TaxTMI 
TaxTMI 
2021 (9) TMI 16
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.... 616. 3. There was no business expediency in the case of assessee as discussed in the Assessment Order. 4. It is prayed that the order of the Ld. CIT(A) be set-aside and that of the AO may be restored. 5. The appellant craves leave to add any other grounds of appeal which may arise at the time of hearing. 3. The brief facts relating to the issue are that the assessee is a Dealer of Verka Milk Agency, deals in sale purchase of Milk and its products. During the assessment proceedings, the Assessing Officer (herein after referred to as 'AO') noted that from one ledger account of M/s. Hoshiarpur Distt. Co-operative Milk Producer Ltd., Hoshiarpur, from where the assessee purchased milk and its products, revealed total purchases at Rs. 4,60,65,851/-, out of which purchases of Rs. 2,18,59,500/- had been made through bank drafts/cheque and Rs. 69,25,489/- on Sundays/bank holidays which were covered under rule 6DD whereas rest of purchases of Rs. 1,72,80,862/- had been made in cash in contravention of section 40A(3) of the Act. The assessee was asked by the AO to justify if its case fell within the exceptions provided under rule 6DD. The reply submitted....
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.... inability to make the payment through RTGS. It is also submitted that part payment have been made in cash out of business exigency otherwise the business could not have been run. Moreover, all the payments are general and can be crossed check from the books of M/s. Verka Milk Agency. As for as contravention of section 40A(3) is regarded it is respectfully submitted that our case falls within the preview of exception enumerated in rule 6DD of the I.T. Rule where the payments is made for the purchase of: i. Agricultural forest produce. ii. The produce of animal husbandry (including live stocks, meat, hides and skin) or dairy or poultry farming or iii. Fish of fish products or iv. The products of Horticulture, apiculture, To the cultivator, grower or producer of such articles, produce or products even otherwise, our case is justified on the basis of business expediency and other relevant factors involved as have been enumerated above. Section 40A(3) and Rule 6DD are intended to regulate the business transactions and to prevent the use of unaccounted money. As detailed in above para the cash payment have been made out of business e....
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....e ld. CIT(A) and relied upon various case laws including the decision of the Hon'ble Supreme Court in the case of Attar Singh Gurmukh Singh Vs ITO (1991) 191 ITR 667 (S.C.) The ld. CIT(A) after considering the submissions of the assessee, deleted the disallowance made by the AO holding as under: 7. I have considered the facts of the case and written submissions of the appellant. During assessment proceedings, the appellant claimed that no disallowance u/s. 40A(3) was warranted in its case on two grounds, that of business exigency and being covered in the exception provided in clause (e) of Rule 6DD of the I.T. Rules. Ld. A.O. held that the appellant could not be held to fall in the ambit of Rule 6DD(e) following the decision of Hon'ble H.P. High Court in the case of Smt. Chanchal Dogra Vs ITO [2012] 247 CTR (HP) 616. However, the other plea of the appellant of business expediency was rejected without any discussion. In this case, the cash payments in sums exceeding Rs. 20,000/- in the course of a single day have been made to the Hoshiarpur Distt. Co-op. Milk Producer Union Ltd. Ld. AO has not doubted the genuineness of purchases or the genuineness of the p....
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....ssion under subsection (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 or account payee bank draft, exceeds twenty thousand rupees, in such cases and under such circumstances as may be prescribed, having regard to the nature and extent of banking facilities available, considerations of business expediency and other relevant factors." Rule 6DD of the IT Rules 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 [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] in the cases and circumstances specified hereunder, namely:- where the payment is made to- (a) (i) the Reserve Bank of India or any banking company as defined in clause (c) o....
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....who ordinarily resides, or is carrying on any business, profession or vocation, in any such village or town; (h) where any payment is made to an employee of the assessee or the heir of any such employee, on or in connection with the retirement, retrenchment, resignation, discharge or death of such employee, on account of gratuity, retrenchment compensation or similar terminal benefit and the aggregate of such sums payable to the employee or his heir does not exceed fifty thousand rupees; (i) where the payment is made by an assessee by way of salary to his employee after deducting the income-tax from salary in accordance with the provisions of section 192 of the Act, and when such employee- (i) is temporarily posted for a continuous period of fifteen days or more in a place other than his normal place of duty or on a ship; and (ii) does not maintain any account in any bank at such place or ship; (j) [***] (k) where the payment is made by any person to his agent who is required to make payment in cash for goods or services on behalf of such person; (l) where the payment is made by an authorised dealer or a money changer a....
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....t read with Rule 6DD of the IT Rules reveal that the purpose of enactment of the above provisions is to make it difficult for the concerned recipient to evade taxation of their income. If the payment would be made to them through banking channel as provided under the provisions of Section 40A(3) of the Act, it would be difficult for them to leave it unaccounted or in other terms that such payments will be subject to scrutiny and verification as the data of deposits of such payments in the bank accounts of such recipients would be available to the Assessing Officer. However, the payment made to Government, banks, Life Insurance companies etc. has been put in exclusion clause because there is no likelihood of keeping such receipts unaccounted. However, considering the business expediency, difficulties faced and other relevant factors, payment in certain cases and circumstances for the payments made in cash and under those cases and circumstances, no disallowance is attracted u/s. 40A(3) of the Act. The list provided under Rule 6DD, in our view, is not exhaustive, rather it gives a picture as to under what cases and circumstances, such payments would be out of necessity, business expe....
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....he assessee to identify the person who has received the cash payment. Rule 6-DD 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 40-A(3) and Rule 6-DD that 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." 9. In our humble view, the above observations of the Hon'ble Supreme Court still hold good despite the fact that the list under Rule 6DD has been amended in the year 2008. 10. As observed by us that the said list cannot be exhaustive to list all the cases in various facts and circumstances of practicability, necessity and business expediency. As observed by the ld. CIT(A), the assessee in this case has explained about the practical difficulty and business expediency for making certain payments in cash stating that the milk being a perishable item and the fast moving consumer good, it had to be picked up early from the supply point in the early morning hours. The assessee was bound to make payme....