TMI Blog2016 (9) TMI 453X X X X Extracts X X X X X X X X Extracts X X X X ..... of section 40A(3) with regard of the business expediency then applicable for the assessment year 2008- 09 is met by the assessee. It is pertinent to note that the primary object of enacting section 40A(3) were two folds, firstly, putting a check on trading transactions with a mind to evade the liability to tax on income earned out of such transaction and, secondly, to inculcate the banking habits amongst the business community. Apparently, this provision was directly related to curb the evasion of tax and inculcating the banking habits. Therefore, the consequence, which were to be fallen on account of nonobservation of Section 40A(3) must have nexus to the failure of such object. Therefore, the genuineness of the transactions being free from vice of any device of evasion of tax is relevant consideration. With regard to the purpose of bringing the provisions of section there is no doubt about the identity of the party. The ld. AR has directly deposited the cash in the account of the companies and has produced the sales bills of the company. The AO has also verified the transactions from the companies by issuing notice under Section 133(6) of the Act. So in the instant case there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it to the total income of the assessee. 4. Matter was carried before the First Appellate Authority, wherein various contentions were raised on behalf of the assessee and having considered the same the Ld CIT(A) confirmed the action of AO. Being aggrieved by this order of Ld CIT(A) the assessee is in second appeal before us. Shri K.K.Khemka, Ld. Authorized Representative appearing on behalf of assessee and Shri Sital Chandra Das, Ld. Departmental Representative appearing on behalf of Revenue. 5. Before us Ld. AR filed a paper book which is running pages from 1 to 196 and submitted that assessee is Authorised Retailer Agent (franchise) of country sprit of West Bengal Government under Bengal Excise Act Rules. The payments were made by way of deposit of cash directly in the bank a/c of Wholesaler Agent of West Bengal Government in terms of Calcutta Gazette notification No, 188-EX/0/R-4/2000 dt. 23/02/2000, THE ENTIRE PAYMENT IS THEREFORE TO WEST BENGAL GOVERNMENT (through Authorised wholesaler agent) who is 'PRINCIPAL' in this case. The Assessee was required and forced to pay the cost of material (wine) only by way of deposit of money in cash to the Banker of Aut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uine 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 income tax officer as to the genuineness of the payment and the identity of the payee . The law amended and following provisions was introduced by the finance act 2007 w.e.f. 1.4.2008 and explanatory NOTES there under provides provided that no disallowances shall be made and no payment shall be deemed to be the profits and gains of business or profession under this sub-section where any payment in a sum exceeding 20000.00 rupees is made otherwise then by an a/c payee cheque drawn on a bank or a/c payee bank draft, in such cases and under such circumstances as may be prescribed, having regard to the nature and extent of banking facilities available, considerations of business expediency and other relevant factors . INTEREPRETATI~N OF LAW ....................... The comma - websters New World Dictionary - Oxford (see paper Book page No 251 (1) The use of Comma 1. Use a comma to separate and introductory clause or phase from a main clause. 9. Use a comma to separate, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment. (B) As price is determined by the West Bengal Govt. and is subject to check by the Excise Authorities. (C) Payment has been made by the assessee directly to the suppliers Bank A/e. on the printed stationery supplied by the wholesaler Agent of W.B. Govt. IFB Agro Industries Ltd. and Asansol Bottling Packaging Pvt. Ltd., which is the proof the consideration of the business expediency. 4B. The ITO has verified the total transaction from the suppliers by issue of notice u/s. 133(6) of the Act and got reply thereto, confirming the entire transaction and also the fact of bank deposit through its bill. THIRDLY 5A. The payments by way of deposit of cash directly in the Bank A/c of the wholesaler Agent of West Bengal Government in terms of Calcutta Gazette notification No. 188-EX/0/R-4/2000 dt. 23/02/2000. The payments made is therefore, otherwise covered under Rule 6DD(b) of the I. T. Rules to which provisions of Sec. 40A(3) are inapplicable. 5. In this connection, attention is drawn to Calcutta Gazette as under: 5(1) - The retail vender or shall submit to the Wholesale Licensee through excise officer in charge of the warehouse a demand for issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act then applicable for the assessment year 2008-09 reads as under : 40A.(1) (2) . (3)(a) Where the assessee incurs any expenditure in respect of which payment is made in a sum exceeding twenty thousand rupees otherwise than by an account payee cheque drawn on a bank or account payee bank draft, no deduction shall be allowed in respect of such expenditure; (3)(b)Where an allowance has been made in the assessment for any year in respect of any liability incurred by the assessee for any expenditure and subsequently during any previous year (hereinafter referred to as subsequent year) the assessee makes payment in respect thereof, otherwise than any an account payee cheque drawn on a bank or account payee bank draft, the payment so made shall be deemed to be the profits and gains of business or profession and accordingly chargeable to income-tax as income of the subsequent year if the amount of payment exceeds twenty thousand rupees: Provided that no disallowance shall be made and no payment shall be deemed to be the profits and gains of business or profession under this sub-section where any payment in a sum exceeding twenty thousand rupees is made ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... get into the following decisions on the impugned subject:- Attar Singh Gurmukh Singh vs ITO reported in (1991) 191 ITR 667 (SC) Section 40A(3) of the Income-tax Act, 1961, which provides that expenditure in excess of ₹ 2,500 (Rs.10,000 after the 1987 amendment) would be allowed to be deducted only if made by a crossed cheque 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, 1962, it will be clear that the provisions are not intended to restrict business activities. There is no restriction on the assessee in his trading activities. Section 40A(3) only empowers the Assessing Officer to disallow the deduction claimed as expenditure in respect of which payment is not made by crossed cheque or crossed bank draft. The payment by crossed cheque or crossed bank draft is insisted upon to enable the assessing authority to ascertain whether the payment was genuine or whether it was out of income from undisclosed sources. The terms of section 40A(3) are not absolute. Consideration of business expediency and other relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the ld. CIT(Appeal) which has also not been disputed by the department as it appears from the order so passed by the learned Tribunal. It further appears from the assessment order that neither the Assessing Officer nor the CIT(Appeal) has disbelieved the genuineness of the transaction. There was no dispute that the purchases were genuine. Anupam Tele Services vs ITO in (2014) 43 taxmann.com 199 (Guj) Section 40A(3) of the Income-tax Act, 1961, read with rule 6DD of the Income-tax Rules, 1962 Business disallowance Cash payment exceeding prescribed limits (Rule 6DD(j)-Assessment year 2006-07 Assessee was working as an agent of Tata Tele Services Limited for distributing mobile cards and recharge vouchers Principal company Tata insisted that cheque payment from assessee s co-operative bank would not do, since realization took longer time and such payments should be made only in cash in their bank account If assessee would not make cash payment and make cheque payments alone, it would have received recharge vouchers delayed by 4/5 days which would severely affect its business operation Assessee, therefore, made cash payment Whether in view of above, no d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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