TMI Blog2003 (9) TMI 31X X X X Extracts X X X X X X X X Extracts X X X X ..... by this court: "Whether, the Tribunal was justified in holding that the provisions of rule 6DD(j) of the Income-tax Rules apply to the facts of the case, vis-a-vis section 40A(3) of the Income-tax Act, 1961?" The brief facts are as follows: The assessee is an exporter of cashew kernels. The assessee, during the previous year relevant to the assessment year 1990-91, had purchased raw cashewnuts from various places including the State of Orissa and the same was transported to the assessee's factories in Kanyakumari for processing. In the assessment for the year 1990-91, the assessee claimed deduction of a total sum of Rs. 10,98,698 as transport and coolie charges for transporting raw cashewnuts. The Assessing Officer held that out of the said expenses payment of Rs. 10,28,350 had to be subjected to the provisions of section 40A(3) by the Act as the payments were made otherwise than by way of crossed cheques or bank drafts. Since the assessee had effected payment of the said amount in cash in violation of the provisions of section 40A(3) the said amount was disallowed. In appeal filed by the assessee the Commissioner of Income-tax (Appeals) upheld the said disallowance stating t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rges in cash and the assessee had no option but to pay the amount in cash having regard to the commercial expediency. He further submitted that the assessee could not get confirmation letters from the truck drivers to whom the payments were made to the effect that they had insisted on payment in cash only since they could not be contacted at a later stage. Counsel further submitted that the Tribunal, the final-fact finding authority, considering the totality of circumstances had accepted the explanation of the assessee and had held that the assessee had satisfied the exclusionary provisions of clause (i) of rule 6DD(j). Counsel on that basis submitted that no question of law does arise from the order of the Tribunal requiring adjudication by this court. We have considered the rival submissions and had also perused the orders of the Assessing Officer and the two appellate authorities. The Assessing Officer had noted that the assessee had made 16 payments in cash above Rs. 10,000 for a total amount of Rs. 10,63,350 mostly for transporting charges and gunny bag purchase. The assessee had explained before the officer that the lorry drivers and second hand gunny bag dealers will not a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and gone through the facts of the case. The assessee was making payment to the truck drivers who were transporting raw cashewnuts from Orissa to Kanyakumari District in Tamil Nadu. The assessee's claim is that the drivers would not accept crossed cheques or demand drafts and that they insisted on the payment in cash only. It was submitted by the learned representative of the assessee that by the time the assessment was made, it was not possible to contact the truck drivers and get letters of confirmation from them to the effect that they had insisted on the payment in cash only. If the assessee had to make the payments in cash to the drivers even though ultimately the money reached the Kerala Road Transport Co., it would not be correct to say that the assessee's case does not fall within the exceptional clause in rule 6DD(j). Rule 6DD(j) provides that no disallowance shall be made in a case where the assessee satisfies the Assessing Officer that the payment could not be made by crossed cheques or bank drafts due to exceptional or unavoidable circumstances. If the truck drivers who were transporting raw nuts from Orissa to the assessee's factories in Kanyakumari District insisted on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y virtue of the second proviso to sub-section (3), rule 6DD is framed. The said rule deals with cases and circumstances in which payment in a sum exceeding ten thousand rupees may be made otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft. Clause (j) of the said Rules which is relevant for the purpose of this case reads thus: "In any other case, where the assessee satisfies the Assessing Officer that the payment could not be made by a crossed cheque drawn on a bank or by a crossed bank draft- (1) due to exceptional or unavoidable circumstances, or (2) because payment in the manner aforesaid was not practicable, or would have caused genuine difficulty to the payee, having regard to the nature of the transaction and the necessity for expeditious settlement thereof, and also furnishes evidence to the satisfaction of the Assessing Officer as to the genuineness of the payment and the identity of the payee." The aforesaid rule would reveal that it sets out four circumstances in which the rigour of the provision contained in sub-section (3) has to be relaxed, namely, where the assessee satisfies the Income-tax Officer that the payment could not be made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its consideration, the Finance Minister made a speech on April 29, 1968, in which he pointed out that the provision in question was intended to serve the objective of checking tax evasion. Though the Finance Minister did not elaborate, it is obvious that the intention of the Legislature in enacting section 40A(3) particularly was to ensure that payments exceeding the sum specified are made by a crossed cheque drawn on a bank or by a crossed bank draft so that it will be easier to ascertain, when deduction is claimed, whether the payment was genuine and whether it was made out of income from disclosed sources. While interpreting the provisions of this section, the above mischief which was sought to be remedied will have to be borne in mind." It was further observed as follows: "...The rigour of the rule contained in this sub-section is, however, relaxed to some extent by the second proviso to the said sub-section which provides that no disallowance under the said sub-section shall be made where any such payment 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... que or a crossed bank draft". The Supreme Court in Attar Singh Gurumukh Singh v. ITR [1991] 191 ITR 667 considered the constitutional validity of section 40A(3) and rule 600 of the rules. Repelling the challenge the Supreme Court observed as follows: "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. If read together, it will be clear that the provisions are not intended to restrict the business activities. There is no restriction on the assessee in his trading 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. In the instant case, the Kerala Road Transport Company, who was the transporter had issued a certificate to the effect that they have received the transportation charges from the petitioner. It is also relevant to note here that the genuineness of the transport and the identity of the dealer had been established by the assessee. What remained was only the production of a confirmatory letter from the transporters regarding the fact that they insisted for the payment of the charges in cash. The Tribunal, we note, after adverting to the explanation of the assessee, observed thus: "If the truck drivers who were transporting raw nuts from Orissa to the assessee's factories in Kanyakumari District insisted on the payment in cash, that would definitely be exceptional or unavoidable circumstances to make the payment eligible for exclusion under claus ..... X X X X Extracts X X X X X X X X Extracts X X X X
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