TaxTMI 
TaxTMI 
2020 (12) TMI 1061
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....ion to the provisions of Section 40 A(3 ) of the act, read with rule 6 DDJ." 3. During the course of assessment proceedings, the AO noticed that the assessee who is running a travel agency has made purchases exceeding Rs. 20,000/- in violation of Section 40A(3 ) of the Act to the tune of Rs. 2,25,40,000/- and paid amounts in cash two entities namely, Indraprashta Travels Pvt. Ltd. and Oasis Travels India Pvt. Ltd. on account of purchase of flight tickets. 4. The ld. CIT (A) deleted the addition holding that the provisions of Section 40 A(3) are not attracted where the parties are identified and there is no material on record to doubt the genuineness of the payment. The Assessing Officer has not expressed his doubts with respect to payments made. It is submitted that it be held that the AO has mechanically invoked provisions of section 40A(3 ) disregarding the fact that the hardship would have been caused to the appellant if, the payments were not made in cash. 5. Aggrieved, the revenue filed appeal before us. 6. Before us, the ld. DR relied on the order of the AO and the provisions of Section 40A(3 ) and Rule 8DD along with the circular No. 220 of the CBDT dated 31.05.1....
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...."thirty-five thousand rupees" had been substituted.]" 9. The rule 6DD(j) reads as under: "[Cases and circumstances in which a payment or aggregate of payments exceeding ten thousand rupees may be made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft or use of electronic clearing system through a bank account or through such other electronic mode as prescribed in rule 6ABBA.] 6DD. 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 account 2[ account payee bank draft or use of electronic clearing system through a bank account or through such other electronic mode as prescribed under rule 6ABBA, exceeds ten thousand rupees] (a) where the payment is made to- (i) the Reserve Bank of India or any banking company (ii) the State Bank of India or any subsidiary bank (iii) any co-operative bank or land mortgage ba....
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....me. The objective of the scrutiny assessment is to confirm that the tax taxpayer has not understated the income or claimed excessive loss which results ultimately under payment of taxes. In the instant case, in the scrutiny proceedings, the AO has not questioned the veracity of the payments made to Indraprashta Travels Pvt. Ltd. and Oasis Travels India Pvt. Ltd. Nowhere transaction with M/s Indraprastha Travels Pvt. Ltd. are doubted, the assessee has made a bonafide payments to M/s Indraprastha Travels who in turn have made payments to railways, airlines etc. Had it been the case of unexplained expenditure, the provisions of Section 69C would have been attracted. Invoking the provisions of Section 40A(3 ) by the Assessing Officer itself proves that the genuiness of the payment is not doubted. Having said that we have looked into the aspect whether the payments made by the assessee being a travel agent to the ticketing companies attract the provisions of 40A(3 ) or not. 12. We have also gone through the Circular No. 220 of the CBDT and also the case laws accepted by the revenue with regard to disallowance u/s 40 A(3 ). 13. The circular of the CBDT and the judgments accepted by....
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....se than from this particular seller; or e. the seller, acting as a commission agent, is required to pay cash in turn to persons from whom he has purchased the goods; or f. specific discount is given by the seller for payment to be made by way of cash. 5. It can be said that it would, generally, satisfy the requirements of rule 6 DD( j), if a letter to the above effect is produced in respect of each transaction falling within the categories listed above from the seller giving full particulars of his address, sales tax number/ permanent account number, if any, for the purposes of proper identification to enable the Income- tax Officer to satisfy himself about the genuineness of the transaction. The Income-tax Officer will, however, record his satisfaction before allowing the benefit of rule 6 DD( j). 6. It is further clarified that the above circumstances are not exhaustive but illustrative. There could be cases other than those falling within the above categories which would also meet the requirements of rule 6 DD( j)." 14. Further, we find that the revenue has accepted the judgments of various courts mentioned as under and directed the authori....
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....: " The circular makes it clear that these are merely illustrative instances of cases in which rule 6DD( j) would be applicable. The circular also points out that the requirements of rule 6DD(j) can be satisfied if a letter to the above effect is produced in respect of each transaction falling within the categories listed above from the seller giving full particulars of his address, sales- tax number/permanent account number, if any, for the purposes of proper identification to enable the Income-tax Officer to satisfy himself about the genuineness of the transaction " 18. The abovesaid circular was commented upon in Badrilal Phool Chand Rodawat Vs. CIT [1987] 167 ITR 404 (Raj.) with the following observations: " It is no doubt true that the said circular was not available at the time when the Income- tax Officer passed the assessment order and the Appellate Assistant Commissioner considered the appeal of the assessee. The guidelines contained in the said circular can, in our opinion, be taken into account for the purpose of considering as to whether the payments in question can be regarded as falling within the ambit of rule 6 DD(j) of the Rules." 19. The ab....
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.... the area of business, banking facilities are not adequate. Therefore, impelled by genuine difficulty, the assessee had to make payment in cash. The same idea is writ large in the Rules. The assessee will have to show that there was no way left for the assessee except to pay in cash. In the nature of things whether in the statute, rules or circulars, all the contingencies cannot be enumerated exhaustively. Parliament referred to the inadequacy of facilities in section 40A. The rule-making authorities illustrated some of the circumstances in the Rules. The Revenue supplemented the further circumstances when exemption can be claimed and allowed." 24. The above circular was applied in Dhorajia Construction Co. v. ITO [1991] 92 CTR (Trib.) ( Ahd.) 51, with the following observations: ".. In the paper book we find that the three sub- contractors appear to have agreed to take up the work from the assessee- firm on the clear understanding that payments to them, as and when needed, shall have to be made in cash as they would be requiring cash for payment to the labourers who were executing the work on site. The site of the work was admittedly at about 12 Km. away from the place....
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....Hence for these reasons also the amount of secret commission is to be disallowed." 28. The above circular was explained in ITO v. Patidar Ginning & Pressing Co. Ltd. [1994 ] 51 ITD 7 (Ahd. - Trib.), with the following observations: " 6.1 In Circular No. 220 dated 31 -5-1977, it has been clarified that it would generally satisfy the requirements of rule 6DD(j) if a letter explaining the exceptional and unavoidable circumstances such as mentioned in para 4 of the said circular is produced in respect of each transaction falling within the categories listed in para 4 of the said circular from the seller giving full particulars of his address, sales- tax number, permanent account number, if any, for the purpose of proper identification to enable the ITO to satisfy himself about the genuineness of the transaction. One of the illustration of exceptional circumstance given in para 4 of the said circular is that if the seller is refusing to accept payment by way of crossed cheque/draft and the purchasers business interest would suffer due to non-availability of goods otherwise than from this particular seller. The other illustration is that the seller, acting as a commission age....
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....sed cheque or draft may permit the assessee to make payment in cash. But, at the same time, it should also be shown that the assessee' s business interest would have suffered due to non-availability of goods otherwise than from that particular seller. Sub-clause (iv) of clause 4 of the circular requires the fulfillment of both the conditions as aforesaid. In this light, the factum of insistence by the recipients may not alone be sufficient to attract clause 4 (iv) of the circular." 32. Shri Mahabir Industries v. CIT [1996] 220 ITR 459 ( Gau.) with the following observations: " Circular No. 220, dated May 31, 1977, specifies some of the circumstances in which rule 6DD( j) of the Income-tax Rules, 1962, would apply. The circular itself indicates that these are not the only circumstances which can be said to be exceptional and unavoidable. Exceptional and unavoidable circumstances may vary depending on the facts of each case. Merely because the parties have bank accounts and there is a long gap between submission of the bill and making payment, the conclusion cannot be arrived at that the assessee failed to show exceptional and unavoidable circumstances. Before coming to a....