TaxTMI 
TaxTMI 
TaxTMI 
2022 (9) TMI 1021
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....f Rs.1,06,50,000/- u/s. 40A(3) of the IT Act despite the fact that no deduction in respect of said sum was claimed in the computation of income from business. The disallowance u/s 40A(3) has been made by the learned AO and confirm by the CIT(A) in a narrow premise without consideration of business exigency and requirements of the appellant. Both the authorities failed to adjudicate the same in its proper prospective, hence this addition is also liable to be deleted. 2. That the appellant assessee craves, leaves to add, alter, amend, substitute, withdraw or forego any of the ground(s) of appeal before or at the time of hearing. 3. That the order of Learned CIT (A) is bad in law and wrong on facts of the case and is in violation of the principles of natural justice without providing reasonable opportunity to the appellant assessee to meet the merits of its case. 3. As could be seen from the grounds raised, the dispute is with regard to disallowance of an amount of Rs.1,06,50,000/-. Briefly the facts are, the assessee is a resident corporate entity. For the assessment year under dispute, the assessee filed its return of income on 28.11.2014 declaring income of Rs.8,50,68,370/-....
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.... cash payment cannot be disallowed under section 40A(3) of the Act. He submitted, primary object of section 40A(3) is to curb evasion of tax and not to obstruct genuine transaction. Further, drawing our attention to clause (j) of rule 6DD, he submitted, prior to the amendment, the rule provided for payment in cash in case of exceptional and unavoidable circumstances. He submitted, in spite of amendment, the courts and Tribunals have repeatedly held that considering that there has been no change in substantive provision of section 40A(3), insofar as, consideration of business expediency and other relevant factors are concerned, it could not be said that the consideration of business expediency and other relevant factors as provided in section 40A(3) have been diluted by way of amendment in Rule 6DD of the Rules. In support of such contention, he relied upon the following decisions: 1. Anupam Tele Services (2014) 362 ITR 92 (Guj.) 2. A. Daga Royal Arts V. ITO ,[2018] 94 taxmann.com 401 (Jaipur - Tribn.)] 3. KGL Network (P.) Ltd. Vs. ACIT [2018] 68 ITR (T) 371 (Del. Trib.) 4. Dhuri Wine Vs. DCIT [2017] 83 taxmann.com 20 (Chd. - Trib.) 5. M/s. Ajmer Food Products Pvt. Ltd....
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....uine. 9. On a reading of section 40A(3) of the Act, it becomes clear that any expenditure exceeding the amount prescribed therein would not be allowed as deduction, if they are made other than by way of account payee cheque or bank draft. However, the first proviso to section 40A(3) makes it clear that no disallowance under subsection (3) to section 40A should be made in such cases and under such circumstances as may be prescribed, having regard to the nature and extent of banking facilities available, consideration of business expedience and other relevant factors. Rule 6DD prescribes the exceptions under which section 40A(3) would not apply. Consistent with the substantive provisions of section 40A(3) of the Act, sub-rule (j) of Rule 6DD was introduced. Sub-rule (j) of Rule 6DD, which existed in its original form from 01.04.1970 to 27.07.1995, prior to its amendment, reads as under: "Rule 6DD: (j) in any other case where the assessee satisfies the Income-tax Officer that the payment could not be made by way of a crossed cheque drawn on a bank or by a crossed bank draft. a. Due to exceptional or unavoidable circumstances; or b. because payment in the manner aforesaid w....
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....t is also open to the assessee to identify the person who has received the cash payment. Rule 6DD 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 40A(3) and rule 6DD 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. - Mudiam Oil Co. v. ITO [1973] 92 ITR 519 (API. If the payment is made by a crossed cheque drawn 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." 11. As could be seen from the aforesaid decision of the Hon'ble Supreme Court, though, constitutional v....
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....activities. Section 40A(3) only empowers the Assessing Officer to disallow the deduction claimed as expenditure in respect of which payment is not made by crossed cheque or crossed bank draft. The payment by crossed cheque or crossed bank draft is insisted on to enable the assessing authority to ascertain whether the payment was genuine or whether it was out of the income from undisclosed sources. The terms of section 40A(3) are not absolute. Considerations of business expediency and other relevant factors are not excluded. Genuine and bona fide transactions are not taken out of the sweep of the section. 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 in section 40A(3) was not practicable or would have caused genuine difficulty to the payee. It is also open to the assessee to identify the person who has received the cash payment. Rule 6DD 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 40A(3) and rule 6DD that they are in....
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....h, which Tata Teleservices Limited in turn assured and deposited the amount in a bank account. In the facts of the present case, rigors of section 40A(3) of the Act must be lifted. 23. We notice that the Division Bench of the Rajasthan High Court in case of Suit. Harshila Chordia v. ITO f2008] 298 ITR 349 /Rail had observed that the exceptions contained in Rule 6DD are not exhaustive and that the said rule must be interpreted liberally. 24. Before closing, we may clarify that the above observations would apply only to the cash payments made by the assessee to the Tata Teleservices Limited. No such peculiar facts arise in case of payments made to the other two agencies viz., Rajvi Enterprise and R.D Infocom. Learned counsel for the appellant also clarified that this appeal is confined to only the payments made to Tata Teleservices Limited and no others. 13. In case of A. Daga Royal Arts Vs. ITO (supra), the Coordinate Bench while dealing with identical issue has observed that even after amendment of Rule 6DD(j), the legal exposition propounded by the Hon'ble Supreme Court regarding consideration of expediency and other relevant factors cannot be considered to be diluted as t....
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....sons: (a) The genuineness of the payment made was not doubted. (b) The recipient of the amount made a pre-condition for registration of sale deed only on payment of cash. (c) Due to business expediency the assessee had to make the payment in cash. 15. The other decisions cited by learned counsel also supports this view. Even otherwise also, various judicial precedents have been cited before us laying down the ratio that no disallowances under section 40A(3) of the Act can be made where seller of agricultural land insisted on payment in cash. Thus, applying the legal principles enunciated in the judicial precedents cited before us, we hold that the disallowance made under section 40A(3) of the Act is unsustainable. Accordingly, we delete it. 16. In the result, the appeal is allowed. ITA No. 2958/Del/2018 (Appeal by Revenue) 17. In ground no. 1, the Revenue has challenged the deletion of disallowance of Rs.55,42,561/- representing provision of bad debts. Briefly the facts are, in course of assessment proceedings, the Assessing Officer while verifying the profit and loss account noticed that the assessee had debited an amount of Rs.55,42,561/- towards bad debts. Alleging th....