TMI Blog1977 (10) TMI 31X X X X Extracts X X X X X X X X Extracts X X X X ..... The deduction was disallowed on the ground that the requirements of section 40A(3) and rule 6DD(j) have not been satisfied. Section 40A(3) and rule 6DD(j) may conveniently be extracted. "40A(3) Where the assessee incurs any expenditure in respect of which payment is made, after such date (not being later than the 31st day of March, 1969) as may be specified in this behalf by the Central Government by notification in the official Gazette, 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: Provided that where an allowance has been made in the assessment for any year not being an assessment year commencing prior to the 1st day of April, 1969, in respect of any liability incurred by the assessee for any expenditure and subsequently during any previous year the assessee makes any payment in respect thereof 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five hundred rupees otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft, the allowance originally made shall be deemed to have been wrongly made and the Income-tax Officer may recompute the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... instructions or directions shall be issued-- (a) so as to require any income-tax authority to make a particular assessment or to dispose of a particular case in a particular manner; or (b) so as to interfere with the discretion of the Appellate Assistant Commissioner or the Commissioner (Appeals) in the exercise of his appellate functions." The circular on which strong reliance was placed by the appellant is Circular No. 220, R. No. 296/76-ITA. II dated 31st May, 1977. The circular will be seen printed in [1977] 108 ITR (Statutes) pages 8 and 9. After referring to rule 6DD(j) the relevant portion of the circular reads: "4. All the circumstances in which the conditions laid down in rule 6DD(j) would be applicable cannot be spelt out. However, some of them which would seem to meet the requirements of the said rule are: (i) The purchaser is new to the seller; or (ii) The transactions are made at a place where either the purchaser or the seller does not have a bank account; or (iii) The transactions and payments are made on a bank holiday; or (iv) The seller is refusing to accept the payment by way of crossed cheque/draft and the purchaser's business interest w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was the counsel's contention that even if the circulars travelled beyond the provisions of the Act, the authorities functioning under the Act are bound by the circulars and are bound to carry out the circulars. For this, pointed reliance was placed on the latter decision of the Supreme Court, viz., Ellerman Lines Ltd. v. Commissioner of Income-tax [1971] 82 ITR 913 at page 920, 921, where it was observed that although the circular clearly deviated from the Act, it was nevertheless binding on the authorities functioning under the Act. Our attention was further drawn to the decisions in J. K. Synthetics Ltd. v. Central Board of Direct Taxes [1972] 83 ITR 335 (SC) and Sirpur Paper Mills Ltd. v. Commissioner of Wealth-tax [1970] 77 ITR 6 (SC) (the latter of these, rendered under the provisions of section 13 of the Wealth-tax Act corresponding to section 119 of the Income-tax Act). Counsel for the revenue, on the other hand, invited our attention to the decision of the Madras High Court in A. L. A. Firm v. Commissioner of Income-tax [1976] 102 ITR 622, which, after considering the Supreme Court decision referred to by the assessee, stated that circulars issued under section 119 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction of the Board, or circular--if such it be--is helpful or of any assistance to the assessee in this particular case. We are, therefore, of the opinion that the decision in this appeal must be rested on the section and the rule, unhampered by any circular issued by the Board of Revenue under section 119 of the Act. We, therefore, proceed to consider the case with reference to the section and the rule. Section 40A(3) provides negatively that any expenditure exceeding Rs. 2,500, of a particular type mentioned in the section, shall not be allowed as a deduction, if incurred otherwise than by a crossed cheque drawn on a bank or a crossed draft. The second proviso to the section has a rider against such disallowance, by providing that such disallowance shall not be made in cases and circumstances which may be prescribed having regard to the nature and extent of bank facilities available, considerations of business expediency, and other relevant factors. The prescription thus held out by the section has appeared in the form of rule 6DD(j). The rule should be sufficiently self-explanatory, and we do not think it necessary to expatiate on it at any great length for the purpose of thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner had to invariably oblige in the interests of both its own and business so as to be able to avoid losses and execute orders. 8. Letter from the various parties also have been filed before the Income-tax Officer stating that they had insisted on cash payments and the payments have been duly accounted for by them." We are of the opinion that the assessee's contention regarding the applicability of rule 6DD and its eligibility for deduction of the cash payments, must be understood in a broad and liberal sense in the light of the contentions seem to have been put forward in the grounds of revision, although these are not expressly reflected in the Commissioner's order. So understood, we have no hesitation in rejecting the contention of counsel for the revenue that the point now sought to be urged before us by counsel for the assessee had not been raised either in the writ petition or in the writ appeal. We consider that the point sought to be urged by counsel for the assessee is only one aspect of the case regarding the applicability of rule 6DD(j) of the Income-tax Rules. We are, therefore, of the opinion that there has not been a fair and proper approach by the Commission ..... X X X X Extracts X X X X X X X X Extracts X X X X
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