TMI Blog2020 (9) TMI 543X X X X Extracts X X X X X X X X Extracts X X X X ..... sonable cause to effect payment in cash. If the assessee has a reasonable explanation, then the proviso under Section 3A would stand attracted and the assessee would be entitled to relief. It may be true that merely because the payee is identifiable, it will automatically exonerate the assessee. Payee was identifiable and not a fictitious person would go to show the bonafides of the transaction and this is what is required to be considered from the angle of a commercially expedient and prudent business house. - Decided in favour of assessee. - Tax Case Appeal No.759 of 2018 - - - Dated:- 8-9-2020 - Mr. Justice T.S. Sivagnanam And Mrs. Justice Pushpa Sathyanarayana For the Appellant : Mr.T.R.Senthil Kumar Senior Standing Counsel Assisted by M/s.K.G.Usha Rani Junior Standing Counsel For the Respondent : Mr.Rahul Balaji Assisted by M/s.Janani Shankar JUDGMENT T.S.SIVAGNANAM,J. This appeal by the assessee filed under Section 260A of the Income Tax Act, 1961 ( the Act for brevity), is directed against the order dated 16.03.2018 in ITA No.1176/Chny/2017 on the file of the Income Tax Appellate Tribunal Chennai 'C' Bench for the assessment year 200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aborately heard Mr.T.R.Senthilkumar, learned senior standing counsel assisted by Mr.K.G.Usharani, learned junior standing counsel appearing for the appellant, Mr.Rahul Balaji, learned counsel assisted by M/s.Janani Shankar, learned counsel appearing for the respondent and carefully perused the materials placed on record. 5.The question which falls for consideration is whether the disallowance under Section 40A(3) of the Act as made by the Assessing Officer is sustainable and the extent of applicability of Rule 6DD of the Income Tax Rules. For better appreciation, Section 40A(3) and Rule 6DD are quoted herein below: Section 40A(3) : Where the assessee incurs any expenditure in respect of which 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, or use of electronic clearing system through a bank account [or through such other electronic mode as may be prescribed], exceeds ten thousand rupees, no deduction shall be allowed in respect of such expenditure. Rule 6DD : No disallowance under sub-section (3) of section 40A shall be made and no payment shall be deemed to be the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... products of horticulture or apiculture, to the cultivator, grower of such articles, produce or products; (f) where the payment is made for the purchase of the products manufactured or processed without the aid of power in a cottage industry, to the producer of such products; (g) where the payment is made in a village or town, which on the date of such payment is not served by any bank, to any person 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... within the ambit of proviso under sub-section (3) of Section 40A nor it can be considered as a business expediency nor there are any other relevant factors to justify such huge payments in cash. The revenue placed reliance on the decision in the case of CIT, Madurai vs. Venkatadhri Constructions [(2013) 31 taxmann.com 71(Madras)], P.K.Ramasamy Nadar Bros. vs. Income Tax Officer, Ward-I(3), Virudhunagar [(2014) 41 taxmann.com 538 (Madrs)], Natesan Krishnamurthy vs. ITO, Non-Corporate Ward 9(2), Chennai [(2019) 103 taxmann.com 342(Madras)], N.Mohammed Ali vs. ITO, Ward-VII(2), Chennai [(2016) 65 taxmann.com 189(Madras)] and Cit VS. A.D.Jayaveerapandia Nadar Sons [(2007) 162 taxmann 195(Madras)] . 7.These decisions have been relied on by the revenue for the proposition that even though Section 40A(3) is not absolute, payments made in cash cannot automatically be allowed merely for the reason that payments were made to a person who is identifiable, more particularly, when the cash payments were effected to avoid the attachment of the bank account of M/s.SLM at the instance of the Employees State Insurance Corporation, Madurai. These decisions have also been relied on to stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... over and above the amounts stipulated under Section 40A(3) of the Act. In terms of the first proviso under Section 40A(3A), it is the assessee who has to set out the circumstances which led to effect payment in cash in excess of the amounts stipulated in Section 40A(3) and this explanation needs to be tested having regard to the nature and extent of banking facilities, consideration of business expediency and other relevant facts. The Hon'ble Division Bench in Chrome Leather Co. Pvt. Ltd. was testing the correctness of the order passed by the Tribunal holding that the assessee in the said case was not entitled to any relief from the order of the Assessing Officer who disallowed its claim under Section 40A(3). After referring to the decision in Attar Singh Gurumukh Singh , it is held as follows: 7.Mr. Janarthana Raja, learned counsel for the assessee, on the other hand, submitted that the Tribunal has come to the conclusion that the provisions of rule 6DD of the Income-tax Rules were satisfied and the Tribunal has come to the conclusion that the provisions of rule 6DD of the Income-tax Rules were fully complied with and, hence, it is not open to the Revenue to cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt the commercial need in keeping cash and referred to the need for keeping cash for making purchases of raw skins from shandies when the upcountry tanneries insist upon payment of ready cash. It was also found that the cheques were rarely accepted. It is no doubt true that the payee is having a bank account in the same branch in which the assessee is having a bank account. But, working hours of the bank are of limited duration. Though both the payee and payer may have accounts in the same branch of the bank, but it may not be possible to issue a crossed cheque after the banking hours. Further, the criticism of Mr. S. V. Subramaniam is that the assessee could have made payments in advance in anticipation of purchase. It is well established that it is not for the Revenue to dictate as to how the assessee should carry on his business. The Appellate Tribunal, after noticing the trade practice and the necessity to keep cash in hand, has found that there was necessity on the part of the assessee to keep substantial cash in its hands to meet contingencies at the time of purchase. It was also found, taking into account other factors, that there was a trade necessity and, issue o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as appointed as the operating agency to implement a scheme of revival of M/s.SLM as framed by the BIFR. Therefore, M/s.SLM cannot flout the direction. The said Company was carrying on business and it appears that the assessee was one of the major entities with whom they had entered into agreement. There was an agreement for conversion job work dated 01.04.2004. Even prior to that, on 27.02.2004, the Punjab National Bank informs M/s.SLM that their bank account with them has been attached pursuant to an order passed by the Employees State Insurance Corporation, Madurai and the interest payable towards Punjab National Bank cannot be serviced from the very same account. On receipt of the letter on 02.04.2004 M/s.SLM writes to the assessee informing this development and requesting them to pay cash for meeting the wages, salary and other expenses for their Unit to run smoothly. Further, they have represented for payment of additional conversion charges depending upon the quality of the product as they have incurred lot of expenses in modernising the machineries. These factors led to the assessee effecting payments in cash. 10.The words extent of banking facilities available has to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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