TMI Blog2011 (3) TMI 1349X X X X Extracts X X X X X X X X Extracts X X X X ..... nses claimed by the assessee - The assessee is unable to show that these payments were made in cash at the insistence of BPL, there is no exception provided in the Rules, that in case the payments are made even during evening hours that will take this payment out of the purview of section 40A(3) of the Act on regularly basis i.e., on daily basis - Decided against the assessee - IT APPEAL NO. 847 (KOL.) OF 2010 - - - Dated:- 31-3-2011 - MAHAVIR SINGH, C.D. RAO, JJ. A.K. Banerjee for the Appellant. V.A. Raju for the Respondent. ORDER Mahavir Singh, Judicial Member. This appeal by assessee is arising out of the order of CIT(A)-XXIV, Kolkata in Appeal No. 536/CIT(A)-XXIV/41(3)/08-09 dated 18-2-2010. The assessment was framed by ITO, Wd-41(3), Kolkata under section. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as "the Act") for assessment year 2004-05 vide his order dated 26-12-2006. 2. The only issue in this appeal of the assessee is against the order of CIT(A) confirming the action of Assessing Officer in upholding the disallowance made under section. 40A(3) of the Act. For this, the assessee has raised the following 2 grounds: "1. For ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cash payment of Rs. 19,74,789, and according to him, thus the assessee knowingly made cash payment in violation of section 40A(3) of the Act. The Assessing Officer noted that assessee has made mere submissions but could not produce any evidence regarding refusal of acceptance of cheque/bank draft from the assessee by "BPL". According to Assessing Officer, the certificate issued by "BPL" dated 21-11-2006 revealed that assessee made cash payments to claim discount of 5 per cent on transactions. Accordingly, Assessing Officer noted that assessee has violated the provisions of section 40A(3) of the Act and, therefore, he disallowed 20 per cent of the transaction made in cash by invoking the provisions of section 40A(3) of the Act. Aggrieved, assessee preferred appeal before CIT(A) and he confirmed the action of Assessing Officer. Aggrieved, now assessee is in appeal before us. 4. We have heard rival contentions and gone through facts and circumstances of the case. The assessee before us stated that he is an individual and he has been carrying on the business under the name and style of 'Solar Advertising Enterprise' as an agent in the line of advertising and publicity and was respons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d., were the payments made not for goods purchased or services. They were duly reimbursed by the Principal. It was also claimed that the payments were made late in the evening or night for insertion in the next day's paper and therefore there was no banking facility available at the time of payment. Appellant also claimed that recipient refused to accept cheques. In support of above claims the appellant filed copies of 2 certificates from M/s Bartaman (P.) Ltd. Perusal of the above certificates does not establish that M/s. Bartaman refused to accept cheque/draft as is evident from the contents of the certificates reproduced below: Solar Advertising Enterprise, 35 C.R. Avenue, 5th floor, Kolkata - 12 had released advertisements of their various clients in our Group of publication during 2003-04 against cash payment for which we had allowed cash discount as per our system. This is to certify that we generally receive all payments in advance from Solar Advertising Enterprises, Kolkata towards publication of their various clients advertisements in our group of publications and do not allow them to pay any amount after the publication of the advertisement. The claim of the appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rther that no disallowance under this sub-section shall be made where any payment in a sum exceeding twenty thousand rupees is made otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft, in such cases and under such circumstances as may be prescribed, having regard to the nature and extent of banking facilities available, considerations of business expediency and other relevant factors. The cases and circumstances where an exception has to be made by virtue of the second proviso to the said section have been enumerated in rule 6DD and the case of the appellant is not covered by any of the cases and circumstances enumerated therein. The appellant has made a reference to the fact that it only acted as an agent and made the payments on behalf of his principals however the rule 6DD does not cover the case of the appellant as in rule 6DD it has been stated as under: 6DD(k) where the payment is made by any person to his agent who is required to make payment in cash for goods or services on behalf of such person; The appellant has not filed any evidences to show that it received cash from his principals which was then paid to M/s Bartaman Pvt. Ltd. The above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, 1961, for the assessment year 1974-75? And the court held as under: The finding recorded by the Appellate Tribunal is a finding arrived at on the facts of the case. The Tribunal has accepted the materials produced before it in support of its finding that only at the time of purchase, the actual amount would be known and the identity of the party was successfully established and the decision of the Tribunal is based entirely on the facts of the case. 4. ITO v. Petidar Ginning Bearing Co. 51 ITD 7 (Ahd.) CIT (Appeals) has rightly come to the conclusion that the provisions of section 40A(3) do not apply to payments made to these two parties. Even otherwise the identity of these two parties is not in dispute. The genuineness of the transaction has also been well proved and the confirmation letters of these two parties clearly prove that cash payments were made to them pursuant to insistence for cash payments and both the parties have also confirmed that they refused to accept payments on the respective dates by crossed cheques/drafts. The matter would even otherwise be covered by the exceptions in rule 6DD(j) read with Board Circular dated 31-5-1977. We, therefore, do not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e payment by way of crossed cheque/draft and the purchaser's business interest would suffer due to non-availability of goods otherwise than from this particular seller; or (v) The seller, acting as a commission agent, is required to pay cash in turn to persons from whom he has purchased the good; or (vi) Specific discount is given by the seller for payment to be made by way of cash. 5. It can be said that it would generally satisfy the requirements of rule 6DD(j), if a letter to the above effect is produced in respect of each transaction falling within the categories listed above from the seller giving full particulars of his address, sales tax number/permanent account number, if any, for the purposes of proper identification to enable the Income-tax Officer to satisfy himself about the genuineness of the transaction. The Income-tax Officer will, however, record his satisfaction before allowing the benefit of rule 6DD(j). 6. It is further clarified that the above circumstances are not exhaustive but illustrative. There could be cases other than those falling within the above categories which would also meet the requirements of rule 6DD(j). However rule 6DD(j) has been amended ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e envisaged other than those already prescribed. The case laws cited are therefore distinguishable. In this context reference may also be made to the decision of the Hon'ble Kolkata High Court in the case of Bagman Tea Co. Ltd. v. CIT 251 ITR 640. In this case, the Hon'ble Court held as under: With respect we are of the view that when the payment is made in contravention of section 40A(3) though the payment is genuine that cannot be allowed, because the genuineness of payment is required in all cases but payment by account payee cheque or demand draft is additional requirement under section 40A(3). If we follow the view that the payment is genuine, then that should not be disallowed. In that case the provision of section 40A(3) will become redundant. Therefore, unless there are unavoidable circumstances for payment in cash that payment will be hit by the provision of section 40A(3). As has been discussed above appellant has not brought any material on record to show that the payments were made in cash due to unavoidable circumstances. The certificates from M/s Bartaman Pvt. Ltd. and the affidavit filed by the appellant do not show that there was any insistence for cash paymen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t that these are genuine and bona fide payments but the genuine and bona fide payments cannot be taken out of the purview of section 40A(3) of the Act because after amendment of the Rules by the Finance Act, 1995, which was clarified vide Board Circular No. 117 dated 14-8-1995. The assessee is unable to show that these payments were made in cash at the insistence of BPL, there is no exception provided in the Rules, that in case the payments are made even during evening hours that will take this payment out of the purview of section 40A(3) of the Act on regularly basis i.e., on daily basis. As a result of amendment w.e.f. 1-4-1996 of section 40A(3) of the Act, by the Finance Act, 1995, for and from assessment year 1996-97, only 20 per cent of the vulnerable expenditure i.e., and expenditure involving cash payment in excess of Rs. 20,000, in the relevant assessment year in the present case, not falling within any of the mitigating circumstances or the exceptions as provided in the Rules will be disallowed while computing business or professional income. Here, the claim of the assessee that these payments are reimbursement, the answer is that the word 'expenditure' in section 40A(3) o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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