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2021 (9) TMI 577 - AT - Income TaxPayment of expenses in Cash over the specified limit - Disallowance u/s 40A(3) in respect of deduction claimed by the assessee u/s 35DDA(1) read with section Rule 6DD of the Income Tax Rule, 1962 - genuine business expediency - prolonged labour strike - cash payment under the VSS scheme - HELD THAT:- As per the submission of the assessee, since the labour was on strike and there was a settlement arrived between the assessee-company and the labourers under which the part payment of their VSS benefits were made in cash out of compulsion so that the operation of the factory may be resumed. Hon'ble Supreme Court in the case of Attar Singh Gurmukh Singh vs. Income Tax Officer Ludhiana Etc. [1991 (8) TMI 5 - SUPREME COURT] has held that the Rule 6DD which provides for exceptions u/s 40A(3) of the Act against applicability of sec. 40A(3) of the Act, is not exhaustive enough to visualize all kinds of business expediency in all possible situations and it is for the appropriate authority to decide regarding genuine business expediency. As further held that rule must be interpreted in a manner so as to advance and not to frustrate the object of the legislature. That primary object of enacting Section 40A(3) of the Act was two folds. Firstly, putting a check on treating transactions with a mind to evade the liability to tax on income earned out of such transactions and secondly, to inculcate the banking habits amongst the business community. That the genuineness of the transaction and it being free from vice of any device of evasion of tax is relevant consideration which could be examined before invoking rigours of Section 40A(3) of the Act. The above stated legal position is fully applicable in the facts of the present case. There is no doubt about the genuineness of the transactions. Payments to the employees / labourers were made out of compulsions by the assessee. Therefore, we are of the view this is not a fit case of to apply rigours of section 40A(3) of the Act. The disallowance made by the lower authorities is, therefore, deleted. - Decided in favour of assessee.
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