TMI Blog2012 (7) TMI 264X X X X Extracts X X X X X X X X Extracts X X X X ..... covered in the exceptions provided in clause (b) of Rule 6DD and the provisions of sec. 40A(3) as wrongly invoked - decided in favour of assessee. - ITA No. 313/Bang/2012 - - - Dated:- 30-5-2012 - SHRI N.K. SAINI, SHRI GEORGE GEORGE K., JJ. Appellant by : Shri Ashok Kulkarni, Advocate Respondent by : Shri S.K. Ambastha, CIT-I(DR) O R D E R Per N.K. Saini, Accountant Member This appeal by the assessee is directed against the order dated 30.11.2011 of the CIT(Appeals), Hubli. 2. Following grounds have been raised in this appeal:- The order of the Commissioner of Income Tax (Appeals) is opposed to law and facts of the case. 2. The Hon ble Commissioner of Income Tax (Appeals) ought to have held that the provisions of S.40A(3) are not applicable in the facts and circumstances of the case. 3. The Hon ble Commissioner of Income Tax (Appeals) ought to have held that the case of the assessee is fully covered by the exceptions provided in rule 6DD of the I.T. Rules. 4. The Hon ble Commissioner of Income Tax (Appeals) erred in upholding disallowance made in a sum of Rs.2,22,40,998/- by the Assessing Officer. 5. The Appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r or seller does not have bank a/c. c) The transaction and payments are made on bank holiday. d) The seller is refunding to accept the payments by way of cross cheques/draft and the purchasers interest would suffer due to non availability of goods, otherwise than from this particular seller or e) The seller acting as a commission agent is required to pay cash in turn to persons from whom he has purchased goods. f) Specific discount is given by seller for payment of cash. 7. The ld. CIT(A) further observed that the assessee except relying on rule 6DD(b) and Board s Circular No.34 dated 05.03.1970 had not furnished the exceptional, unavoidable and justifiable reasons which compelled to make the cash payments. He also observed that sub-section (3) of section 40A empowers the Assessing Officer to disallow, as a deduction, and expenditure in respect of which payment 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 othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he various provisions of sec. 40A(3) and exceptions laid down in Rule 6DD(b) of the Income-tax Rules 1962. The provision contained in sec. 40A(3) of the Income-tax Act reads as under : Where the assessee incurs any expenditure in respect of which a payment or aggregate of payment made to a person in a day, otherwise than by an account payee cheques drawn on a bank or account payee bank draft, exceeds twenty thousand rupees, no deduction shall be allowed in respect of such expenditure. 12. From the above provisions, it is clear that the deductions for the expenditure incurred in cash exceeding Rs.20,000/- could not be allowed against the income under the head profit and gains of business or profession . However, certain exceptions are laid down in Rule 6DD of the Income-tax Rules 1962, which provides the cases and circumstances in which a payment or aggregate of payments exceeding twenty 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:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilway for its public auction sale put the general condition that the payment of balance of sale value and delivery of lots should be paid in cash only. This fact has also been accepted by the AO as has been mentioned at page No.3 of the assessment order dated 27.12.2010. On a similar issue, the Hon ble Supreme Court in the case of Attar Singh Gurmukh Singh (cited Supra) held as under : Section 40A(3) of the Income-tax Act, 1961, which provides that expenditure in excess of Rs.2,500 (Rs.10,000 after the 1987 amendment) would be allowed to be deducted only if made by a crossed cheques or crossed bank draft (except in specified cases) is not arbitrary and does not amount to a restriction on the fundamental right to carry on business. If read together with Rule 6DD of the Income-tax Rules, 1962, it will be clear that the provisions are not intended to restrict business activities. There is no restriction 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 insi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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