TMI Blog2012 (8) TMI 188X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs. 73,91,380/- invoking the provisions of sec.40A(3) of the Income-tax Act, 1961 and the learned CIT(A) has erred in confirming the disallowance of Rs. 73,91,380/-. 2. In any case the CIT(A) has erred in disallowing the payments made in cash to Sough Western Railway towards purchase of scrap. 3. The lower authorities have not properly appreciated the facts of the case : The payments are made to the Government of India (South Western Railway) towards purchase. The purchase of scrap is totally accounted in the books of account and is cross verifiable from the records of South Western Railway. The scrap dealers make payments in cash to the Government as a general practice once their bid is approved in the auction." 3. From the above grounds, it is gathered that the only grievance of the assessee relates to the confirmation of disallowance of Rs. 73,91,380/- made by the AO by invoking the provision of sec. 40A(3) of the Income-tax Act, 1961 (hereinafter referred to as the 'Act', in short). 4. The facts of the case in brief are that the assessee was trading in purchase and sale of scrap materials and filed the return of income on 7.10.2008 declar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts made to the Government. The circular says that the payments such as freight charges/books of wagons to railways and payment of sales tax/excise duty are also covered. It does not say that only such types of payments are covered. Hence, since there is no restriction, under the rules for the payments are covered. Hence, since there is no restriction, under the rules for the payments made to railways in cash as per the conditions of Auction/bid, the payment made by us to Railway authorities are covered under rule 6DD and they cannot be disallowed u/s 40A(3) of the Income-tax Act 1961." 5. The AO after considering the submissions of the assessee observed that the copy of the general conditions of sales issued by the railways which was furnished by the assessee revealed that the condition No.9 mentioned that the payment of balance sale value and delivery of lots should be paid in cash only. According to the AO, the Rule 6DD(b) covers cases where the payment is made to the Government under the Rules framed by it and such payments were required to be made in 'legal tender'. The AO pointed out that the assessee had paid auction amount in cash to the Government, in this case to the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee had paid the auction amount in cash to the 'Government Account of Auction', therefore, it could not be a legal tender and hence, Rule 6DD(b) was not applicable. The learned CIT(A) confirmed the addition made by the AO by observing that the assessee had not shown the unavoidable, exceptional and justifiable reason for making cash payments u/s 40A(3) of the Act. Reference was made to the following case laws: 1. Walford Transport (Eastern India) Ltd. v. CIT [1999] 240 ITR 902/[2002] 124 Taxman 538 (Gau.) 2. Attar Singh Gurmukh Singh v. ITO [1982] 136 ITR 589/[1980] 3 Taxman 273 (Punj. Har.) 3. Janambhumi v. CIT [1997] 225 ITR 517/[1998] 99 Taxman 451 (Gau.). 8. Now the assessee is in appeal. 9. The learned counsel for the assessee reiterated the submissions made before the authorities below and further submitted that the assessee has made the payment to the railways, which is part of the Government Department, therefore, the payment was outside the purview of the sec. 40A(3) of the Act, since it was covered under the exceptions laid down in Rule 6DD(b) of the Income-tax Rules 1962. It was contended that the Railway Department insisted for cash paymen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee purchased the scrap in the auction through bid by the South Western Railway and the payment was made in cash. The AO made the addition of Rs.73,91,380/- by invoking the provision of sec. 40A(3) of the Income-tax Act, it was confirmed by the learned CIT(A) by stating that the payment made in 'legal tender' only comes under the exceptions prescribed in Rule 6DD(b) of the Income-tax Rules 1962. Now, we have to analyze the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... art of the Government of India, therefore, no disallowance was called for. On similar issue, the Hon'ble Delhi High Court in the case of Rhydburg Pharmaceuticals Ltd. , ( supra ) has held that the payee insisted on cash payment and the transactions were found to be genuine and bonafide, the Tribunal was justified in allowing the expenditure. 15. In the present case also, the south western railway 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 ( 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, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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