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TMI Blog2012 (7) TMI 264X X X X Extracts X X X X X X X X Extracts X X X X ..... wance made in a sum of Rs.2,22,40,998/- by the Assessing Officer. 5. The Appellant craves for leave to add to delete from or amend the grounds of appeal." 3. The facts of the case in brief are that the assessee was trading in purchase and sale of scrap material and filed return of income on 22.9.2008 declaring an income of Rs.11,14,940 which was processed u/s. 143(1) of the Income-tax Act, 1961 [hereinafter referred to as "the Act" in short"] on 18.03.2009. Thereafter the case was selected for scrutiny. 4. During the course of assessment proceedings, the AO noticed that the assessee had purchased railway scrap material to the extent of Q 2,22,40,998 from South Western Railways. The AO pointed out that the mode of payment for the above purchases was cash, the assessee explained to the AO that as per terms & conditions of the railways, payment was required to be made in cash only, therefore payment was made in cash and as such payment was covered by clause (b) of Rule 6DD of the Income-tax Rules, 1962. The AO was not satisfied from the explanation of the assessee and added back the amount in question invoking the provisions of section 40A(3) of the Act. &n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is made of any sum exceeding Q 20,000 otherwise than by crossed cheque or bank draft, unless the payment is made under the circumstances which may be prescribed by the rules, having regard to the nature and extent of the banking facilities available, consideration of business expediency and other relevant factors. According to the ld. CIT(A), the object of the provisions is patently and clearly discernible on the face of the provisions itself and it is obviously designed to check tax evasion by claims of cash expenditure which are difficult for proper investigation by the revenue. He was of the view that there should have been some justifiable and acceptable reason for making such payment otherwise than by crossed cheque or bank draft in the absence of which the payment could be disallowed. The ld. CIT(A) held that the assessee had not shown unavoidable, exceptional and justifiable reasons for making cash payments u/s. 40A(3) of the Act, accordingly the addition made by the AO was confirmed. Reliance was placed on the judgment of the Hon'ble Punjab & Haryana High Court in the case of Attar Singh Gurmukh Singh 136 ITR 589. Now the assessee is in appeal. 8. During the course of hea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enty thousand rupees may be made to a person in a day, otherwise than by an account payee cheques drawn on a bank or account payee bank draft. 13. The exception laid down in clause (b) of Rule 6DD of the Income-tax Rules 1962 relates to the payment made to the Government and reads as under:- "where the payment is made to Government and, under the rules framed by it, such payment is required to be made in legal tender;" 14. From the above provisions, it is clear that if the payment exceeding Rs.20,000/- is made to the Government, it is not hit by the provisions of sec. 40A(3) of the Income-tax Act if it is made in 'legal tender'. The meaning of legal tender has not been defined in the Income-tax Act. However, the dictionary meaning of 'legal tender' as mentioned in 'Aiyer's Law Terms and Phrases', is "the coinage of a county in which the debts may be paid and which the creditor is bound to accept". The dictionary meaning of the coin is; "metal used for the time being as money and stamped and issued by the authorities of the state in order to be used". Therefore, it can be said that 'legal tender' means the currency of a state which is to be used as money. In the present case, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riction on the assessee in his trading activities. Section 40A(3) only empowers the Assessing Officer to disallow the deduction claimed as expenditure in respect of which payment is not made by crossed cheque or crossed bank draft. The payment by crossed cheque or crossed bank draft is insisted upon to enable the assessing authority to ascertain whether the payment was genuine or whether it was out of income from undisclosed sources. The terms of section 40A(3) are not absolute. Consideration of business expediency and other relevant factors are not excluded. Genuine and bonafide transactions are not taken out of the sweep of the section. It is open to the assessee to furnish to the satisfaction of the Assessing Officer the circumstances under which the payment in the manner prescribed in section 40A(3) was not practicable or would have caused genuine difficulty to the payee. It is also open to the assessee to identify the person who has received the cash payment. Rule 6DD provides that an assessee can be exempted from the requirement of payment by a cross cheques or crossed bank draft in the circumstances specified under the rule. It will be clear from the provisions of section 40 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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