TMI Blog1997 (4) TMI 137X X X X Extracts X X X X X X X X Extracts X X X X ..... AR appearing on behalf of the assessee has filed copies of explanation of the assessee to ITO, copies of cash memos and affidavits from both the parties alongwith copy of Circular No. 206 and list of decisions on 40A(3) and copy of the decision of ITAT Jaipur Bench passed in ITA No. 866 and 868 (Jp.) 83 and submitted that the local sellers have been paid in cash as they refused to accept cross cheque or draft and in the case of non-payment in cash our business would have suffered. It is further submitted that the ITO has accepted the identity of payees and therefore, the mischief of section 40A(3) is not directed. 4. The ld. DR on the other hand, relied on the order of the ITO and the CIT(Appeals) and argued that on the facts and circumstances of the case the CIT(Appeals), was justified in confirming the disallowance made by the ITO. 5. We have perused the materials placed on record and we have also gone through the relevant case laws cited by the AR of the assessee. After carefully considering the rival contentions, facts and the circumstances of the case, we find that Ashok Tyre Agency and Mahabir Grain Agency belonged to Mazaffarpur i.e., the same place at which the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of rule 6DD(j) may be considered to be generally satisfied in the circumstance referred to in para-4 of the said circular if the identities or the payee are established. In the present case all the payee are established concerns and they are in urban areas. Except in the case of M/s. Ashok Grain Agency, Muzpur there is no evidence to the fact that the parties refused to accept the payments by way of crossed cheques/ drafts. In my opinion the assessee is quite known to the parties from whom fertilizer was purchased. There is nothing before to show that they did not have bank a/cs or the transactions were made on a bank holiday. After careful consideration of the assessee's submissions I am not satisfied about the existence of exceptional unavoidable circumstances or that payments by crossed cheque drafts were not practicable or would have caused genuineness difficulty to the payees. Only exception is in the case of M/s. Ashok Grain Agency. Hence, total amount of Rs. 2,90,000 (Rs. 2,97,489.80 - 7,490) is disallowed under section 40A(3)." 3. On appeal, the CIT(Appeals) deleted the disallowance in respect of the six outside dealers (totalling Rs. 2,17,004), but sustained the disallo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of CIT v. Chandmull Radhakishan [1987] 163 ITR 697/30 Taxman 190 and the Calcutta High Court in the case of Giridharilal Goenka v. CIT [1989] 179 ITR 122 explaining the circumstances and the manner in which Rule 6DD(j) is to be applied are applicable to the present case, more so because the identity of the payees and the genuineness of the payments have been accepted even by the ITO. 7. I am, therefore, unable to share the view of my learned brother, both on facts and in law. In my opinion, for the reasons stated above, the disallowance is to be deleted. I do so and allow the appeal. ORDER UNDER SECTION 255(4) OF THE INCOME-TAX ACT, 1961 In view of the difference of opinion, the following question is referred to the Hon'ble President, Income-tax Appellate Tribunal for reference to the Third Member as per the aforesaid section : "Whether, on the facts and in the circumstances of the case, the payment of Rs. 72, 996 can be disallowed under section 40A(3) of the Act ?" THIRD MEMBER ORDER Per Shri P.J. Goradia, Vice President --- Because of the difference between the two ld. Members a question is referred to me under section 255(4) of the Act. The question referred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to him the Assessing Officer considered certain factors which were not relevant and all the conditions specified in the Circular issued by the Board need not be satisfied. Besides the illustration given by the Board in the said Circular were only illustrative and the Circular was not exhaustive. There was enough material on the basis of which a satisfaction could be reached about the practicality or impracticality, for example the seller insisted on cash money, but no inquiry was made by the Assessing Officer from the payees and, therefore, the explanation should have been accepted as satisfactory. Again business expediency had to be considered because the nature of business being fertiliser had to be kept in mind because in that business, payment has to be made first, besides the banks never issued local drafts. in the affidavits filed before the Tribunal by the 2 parties, the contents were elaborately confirmed. Reliance was placed on various judicial pronouncements such as --- 1. 67 ITR 15 (Statute), 2. Giridharilal Goenka's case, 3. CIT v. Ram Agya Shyam Narain [1991] 189 ITR 470 (All.), 4. Shri Mahabir Industries v. CIT [1996] 220 ITR 459/89 Taxman 438 (Gauhati), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without unnecessarily attributing to it a precise appreciation of the technical appropriateness of its language. Again in the case of CGT v. N.S. Getti Chettiar [1971] 82 ITR 599 (SC) it was held that the Court is entitled and indeed bound when construing the terms of any provision found in statute to consider the context which throw light upon the intention of the Legislature. Keeping these principles in mind we have to ensure the fulfilment of the object of the provision. In the budget speech of the Finance Minister, when this provision was sought to be introduced, it was stated that claims are made for deduction of expenses in large amounts shown to have been paid in cash, often with a view to frustrating investigation as to the identity of the recipients and the genuineness of the claim, it was proposed to provide that payments made in amounts exceeding Rs. 2,500 will be allowed as deduction only if they were made by cheques/drafts. From this it is clear that only those cases are sought to be covered where there was an attempt to frustrate investigation or the identity of the recipients etc. were not revealed/proved. That is why the CBDT from time to time made various Circular ..... X X X X Extracts X X X X X X X X Extracts X X X X
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