TMI Blog2006 (11) TMI 117X X X X Extracts X X X X X X X X Extracts X X X X ..... e exceptions to S.40A (3) contained in Rule 6DD of the IT Rules, 1962 ? (2)whether the Tribunal was justified in holding that the addition of Rs.6,98,000/-on account of peak of cash credits was justified in the facts and circumstances of the case whereas the sale of scooters and fact of collection of cash against sale of scooters from the customers and the payment of such cash to the selling dealer M/s Ganesh Automobiles, Udaipur was not in doubt ? (3)Whether the provisions of S.40A(3) of the Act read with Rule 6DD were at all applicable to the purchase of goods viz. Scooters and whether the terms 'Deduction for expenditure' in the scheme of S.40A(3) is applicable to the purchase of very goods for the business on a harmonious reading of the scheme of the Act for computation of income under the head Income from Business or profession u/s 28 to 43 of the Act ?" 3.The aforesaid three questions read together give a picture that the principal question which falls for consideration is that assessee has made certain payments of sale price of scooters/mopeds, which exceeded in each case Rs.10,000/- to the principal agent M/s. Ganesh Automobiles, Udaipur in cash instead of through cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be factually incorrect premise, solely on the ground that the case of the assessee did not fall in any of the clauses enumerated in the Circular issued by the Central Board of Direct Taxes about the Explanatory Note appended to Clause (j) was to operate as it was existing at the relevant time. And that enumerated circumstances in the circular was exhaustive of exceptional circumstances. 6.The Tribunal has said that the purchaser was not new to the seller; the transactions were made at the place where the assessee had Bank account as he has opened the Bank account at Udaipur; the transactions were not made on the Bank Holiday and therefore, case for exceptional circumstance is not made out. 7.In our opinion, perusing the provisions of Section 40A (3) along with Rule 6 DD and Explanatory Note contained in the Circular issued by the Central Board of Direct Taxes, which binds all the authorities under the Act, shows that the Tribunal has been led away by considering enumeration of instances in the Circular in which the provisions of Clause (j) under Rule 6DD would operate to be exhaustive of such circumstances and had not been properly understood, its implication. 8.It may be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3SSC 640.and the consequence to fall for failure to observe such norms in the present case are much higher than which were prescribed under the MP Sales Tax Act. Apparently, it is a relevant consideration for the assessing authority under the Income Tax Act that before invoking the provisions of Section 40A (3) in the light of Rule 6DD as clarified by Circular of Central Board of Direct Taxes that whether the failure on the part of the assessee in adhering to requirement of provisions of Section 40A (3) has any such nexus so as to invite such a consequence. 12.This is particularly so, because the consequence provided under Section 40A (3) for failure to make payments through Bank is not absolute in terms nor automatic but exceptions have been provided and leverage has been left for little flexing by making a general provision in the form of Clause (j) in Rule 6DD, which reads as under : 13."Clause (j) of rule 6DD provides that no disallowance under section 40A (3) shall be made where the assessee satisfies the Income-tax Officer that the payment could not be made by way of a crossed cheque drawn on a bank or by a crossed bank draft; a.due to exceptional or unavoidable circumsta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fect is produced in respect of each transaction falling within the categories listed above from the seller giving full particulars of his address, sales tax number/permanent account number, if any, for the purposes of proper identification to enable the Income-Tax Officer to satisfy himself about the genuineness of the transaction. The Income-tax Officer will, however, recordhis satisfaction before allowing the benefit of rule 6DD (j)." 18.It appears that fulfillment of the conditions of para 5 of the Circular has clearly escaped the attention of the Tribunal. The Circular clearly indicates that ordinarily where the Income-tax Officer is satisfied about the genuineness of the transaction and payment and identification of the cash payment is established, the Income-tax Officer shall record his satisfaction about the fulfillment of the conditions for allowing the benefit of Rule 6DD (j). Apparently,Section 40A (3) was intended to penalize the taxevader and not the honest transactions and that is why after framing of Rule 6 DD (j), the Board stepped into issuing the aforesaid Circular. 19.This clarification, in our opinion, is in conformity with the aforesaid principle enunciate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... als) was correct and the Tribunal by ignoring the scope of Clause (j) of Rule 6 DD as explained by the Board'sCircular has erred in reversing the finding reached by the CIT (Appeals) on hyper-technical view. We, therefore, allow this appeal and set aside the order of the Tribunal to the extent it sustains theadditions of Rs.40,13,000/- under Section 40A (3). 23.So far as question No.2 is concerned,apparently when the Tribunal has found as a fact that the assessee was receiving money from the customers in hands against the payment on delivery of the vehicles on receipt from the dealer the question of such amountstanding in the book of accounts of the assessee would not attract Section 68 because the cash deposits becomes self explanatory and such amount was received by the assessee from the customers against which thedelivery of the vehicle was made to the customers.The question of sustaining the addition of Rs.6,98,000/- would not arise. 24.We, therefore, hold that no addition was required to be made in respect of Rs.6,98,000/-, which was found to be the cash receipts from the customers and against which delivery of vehicle was made to them. 25.Question No.2 relates to the d ..... 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