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2014 (8) TMI 486 - HC - Income TaxInterpretation of section 40A(3) - Cash payment – Genuineness of purchases - Whether the Tribunal was justified in confirming the addition despite the evidence placed on record that the payments were made only at the instance of the vendor when the genuineness of purchases is proved and the identity of payee is also established – Held that:- The purpose of Section 40 of the Act fell for consideration and interpretation by the Supreme Court in Attar Singh Gurmukh Singh v. Income-tax Officer [1991 (8) TMI 5 - SUPREME Court] - Section 40A(3) must not be read in isolation or to the exclusion of rule 6DD. The section must be read along with the rule - 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 AO 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 - section 40A(3) and rule 6DD that they are intended to regulate business transactions and to prevent the use of unaccounted money or reduce the chances to use black money for business transactions. There existed some justification for the traders, at least at the relevant point of time, in insisting the payment of amounts, in cash - The reason is that the banking activity was not that prominent and popular, and instances of cheques issued by agencies or persons, in the course of business being bounced, were not infrequent - The delay in receiving the consideration for any material supplied by a trader would have its own cascading effect on the business activities - It is only when both the parties to the contract are known to each other so intimately, and the seller is very confident not only of the solvency of the purchaser, but also his business ethics, that he would be inclined to receive the consideration through cheque. The Assessing Authority has taken a hyper-technical view and failed to discern the spirit underlying the relevant provisions - the Appellate Authority exhibited an element of objectivity, it was only in a limited aspect - The Tribunal has ignored the purport of the relevant provisions of law and refused to grant any relief to the assessee - once the assessee has placed the proof of payment in cash for its transaction to the seller, and the latter admitted the payment, there is no question of disallowing amount by the Assessing Authority – Decided in favour of Assessee.
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