TMI Blog2006 (10) TMI 454X X X X Extracts X X X X X X X X Extracts X X X X ..... and that payment by way of crossed cheque or crossed bank draft was not practicable or the same would have caused genuine difficulty to the payee having regard to the nature of the transaction or there was necessity for expeditious settlement. In addition to that, the assessee should also furnish evidence to the satisfaction of the AO as to the genuineness of payments as well as the identity of payee. We fail to see that the assessee has satisfactorily explained the exceptional and unavoidable circumstances warranting the payment by cash; the payments by way of crossed cheque or crossed bank draft was not practicable; such payments would have caused genuine difficulties to the payee; and there was necessity for expeditious settlement. Even though it is found that the assessee made cash payments for day-to-day affairs of associate concerns, the reason given by the CIT(A) for deleting 20 per cent disallowance that the payments were made to associate concerns and hence, they were allowable cannot be a justifiable reason as it is outside the scope of s. 40A(3) of the Act. We are satisfied that the deletion of disallowance of 20 per cent the total amount frustrates s. 40A(3) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of provisions of s. 40A(3) should be disallowed. However, taking into account the fact that M/s ARJ Textiles (P) Ltd. is accounting the machinery charges received from the assessee and difficulties explained, 20 per cent of the amount of ₹ 27,61,100 is estimated as disallowance under s. 40A(3). The disallowance comes to ₹ 5,52,220. This included in the income of the assessee. 2.3. Aggrieved by the said 20 per cent disallowance out of total payment of ₹ 27,61,100 paid in cash under s. 40A(3) of the Act, the assessee preferred an appeal before the CIT(A), who, by order dt. 30th July, 1998, held as follows : The appellant pleaded that the payment made to the associate concern were only reimbursement expenses incurred and therefore the question of application under s. 40A(3) does not arise. It is not known under what circumstances the above said payment of ₹ 27,51,100 had been made in cash. However, as this concern obviously an associate concern, since the same is excluded from the applicability of s. 40A(3), no addition is called for. The addition made on this account to the extent of ₹ 5,52,220 is deleted as the payment refers to the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en thousand rupees may be made otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft.'No disallowance under sub-s. (3) of s. 40A shall be made where any payment in a sum exceeding ten thousand rupees is made the cases and circumstances specified hereunder, namely : (a) to (i) xxxxx (j) in any other case, where the assessee satisfied the AO that the payment could not be made by a crossed cheque drawn on a bank or by a crossed bank draft' (1) due to exceptional or unavoidable circumstances, or (2) because payment in the manner aforesaid was not practicable, or would have caused genuine difficulty to the payee, having regard to the nature of the transaction and the necessity for expeditious settlement thereof, and also furnishes evidence to the satisfaction of the AO as to the genuineness of the payment and the identity of the payee. 6. The CBDT also issued circular with reference to the interpretation of s. 40A(3) of the Act and r. 6DD(j) of the Rules on 31st May, 1977 and cls. 4 to 6 of the said circular read as follows : 4. All the circumstances in which the conditions laid down in r. 6DD(j) would be applicable cann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave to make payment otherwise than by crossed cheque or draft in certain circumstances voluntarily and not out of sheer necessity. (c) Where the amount was paid in cash or received in cash, the AO has to find out whether the transaction is genuine or not and if he finds that the transaction is genuine, he should allow the deduction. The circular of the Board is not exhaustive; it is only illustrative and the AO has to take into account the surrounding circumstances, considerations of business expediency and the facts of each particular case in exercising his discretion either in favour or against the assessee [vide Girdharilal Goenka vs. CIT (1989) 80 CTR (Cal) 140 : (1989) 179 ITR 122 (Cal)]. (ii)(a) Genuine and bona fide transactions are not taken out of the sweep of the section and it is open to the assessee to furnish to the satisfaction of the AO, the circumstances under which the payment in the manner prescribed under s. 40A(3) was not practicable or would have caused genuine difficulty to the payee. (b) The CBDT has issued certain guidelines giving certain circumstances, and those circumstances are illustrative and not exhaustive and the underlying idea of the circu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into practice, done, or accomplished with the available means and resources. (c) The correct interpretation would be to give to the word 'practicable' a wide and liberal meaning. (d) In determining the practicability for the purposes of r. 6DD(j)(2), regard will have to be had to the facts and circumstances of each case, for, in the ultimate analysis, it is the actuality which must be the decisive factor and that the taxing authority must approach a case which falls to be decided under r. 6DD(j)(2) in the above light. The practicability for the purposes of r. 6DD(j)(2) must be judged from the point of view of the businessman and not of the Revenue. (e) The terms of s. 40A(3) are not absolute. Considerations of business expediency and other relevant factors are not excluded. Genuine and bona fide transactions are not taken out of the sweep of the section. It is open to the assessee to furnish to the satisfaction of the AO the circumstances under which the payment in the manner prescribed in s. 40A(3) was not practicable or would have caused genuine difficulty to the payee. It is also open to the assessee to identify the person who has received the cash payment [vide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion or there was necessity for expeditious settlement. In addition to that, the assessee should also furnish evidence to the satisfaction of the AO as to the genuineness of payments as well as the identity of payee. 10. In the case on hand, we fail to see that the assessee has satisfactorily explained the exceptional and unavoidable circumstances warranting the payment by cash; the payments by way of crossed cheque or crossed bank draft was not practicable; such payments would have caused genuine difficulties to the payee; and there was necessity for expeditious settlement. Even though it is found that the assessee made cash payments for day-to-day affairs of associate concerns, the reason given by the CIT(A) for deleting 20 per cent disallowance that the payments were made to associate concerns and hence, they were allowable cannot be a justifiable reason as it is outside the scope of s. 40A(3) of the Act. We are satisfied that the deletion of disallowance of 20 per cent the total amount frustrates s. 40A(3) of the Act. In the result, we answer the questions of law referred to above in favour of the Revenue and against the assessee. The appeal stands allowed. No costs. - ..... X X X X Extracts X X X X X X X X Extracts X X X X
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