TMI Blog2003 (2) TMI 419X X X X Extracts X X X X X X X X Extracts X X X X ..... rtners. It carries on business in jewellery. In the course of the business, the assessee also used to purchase old gold ornaments from various persons and customers. For such purchases, the assessee made payments in cash. Since each of these payments was above Rs. 2,500, the Assessing Officer called upon the assessee to explain why they cannot be disallowed under section 40A(3). The assessee explained that they were small dealers in gold ornaments, that in the course of the business they buy old gold ornaments from customers who mostly happen to be from the lower income group or lower middle class, that many of them were residing in jhopadpattis, that they sold their gold jewellery out of urgency or for imminent requirements and therefore they insist on immediate cash payment and that is why the assessee was obliged to pay cash. It was further explained that the assessee required the old gold ornaments for its business and the persons who brought them for sale, considering their background, were not prepared to take cheques and always insisted on cash payment. It was pointed out that the purchases were duly accounted for in the registers maintained under the Gold Control Law and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w were properly maintained by the assessee were irrelevant in considering the justification for making the cash payments. ( b )The onus under section 40A(3) is on the assessee to prove the existence of exceptional or unavoidable circumstances as held by the Allahabad High Court in Ideal Tannery v. CIT [1979] 117 ITR 34 , by the Guwahati High Court in Associated Engg. Enterprises v. CIT [1995] 216 ITR 366 and by the Madhya Pradesh High Court in Porwal Udyog (India) v. CIT [1982] 135 ITR 591. ( c )The complete addresses of the persons to whom the cash was paid were not given in the Registers maintained under the Gold Control Act (G.S. 11 Register). A few examples were given. ( d )There was no evidence to show that the sellers insisted on cash payment and in the absence of any such evidence, the payments were rightly disallowed as held by the Madhya Pradesh High Court in Bhilai Motors v. CIT [1987] 167 ITR 147 by the Andhra Pradesh High Court in Jyothi Chellaram v. CIT [1988] 173 ITR 358 and by the Madhya Pradesh High Court in Shri Radhika Prakashan (Raipur) (P.) Ltd. v. CIT [2002] 172 CTR 463. ( e )There is no evidence to show that the assessee s busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and wait for 2 to 3 days for the same to be encashed. In the very nature of things, the transaction was expected to last only for a short period of time during which the jewellery was examined and once the assessee-firm was satisfied, the seller would expect to be paid in cash, considering the fact that mostly it was sold for urgent requirements. ( d )More than 90 per cent of the persons to whom the assessee paid cash were small parties. In these cases, the amount paid was only marginally above Rs. 2,500. In most of the cases it was below Rs. 5,000 and only in very few cases, the amounts were substantial. The learned DR is, therefore, not correct in saying that small parties constituted only a small part of the total purchases. ( e )One has to be very practical in such cases in the sense that the assessee cannot be expected to verify the addresses of the sellers. The assessee has to accept whatever address has been given to it. There are practical difficulties in verifying the address. Further, once the seller suspects that the assessee-firm is not prepared to accept the address given by him, he may not be interested in selling the jewellery to the assessee-firm. It is a quest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erit and require to be accepted. Section 40A(3) is not an absolute prohibition on the cash payments. Rule 6DD( j ) of the Income-tax Rules provides for the circumstances in which cash payments in excess of Rs. 2,500 can be allowed as deduction. Circular No. 220, dated 31-5-1977 gives certain instances where such cash payments can be allowed. Paragraph-4 gives illustrations of circumstances in which the exception provided in Rule 6DD( j ) could be applied. These instances are not cumulative but are distinctive. The first situation mentioned is that if the purchaser is new to the seller, payment in cash can be made. This situation applies to the present case. The assessee is new to the person who wishes to sell his old jewellery. No case has been made out on behalf of the Department that some of the sellers are regular customers of the assessee- firm and therefore, could have been issued cheques. The second instance is where the seller refuses to accept cheques and the purchaser s business interests would suffer due to non-availability of the goods otherwise than from the particular seller. Obviously, the seller being new and who wants to sell the jewellery for urgent cash requiremen ..... X X X X Extracts X X X X X X X X Extracts X X X X
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