the assessee was that in such cases, it was constrained to make payments in cash to the producers. However, ld. AO was of the opinion that assessees could not show any exceptional circumstance for making payments in cash and Section 40A(3) of the Act stood attracted. As per the ld. AO, explanation of the assessees did not show any exceptional circumstance warranting an exclusion from the rigours of Section 40A(3) of the Act. Ld. AO also opined that assessees could have used net banking facility for effecting cash payments, if it was urgent to do so. The cash payments effected by the assessees were disallowed u/s.40....
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.... distribution rights of film so that the release announced to general public does not fail. This has resulted making Cash Payments but for which the Assessees would have incurred heavy loss by not getting the rights to release these films. The intention of imposing disallowance under Sec 40A(3) to quote the memorandum to the Finance Bill 1968 is to curb wasteful and lavish expenditure and to counter tax evasion and also the Department Officers may not be in a position to identify the payee and reasonableness of payments In the given case the Assessees have given the list of Payees to whom these payments were made, the name of the films for which the payments were made. Further the Assessees have also submitted written statements from the payees affirming these transactions. The Assessees have submitted these details videletter dated 27-6-2016. The learned Assessing Authority has not considered the genuineness of the assessees''. Assessees also submitted a list of the parties to whom cash payments were made alongwith copies of agreements entered with such parties for substantiating its contention that such payments were due to the short time gap between the dates of the agreeme....
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....e the gap between the date of release and date of agreement was not morethan two to three days. 6. In support of his argument that compulsions of business was a good reason for exclusion for the application of Section 40A(3) of the Act, ld. AR placed reliance on a judgment of Hon'ble Gujarat High Court in the case of Anupam Tele Services vs. ITO (2014) 366 ITR 122. According to him, the exemptions contained in Rule 6DD was not exhaustive and said rule had to be interpreted liberally. As per the ld. AR, once assessee could show that it was compelled to make cash payments, so as to not to avoid a break-down of its business, such payments would squarely fall within the proviso to Section 40A(3) of the Act. Reliance was also placed on the decisions of Co-ordinate Bench in the cases of Trident Movies vs. ACIT (ITA No.184/Mds/2012, dated 17.01.2013) and ACIT vs. M/s. Safeway Dredging Enterprises (ITA No.1447/Mds/2014, dated 15.07.2016). 7. Ld. Departmental Representative on the other hand submitted that genuineness of the payments was not a criteria for seeking non-application of Section 40A(3) of the Act. In support of this, he placed reliance on a judgment of Hon'ble Jurisdictional H....
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....i Gopuram Films 10.12.2013 10.12.2013 13.12.2013 1,00,000 14 Goli Soda Thirupathi Brothers' 22.01.2014 22.01.2014 24.01.2014 40,000 Total 16,00,000 M/s. Lena Talkies, assessment year 2014-15 Sl. No Picture Name of the Party Date of Agreement Payment Date Release Date Amount in Rs. 1 Kochadaiyan Shanmuga films 22.05.2014 22.05.2014 23.05.2014 6,00,000 2 Vadakari Five Star Pictures 17.06.2014 17.06.2014 19.06.2014 50,000 3 Vela Illa Pattadari Five Star Pictures 17.07.2014 17.07.2014 18.07.2014 3,00,000 4 Yaan Five Star Pictures 30.09.2014 30.09.2014 02.10.2014 1,00,000 5 Vanmam Five Star Pictures 20.11.2014 20.11.2014 21.11.2014 40,000 6 Anjaan Thirupathi Brothers 12.08.2014 12.08.2014 15.08.2014 10,00,000 7 Aranmanai Sri Thenandal Films 18.09.2014 18.09.2014 19.09.2014 1,50,000 8 Tirudan Police Sri Thenandal Pictures 14.11.2014 14.11.2014 15.11.2014 25,000 9 Mosakutty AK Movies 27.11.2014 27.11.2014 28.11.2014 25,000 10 Megamann AK Movies 23.12.2014 23.12.2014 25.12.2014 1,00,000 1....
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....ugh such means could be verified only two hours after the actual payments. However, admittedly, there was not less than 24 hours from the date of agreement and the date of release of movie. Though it has been argued that producers with whom assessees had entered into agreements, were obliged to make payments to financiers for getting their consent for the release, nothing has been brought on record to support this claim. As submitted by the ld. DR, both the assessees had their offices in Chennai, and the place at which movies were to be released, had no bearing on the payments which were to be effected to the producers. 9. At this juncture it will be apposite to have a look at proviso to Section 40A(3) of the Act, which has been strongly relied on by the ld. Authorised Representative, for seeking an exclusion from application of Section 40A(3) of the Act. Said proviso reads as under:- ''Provided that no disallowance shall be made and no payment shall be deemed to be the profits and gains of business or profession under sub-section (3) and this sub-section 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....