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TMI Blog2013 (9) TMI 83X X X X Extracts X X X X X X X X Extracts X X X X ..... led against the original order, the time limit is calculated from the date of receipt of the same and hence there was a delay of 198 days. It is further stated that the delay was caused on account of the above cited reasons and is not due to any willful omission on the part of the assessee and the assessee was under bonafide belief that the appeal before Tribunal could be filed only after receipt of the rectification order. Accordingly, it is prayed that the delay in filing the present appeal be condoned. 3. The Ld D.R objected to the plea made by the assessee by stating that the assessee had moved a rectification order seeking rectification of only one issue, viz., disallowance made u/s 40A(3) of the Act. However, the present appeal has been filed on many other issues, meaning thereby, the assessee had initially accepted the decision of the Ld CIT(A) in respect of other issues. Accordingly, the Ld D.R submitted that the Tribunal should consider only the issue relating to the disallowance made u/s 40A(3) of the Act, if it chooses to condone the delay. 4. We have heard the parties on this preliminary issue. There is no dispute that the appeal filed by the assessee will not become ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (e) Disallowance of interest expenses - Rs.59,441/- (f) Disallowance of loss on sale of car - Rs.24,076/- At the time of hearing, the Ld Counsel for the assessee did not press the ground relating to the disallowance of loss on sale of car. Accordingly, the ground relating to the same is dismissed as not pressed. 7. The facts relating to the case are stated in brief. The assessee is a partnership firm and is engaged in the business of trading in rice. In the scrutiny proceedings, the assessing officer made various disallowances and determined the total income at Rs.65,29,550/- as against the returned income of Rs.6,77,260/-. The assessee could get only partial relief in the appeal filed before Ld CIT(A) and hence it has preferred the present appeal before us. 8. The first issue relates to the disallowance made u/s 40A(3) of the Act in respect of purchase of rice. The assessing officer noticed that the assessee had purchased rice by paying cash in excess of Rs.20,000/- in violation of provisions of sec.40A(3) of the Act. The aggregate amount of such kind of payments was quantified by the assessing officer at Rs.1,04,66,883/- and 20% thereof was disallowed as per the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Tannery Vs. CIT (117 ITR 34)(All) With regard to the claim that the purchases were made through agents, the Ld D.R submitted that the Ld CIT(A) and the AO has clearly recorded a finding that the assessee has effected purchases only through registered dealers, even though some of the dealers describe themselves as "commission agents". She further submitted that the amendment made to sec. 40A(3) with effect from the assessment year 2009-10 could be applied to the year under consideration, as the amendment is clarificatory in nature, as it has brought out the legislative intention and hence it will have retrospective effect. 11. We have heard the rival contentions on this issue and perused the record. The first contention of Ld A.R is that the rice purchased by the assessee is an agricultural produce and hence it is covered by the exceptions given in Rule 6DD of the I.T Rules. For the sake of convenience, we extract below clause (e) of Rule 6DD of IT Rules. "(e) where the payment is made for the purchase of- (i) agricultural or forest produce; or (ii) the produce of animal husbandry (includi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... do not find any merit in the said contention also. 13. The next contention of the assessee was that the purchases effected by it were found to be genuine and they are supported by proper documentary evidences. In our view, there is no merit in this contention also, as the provisions of sec. 40A(3) shall come into play only in respect of genuine expenses. 14. The last contention of the assessee was that the tax authorities have made disallowance u/s 40A(3) in respect of purchases supported by individual bills having value of less than Rs.20,000/-. We notice that the tax authorities have considered the aggregate amount of payments effected to a single person in a day and wherever the aggregate payments exceeded the monetary limit of Rs.20,000/-, disallowance u/s 40A(3) has been made. The tax authorities have gone on the reasoning that the amendment made to Sec. 40A(3) by the Finance Act 2008 with effect from 1.4.2009 does not permit splitting of payments and since the said amendment is clarificatory in nature, it will have retrospective operation. Accordingly, the tax authorities have ignored the value of each bill and instead gone by the aggregate amount of payments made to a sin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 40A by splitting a particular high value payment to one person into several cash payments, each below Rs.20,000/-. This splitting is also resorted to for payments made in the course of a single day. The courts have approved such splitting by interpreting the words "in a sum" used in the section to mean a single sum thereby applying the limit to each transaction. This interpretation is against the legislative intent and has, consequently, adversely affected the efficacy of this anti-abuse provision. 13.3 Therefore, the provisions of sub-section (3) of section 40A have been amended providing that the provisions of sub-section (3) shall also be attracted where the aggregate of payments made to a single party otherwise than by an account payee cheque drawn on a bank or account payee draft exceeds twenty thousand rupees in a day. 13.4 Applicability:- This amendment has been made applicable with effect from 1st April 2009 and shall accordingly apply for the assessment year 2009-2010 and subsequent years" 16. It is pertinent to note here that the rate of disallowance was 20% for the year under consideration, i.e., assessment year 2007-08. The Finance Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly to 20% of the expenditure as per the old provisions., i.e., the Ld CIT(A) has applied the amended provisions only in part. In our view, an amendment cannot have retrospective operation in part. Since the amendment only debars splitting up of payments made to a person during the course of a day and did not debar splitting up in toto and since there is significant variance in the rate of disallowance, in our view, the amendment brought out by Finance Act, 2008 can only be considered as substantive in nature and shall have prospective operation only. 17. The CBDT circular (referred supra) refers to "a particular high value payment". The necessity to make payment to a party would arise only after conclusion of a transaction, say a "purchase" and the said deal would culminate into rising of a bill/invoice. Hence the term "high value payment" apparently refers to the concerned bill/invoice in respect of which the payment is required to be made, meaning thereby, the concerned bill/invoice should also be of a higher value. However, if the value of bill/invoice itself is less than Rs.20,000/-, it cannot be considered as a high value transaction in the context of sec.40A(3) and hence the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owance u/s. 40(a)(ia) of the Act, the Ld. Counsel submitted that the assessee company did not engage any lorries and they were engaged by the suppliers of rice. Accordingly, he submitted that there is no privity of contract between the assessee and the lorry owners and hence, the provisions of section 40(a)(ia) of the Act shall not apply to the freight payments. He further submitted that the Assessing Officer has applied the provisions of section 40(a)(ia) even to the payments which are not required to be subjected to TDS u/s. 194C of the Act. 21. On the contrary, the Ld. DR submitted that the contract is implicit in respect of freight charges paid by the assessee in as much as the assessee has agreed to pay the freight charges at the time of delivery of goods, even if the lorry is engaged by the suppliers. The Ld. DR further submitted that the Ld. CIT(A) has already directed the Assessing Officer to exclude the freight payments which are not covered by the provisions of section 194C of the Act. 22. We have heard the rival contentions on this issue and perused the record. The assessee has claimed that there is no privity of contract with the lorry owners, since it has not engaged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs.20,000/-, we do not incline to repeat the said direction here. We may also make it clear that the relief already granted by the Ld. CIT(A) on this issue shall stand intact. 23. The next issue relates to the disallowance of interest of Rs. 92,668/-. The Assessing Officer noticed that the assessee paid interest of Rs. 92,668/- to one of the partners, Smt. Durgadevi, since she was having credit balance in her capital account. However, the Assessing Officer noticed that other partners were having debit balances and hence the aggregation of the capital balances of all partners has resulted in a net debit balance. Hence, the Assessing Officer took the view that the interest is not payable on the capital account of one of the partners and accordingly disallowed the interest amount of Rs. 92,668/- referred above. The Ld. CIT(A) confirmed the addition with the following observations: "22. I have carefully considered the relevant facts and provisions of law with regard to the issue involved. I find that as per partnership deed itself interest was payable to partners only when there was a credit balance in the capital account. It is imperative that when interest is payable ..... X X X X Extracts X X X X X X X X Extracts X X X X
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