TaxTMI 
TaxTMI 
2022 (11) TMI 1508
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....e appeal was admitted on 17.04.2006, but no substantial question of law was framed. 4. From the memo of appeal we find that appellant has proposed a number of questions as substantial questions of law. However, we are of the view that the following two questions would cover the controversy in question: i) Whether on the facts and in the circumstances of the case, Tribunal was justified in affirming the disallowance made by the assessing officer in payments beyond Rs. 20,000.00 in cash in terms of Rule 6DD(f)(ii) of the Income Tax Rules, 1962 (briefly, "the Rules" hereinafter), in other words, denying the benefit of exemption under the aforesaid provision? ii) Whether on the facts and in the circumstances of the case, Tribunal was justified in holding that the benefit of exemption contained in Rule 6DD(f)(ii) of the Rules would not be available when total payment made exceeds Rs. 20,000.00? 5. Appellant is an assessee under the Act having the status of a firm. It is engaged in the business of sale of butter and also converting butter into ghee for sale. Assessment year under consideration is 2001-2002. 6. By the assessment order dated 31.03.2004, assessing officer noted that ....
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....Supreme Court in Attar Singh Gurmukh Singh v. Income Tax Officer, Ludhiana [(1991) 4 SCC 385]. He has also taken us to Section 40A(3) of the Act and submits that on a conjoint reading of Section 40A(3) of the Act and Rule 6DD(f)(ii) of the Rules, it would be evident that the revenue authorities were in error in denying the benefit of Rule 6DD(f)(ii) of the Rules to the appellant for individual cash transactions above Rs. 20,000.00. To support his contention that it is not the entirety of the transactions which is to be taken into account for the purpose of Rule 6DD(f)(ii) of the Rules but each individual transaction, learned counsel for the appellant relied upon a decision of the Orissa High Court in Commissioner of Income Tax, Orissa v. Aloo Supply Co. [(1980) 121 ITR 680 Orissa : 1979 SCC Online Ori 167] SLP filed against the above decision was dismissed by the Supreme Court, he submits. 11. Reverting back to the order of the Tribunal, learned counsel for the appellant submits that the Tribunal fell in error in relying upon the decision of the Allahabad High Court in Commissioner of Income Tax v. Pehlaj Rai Daryanmal [(1991) 190 ITR 242 (All)] inasmuch as the decision of the All....
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....sed cheque drawn on a bank or by a crossed bank draft, such expenditure shall not be allowed as a deduction :......" 15. The second proviso to Section 40A(3) read as under: "Provided further that no disallowance under this sub-section shall be made where any payment in a sum exceeding two thousand five hundred rupees is made otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft, 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." 16. Thus, the Section as it stood at the relevant time says that where an assessee incurs any expenditure in respect of any payment in a sum exceeding two thousand five hundred rupees otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft, such expenditure shall not be allowed as a deduction. As per the second proviso, no disallowance under sub-section (3) would be made where any payment in a sum exceeding two thousand five hundred rupees is made otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft, in such cases and under such circ....
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....on of Maharashtra Ltd., Bombay; (xiv) the Punjab State Industrial Development Corporation Ltd., Chandigarh; (xv) the National Industrial Development Corporation Ltd., New Delhi; (xvi) the Mysore State Industrial Investment and Development Corporation Ltd., Bangalore; (xvii) the Haryana State Industrial Development Corporation Ltd., Chandigarh; (xviii) any State Financial Corporation established under section 3 of the State Financial Corporation Act, 1951 (63 of 1951); (b) where the payment is made to Government and, under the rules framed by it, such payment is required to be made in legal tender; (c) where under any contract entered into by the assessee before the 1st day of April, 1969, the payment is required to be made in legal tender; (d) 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. Explanation:- For the purposes of this clause and clause (h), the term "bank" means any bank, banking company or society referred to....
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....such person; (m) where the payment is made by an authorized dealer or a money changer against purchase of foreign currency or travellers cheques in the normal course of his business. Explanation:-- For the purpose of this clause, the expression 'authorised dealer' or 'money changer' means a person authorized as an authorized dealer or money changer to deal in foreign currency or foreign exchange under any law for the time being in force." 18. A reading of Rule 6DD of the Rules, as extracted above, would go to show that no disallowance under subsection (3) of Section 40A of the Act shall be made where any payment in a sum exceeding Rs. 20,000.00 was made otherwise than by an account payee cheque drawn on a bank or account payee bank draft in the cases and circumstances specified thereunder. As per clause (f)(ii) of Rule 6DD of the Rules, where the payment is made for the purpose of agricultural or forest produce or the produce of animal husbandry including hides and skins or dairy or poultry farming, to the cultivator, grower or producer of such articles, produce or products, the restrictions or disallowance under Section 40A(3) of the Act would not be attracted. In other words....
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....ash payments exceeding Rs. 20,000/- for each time will attract provisions u/s 40A(3) of the Income Tax Act. During the year under consideration the total cash payments exceeding Rs. 20,000/- on each time is worked out at Rs. 42,72,925/- towards M/s Cannemara Dairy Products Pvt. Ltd., and Rs. 5,19,050/- towards M/s Heritage Foods (India) Pvt. Ltd. The cash payments exceeding Rs. 20,000/- is also worked out and arrived the above amounts and attached to the audit report submitted along with return of income. 14. Accordingly a show cause notice was issued to the firm on 12-03-2004, stating the facts that the firm is making cash payments towards its purchases from M/s Cannemara Dairy Products Pvt. Ltd., and M/s Heritage Foods (I) Ltd., which exceeding Rs. 20,000/-. As per income tax provisions u/s 40A(3), if the assessee made payments in excess of Rs. 20,000/- by way of cash which attracts disallowance of 20% on such payments. In the Audit report submitted along with return of income, it was also mentioned that the assessee-firm has made cash payments during the financial year 2000-01, exceeding Rs. 20,000/- to the parties M/s Cannemara Dairy Products Pvt. Ltd., and M/s Heritage Foods....