TMI Blog2016 (1) TMI 941X X X X Extracts X X X X X X X X Extracts X X X X ..... ll naturally go up. If it is not, the benefit goes to the assessee. Therefore, it is clear that this is a case which satisfies the twin requirements under section 263(1). - Decided against assessee Applicability of the provisions of section 40A(3) - Held that:- The details furnished in the show cause notice dated 18.2.2005 by the Commissioner show that the assessee had admittedly made payments of ₹ 1,00,000/- on three different dates viz., 1.10.1999, 14.10.1999 and 20.10.1999. The assessee had made payments of ₹ 2,00,000 on 31.10.1999, 2.11.1999 and 3.11.1999. All those payments are indicated in the books of accounts of the assessee to have been made to a supplier by name "Standard Fireworks". Similarly payments have been made to another supplier by name "Sivakasi Fireworks". Since the name of one supplier mentioned in the books of accounts of the assessee himself to whom a payment of more than ₹ 20,000/- had been made on everyone of those days, the contingencies stipulated in sub-section (3) of section 40A have arisen. - Decided against the assessee. Business compulsions and expediency in making the cash purchases - Held that:- We are not for a moment to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions of Section 40A(3) of the Act inapplicable to make the disallowance contemplated? 5) Whether the Tribunal is correct in concluding that Rule 6DD of the Income Tax Rules, 1962, had no application to the cash purchases inspite of the fact that the fire crackers purchased by cash under compelling circumstances were manufactured without aid of power in a cottage industry? 2. Heard Mr.S.Sridhar, learned counsel for the appellant and Mr.M.Swaminathan, learned standing counsel for the Department. 3. The appellant/assessee is carrying on business of dealing in stationery. It appears that during festive seasons, the appellant/assessee also carried on business in purchase and sale of crackers. 4. For the assessment year 2001-2002 the assessee purchased crackers for a value of ₹ 1,12,51,956/-. Excepting two payments to the total value of ₹ 9,50,000/-, which were paid by way of cheques, the remaining payments were made by the assessee by way of cash. Since many of those payments were in excess of ₹ 20,000/-, the assessee was denied deduction in terms of section 40A(3). The assessing officer also held that the case was not covered by the exceptions provided u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2006 while admitting the above appeals, the first two questions revolve around the assumption of jurisdiction by the Commissioner under section 263. The third question relates to the applicability of section 40A(3). The fourth question relates to the issue of business expediency. The fifth question relates to the application of Rule 6DD. Therefore, we shall deal with these questions in the same order. 12. Questions 1 and 2:- The question of assumption of jurisdiction under section 263 can be disposed of without much ado. Section 263(1) empowers the Commissioner to call for and examine the record of any proceedings under the Act. If the Commissioner considers, upon such examination, that any order passed by the assessing officer was erroneous insofar as it is prejudicial to the interest of the Revenue, the Commissioner may pass an order modifying the order, of course, after issuing a show cause notice and holding an enquiry. Therefore, two requirements are to be satisfied under section 263(1). They are (1) that the order passed by the assessing officer is considered by the Commissioner to be erroneous and (2) that such error has, actually, been prejudicial to the interest of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the show cause notice dated 18.2.2005 by the Commissioner show that the assessee had admittedly made payments of ₹ 1,00,000/- on three different dates viz., 1.10.1999, 14.10.1999 and 20.10.1999. The assessee had made payments of ₹ 2,00,000 on 31.10.1999, 2.11.1999 and 3.11.1999. All those payments are indicated in the books of accounts of the assessee to have been made to a supplier by name Standard Fireworks . Similarly payments have been made to another supplier by name Sivakasi Fireworks . Since the name of one supplier mentioned in the books of accounts of the assessee himself to whom a payment of more than ₹ 20,000/- had been made on everyone of those days, the contingencies stipulated in sub-section (3) of section 40A have arisen. Hence, the third question is answered against the assessee. 18. Question No.4:- The fourth question revolves around business expediency. This question has arisen for consideration in view of the proviso found in sub-section (3) of section 40A. At this stage, it would be relevant to extract sub section (3) as well as proviso to sub-section (3) which reads as under:- Where the assessee incurs any expenditure in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... insofar as, Indira Prints Pack is concerned, payment was less than ₹ 20,000/-. Therefore, that has not led to any problem. But, insofar as the other two suppliers are concerned, the books of accounts reflect that payments in excess of ₹ 20,000/- to each one of those two suppliers was made on a day to day basis. This is seen from the tabulation given in the show cause notice under section 263, which reads as follows:- Name of supplier Date of payment by cash Amount Remarks Standard Fire Works 27.07.1999 1,200.25 01.10.1999 100,000 14.10.1999 100,000 20.10.1999 100,000 28.10.1999 150,000 31.10.1999 200,000 01.11.1999 159,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the very entries made in the books of accounts. 24. We are not for a moment to be understood to suggest that the books of accounts should have been more carefully drawn. All that we are suggesting is that atleast the names of the agencies or agents or retailers to whom payments were made on a day to day basis, on behalf of the original manufacturers should have been mentioned. In the absence of any specific detail, the vague statements made in response to the show cause notice, cannot offset the entries made in the books of accounts. Therefore, we cannot find fault with the conclusion reached either by the Commissioner or by the Tribunal in this regard Hence, the fourth question of law is answered against the assessee. 25. Coming to the fifth question which revolves around Rule 6DD of the Income Tax Rules, 1969, it is seen that Rule 6DD speaks about exceptional circumstances. Some of the exceptional circumstances that would meet the requirements of the Rule are indicated in Circular No.220 dated 31.5.1977 that reads as follows:- Illustrative situations of 'exceptional circumstances' - All the circumstances in which the conditions laid down in rule 6DD(j) would b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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