TMI Blog2010 (4) TMI 881X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act, to have made total purchases for Rs. 1,20,51,240, of which for Rs. 1,08,18,051 were from M/s. Bismi Agencies, in whose name a sum of Rs. 2,40,130 stood reflected in the assessee s balance-sheet as at the year-end as payable. To verify the same, the Assessing Officer, obtaining its address from the assessee, made a direct inquiry from the said firm, a proprietary concern of one, Shri N. Salim, who, vide its letter dated 10-12-2007 conveyed that their entire sales to the assessee-firm were in cash and, as such, it did not maintain any account of the assessee-firm. The supplier was further summoned by the Assessing Officer on 13-12-2007 and his sworn statement under section 131 of the Act recorded, wherein he confirmed the facts in the matter as earlier conveyed ( vide letter dated 10-12-2007), categorically denying any due from the assessee as on 31-3-2005. It was further stated that he was a trader in broiler chickens, making its purchases from a poultry farm in Kanya Kumari District, Tamil Nadu. There was, as such, apparently a violation by the assessee of the provision of section 40A(3) of the Act, and for which it was accordingly show-caused vide letter dated 18-12-2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observed by the Assessing Officer, so that clearly the purchases stand not doubted. Further still, the location of the place of business of the supplier is a village area, not coming within the clearing house operations of banks. Reference was also made to case law, and with reference to all of which, the disallowance under section 40A(3), in the facts and circumstances of the case, stood deleted. As regards addition of Rs. 2,40,130, the same was not sustainable as the copy of the statement of the party stood not confronted to the assessee by the Assessing Officer. Aggrieved, the revenue is in appeal. 4. Before us, like contentions stood raised by either side. Reliance was placed by the ld. DR on CBDT Circular No. 717, dated 14-8-1995, issued by the CBDT explaining the amendment effected by the Finance Act, 1995, inter alia, to section 40A(3) of the Act with effect from 1-4-1996. Section 40A(3), as it stood prior to the amendment, it stands explained therein, lead to substantial litigation arising out of the interpretation and scope of section 40A(3) read with rule 6DD( j ). In view thereof, the banking facilities having taken roots even in rural areas, so that the mitigatin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... j ) was no longer considered utilitarian or necessary. Besides, the provision read with rule 6DD( j ) had given rise to substantial litigation arising out of the interpretation and scope of these provisions. Perhaps, the Legislature was of the view that it was difficult to establish the mitigating circumstances of the payments, so that where the genuineness is not in doubt, it would suffice if a fraction thereof is deemed as an inflation in the claimed expenditure with reference to the mode of its payment, and disallowance effected on that basis. The same thus impacts the character of the disallowance or of the prescription mandated thereby inasmuch as the genuineness of the payment was no longer in issue or relevant for the purpose of the disallowance, which, as against the entire payment earlier, stood restricted to a fraction thereof. The amended extant law, thus, is cast more as an absolute rule; the exceptional circumstances having been enlisted under rule 6DD, and is in the nature of a deeming section, with the law prescribing disallowance with reference to the mode of payment of the concerned expenditure rather than with reference to the expenditure itself, deeming an inflat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apply; the payee being not a cultivator or producer of poultry produce but only a trader as the assessee. Clause ( j ), providing a window for non-access to the banking facilities, causing hardship to the payee or the business exigencies, are rendered of little consequence, with its omission with effect from 25-7-1995. Even as no extenuating circumstances necessitating the payments in cash have been stated, much less proven, the omission of the erstwhile clause ( j ) of rule 6DD excludes the ground of hardship to the payee from the mitigating circumstances, and the assessee s case, as held by the Special Bench ( supra ), could succeed only on it establishing the same to fall within the specified clauses of rule 6DD. In fact, both the assessee and the supplier-firm, M/s. Bismi Agencies, have been found to be maintaining accounts and having turnover worth crores, so that there is no question of the banking facilities not being available to the two. None of the payments have been shown before any authority to have been made on a banking holiday or on account of dislocation of work in the said industry, for clause ( k ) of rule 6DD to be applicable. The payments in cash, as it appears, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... qua an outstanding purchase liability, and toward which we find no cogent or definite explanation by the assessee. We shall, nevertheless, also discuss the objections raised by the assessee on merits. 6.1 The basis for the deletion by the ld. CIT(A) is that the assessee was not provided with the copy of the supplier s statement, and toward which the assessee places reliance on the decision in the case of Prakash Chand Nahta ( supra ). The same would be of no consequence without it being shown that the assessee had in fact requested for its copy, or for cross-examination. Firstly, it needs to be appreciated that the technical rules of evidence law are not applicable to the proceedings under the Act, and there is no claim of denial of proper opportunity to explain its case by the assessee, and which, if so, would, again, lead to a restoration back to the file of the Assessing Officer for the same; the proceedings being rendered irregular, and not void, on that count, for the adjustment(s) as effected to be struck down. Though this is trite law, the Tribunal recently had an occasion to consider the same, and held likewise, in the case of Centurion Investment International ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t brought out explicitly, would be that though discharged in cash, the same is tendered at a later date, so that some purchases are outstanding for payment as at the year end. The explanation, which stands only articulated by us, in an attempt to understand and examine the assessee s case, is totally unsubstantiated. The assessee could have easily furnished the copies of the invoices raised by the supplier, to exhibit that the purchases are on credit, which stands discharged only subsequently. Again, in that case, the assessee would insist on a receipt from the supplier, which would, apart from the credit invoice (bill), as against a cash memo, substantiate the assessee s case. In fact, how would the assessee, in the absence of the same, one may ask, maintain or is maintaining the ledger account of the supplier?, the same only constituting the primary material on the basis of which its books of account would be written. The assessee s explanation, thus, apart from being totally unsubstantiated, even as the same would only require materials that go to form its accounts, so that the same are readily available with it, and thus, could be easily furnished in support, does not throw a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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