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2005 (2) TMI 99 - GUJARAT HIGH COURTUnaccounted transactions in cash - Business expediency - genuineness of the payment and the identity of the payee - Whether, the Appellate Tribunal is right in deleting the disallowance made u/s 40A(3) holding that the exceptions to that section in rule 6DD(j) can be applied for payments which were made in the course of a business outside the books? - HELD THAT:- In the present fact situation the entire order of the Tribunal nowhere reflects as to how and in what manner the assessee has established the business expediency and thereafter exceptional and unavoidable circumstances; nor is there any evidence to show that the payment by crossed cheque or draft was not practicable having regard to the nature of the transaction and the necessity for expeditious settlement; nor is there any evidence to show that the payment by crossed cheque or draft would have caused genuine difficulty to the payee, having regard to the nature of the transaction and the necessity for expeditious settlement. The reasoning of the Tribunal, that once the business was not reflected in the regular books payment by crossed cheque or draft would not have been practicable considering the nature of the transaction loses sight of the fact that the assessee is further required to show the impracticability of the mode of payment having regard to the nature of the transaction and the necessity for expeditious settlement thereof. In the present case, no such evidence is placed on record. Similarly, the onus which is on an assessee to establish genuineness of the payment and the identity of the payee also remains undischarged. In these circumstances, it is not possible to accept the reasoning which is adopted by the Tribunal. The Tribunal has committed an error in reading the provision of rule 6DD(j) of the Rules when it states that the necessity of the assessee proving genuineness of the payment and the identity of the payee is not connected with sub-clause (1) of rule 6DD(j) of the Rules and the said requirement is only while invoking sub-clause (2) of rule 6DD(j) of the Rules. The aforesaid reasoning adopted by the Tribunal is fallacious when one considers the object with which the provision has been brought on the statute book. It is necessary to bear in mind that even if an exceptional or unavoidable circumstance is pleaded, the Revenue must have data with it to verify the genuineness of the transaction and identify the recipient of the cash payment. If what the Tribunal states is correct, the entire provision is rendered otiose and that interpretation can never be placed on a provision. The need to prove genuineness of the payment and the identity of the payee can be appreciated from a slightly different angle. The Revenue must be permitted to inquire and ascertain that the payment made in cash by an assessee is reflected in the accounts of the recipient payee. In other words, the cash paid by an assessee should remain in regular and legal business and banking channel. In the absence of the identity of the payee it will not be possible for the Department to ascertain the destination of the payment. This is, of course, subject to the genuineness of the transaction and payment being established. Therefore, rule 6DD(j) can be applied only in cases where the genuineness of the payment is established, the payee is identified, and only then the question as to whether the payment in cash was made in exceptional or unavoidable circumstances can be examined. Thus, it is not possible to accept the findings of the Tribunal. The Tribunal has committed an error in law in holding that the case of the assessee would be covered by the exceptions provided in rule 6DD(j) of the Rules. The Tribunal has apparently lost sight of the distinction between an entire business which is illegal and a business which is otherwise lawful wherein the assessee resorts to unlawful means to augment his profits. The question referred to the court is, therefore, answered in the negative, i.e., in favour of the Revenue and against the assessee. The reference stands disposed of accordingly.
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