TMI Blog2016 (9) TMI 1000X X X X Extracts X X X X X X X X Extracts X X X X ..... not possible to pay by A/c payee cheques, because a single cheque will take 15 days time for clearance, and the entire chain of distribution will break down. Assessee would fall within clause (h) of Rule 6DD of the Rules and therefore no disallowance ought to have been made u/s.40A(3) of the Act. Though the Assessee made the above submissions before the CIT(A), the CIT(A) has not given any findings on the applicability of Rule 6DD(h) of the Rules. For the reasons given above, we hold that no disallowance u/s.40A(3) of the Act ought to have been made in the case of the Assessee as the case of the Assessee is covered by exceptions set out in Rule 6DD(h) of the Rules. The disallowance is directed to be deleted. - Decided in favour of assessee. - I.T.A. No. 2084/KOL/ 2013 - - - Dated:- 12-8-2016 - Shri P.M.Jagtap, Accountant Member, and Shri S.S. Viswanethra Ravi, Judicial Member For The Assessee : Shri U. Dasgupta, Advocate. For The Department : Shri M.K. Biswas, JCIT, Sr. D.R. ORDER Per Shri S.S. Viswanethra Ravi :- This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals), Asansol dated 15.05.2013 for the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee firm as produced before the AO, it was observed that date wise entries of cash payment made to different distributors has been reflected at ₹ 20,000/- and less in all occasions. Thus, there was a discrepancy detected in respect of quantum cash payments made by the assessee firm to its different parties/distributors towards purchase of K.Oil. The AO held that the assessee made the payment in contravention of Section 40A(3) of the Act. Accordingly, 20% of total cash payment of ₹ 94,42,806/- i.e ₹ 18,88,560/- was disallowed u/s. 40A(3) and added the same to the total income of the assessee firm. 7. Aggrieved by such order of the AO, the assessee preferred appeal before the ld. CIT(A). The ld. CIT(A) considering the submissions of the assessee has disposed of the appeal by stating as under:- The appellant partnership firm is a BIG DEALER of KEROSENE OIL in the chain of Public Distribution System , and functions under the provisions of the it Essential Commodities Act, .1955 . It is appointed by the Government of West Bengal as a big dealer in the public distribution system for distribution of kerosene oil in the State of West Bengal. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... la village. 5) Kerosene Oil are transported in OIL TANKERS, to Chakdola Village, and stored in OIL DRUMS for further distribution, down the line, and tank are also paid by the appellant. 6) Even though the appellant has a bank Nc at Jamuria town , it is mostly inoperative, because it is practically not possible to pay by A/c payee cheques, because a single cheque will take 15 days time for clearance, and the entire chain of distribution will break down. 7) After considering all practical difficulty the SUB DIVISIONAL CONTROLLER food and supply, Govt. of West Bengal, has issued specific written instructions for payments to be made in CASH. 8) In this case neither the identity of the seller nor the genuineness of the purchase is doubtful and the payment has been made as per the rate fixed by the Government of West Bengal. 9) Under the circumstances the appellant cannot unilaterally decide the mode of payment to the Govt. AGENT. The above factual aspect are undisputed. Now our arguments are two fold: First, the CASH payments made by the appellant are covered by exception to Rule 6 DD (h) of the I. T. Rules, 62, which exempt cash ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lity of the case decision cited by appellant is first considered. The ITAT special Bench Kolkata has in I.T.O., Ward-1, Murshidabad vs. Mls Kenaram Saha and Subhash Sa ha in ITA No. 1545 (Kol) of 2007 for A. Y. 2004-05 considered the same matter. The case decision referred by appellant was also considered while giving the decision. The extract from order is reproduced below. 15. While referring to the second proviso to Sec. 40A (3), it has been claimed by the, learned counsel that this proviso provides certain exceptions where Sec. 40A (3) is not applicable. The exemption from applicability of Sec.40A (3) is to be allowed having regard to the (i) nature and extent of banking facilities available, (ii) consideration of business expediency, and (iii) other relevant factors. He stated that the second to Sec. 40A (3) is a provision of the law, full effect of which should be given. Therefore, even if the facts of the case of an assessee are not squarely covered by any of the clauses of Rule 6DD, still the exemption from the rigor of Sec. 40A(3) can be allowed in view of the provisions of second proviso to See 40A(3). We are unable to agree with the contention on of the learned co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts of each case, First we will take up I T.A. No. 1545 (Kal)/2007, i.e. ITO vs. Kenaram Saha Subhash Saha. 16.1. The assessee is an AOP which is a big dealer in the chain of agents involved in the public distribution system far supply . of kerosene ail within the State of West Bengal. During! the year under consideration the assessee made the payment of ₹ 1, 34,58, 430/- far purchase of kerosene oil in cash exceeding ₹ 20,000/-,. As per A. 0., the payment was in violation of the previsions of Sec.40A (3). He, therefore, disallowed 20% . of the payment made by the assessee. Accordingly, the disallowance was worked out at ₹ 26,91,680/-. On appeal, the C.I. T (A) deleted the disallowance holding that the assessee's case is covered under Rule 6DD (k) as well as Rule 6DD(1) of I. T Rules. Before us the assessee's learned counsel further claimed that the case of the assessee is also covered by Rule 6DD (b). However on perusal of the orders of the authorities below we find that before the A. O. the assessee did not make a specific claim under which clause of Rule 600 case calls, The claim was that the purchase was made from the Government. The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould require examination of the facts with reference to the books of account so as to ascertain on which particular date payment was made and whether such date was bank holiday or not so as to ascertain the applicability of Rule 6Do(k). With regard to applicability' of Rule 600 (/) and Rule 6oo(b) also further facts are required to be examined. The learned counsel for the assessee has given the copy of the supply order issued by Sub-Divisional Controller, Food Supplies, Jangipur giving direction to the assessee to make the payment in cash. However, it was pointed out by the Ld. Departmental Representative that these supply orders are dated 2007 and, therefore, will not be applicable to the year under consideration. What was the exact direction of the supply order in the accounting year relevant to assessment year under consideration would require to be examined. In view of the above, we deem it proper to set aside the orders of the authorities below on this point and restore the matter back to the file of the A.O. with the direction that he will ex amine the facts of the case afresh and will adjudicate upon the assessee s contention that its case falls under clauses (b), (k) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the instant case no payment is made to Government. The order of ?ub-Divisional Controller cannot override provision of Income Tax Act. The linkage to Essential Commodities Act 1955 brought by appellant has no bearing as Section 40A(3) r.w. Rule 600 does not impede the administration of Essential Commodities Act 1955 in any manner. The section 40A(3) in Income Tax Act is merely a section on manner of payment. Further (a) the power as per clause 3 of Essential Commodities Act 1955 is exclusively with Central Govt. and not any other authority, (b) No order has been produced to prove that Sub-Divisional Controller is a Collector to exercise powers with reference to definition 2(iia) of Essential Commodities Act 1955 and (c) No order of delegation under Rule 5 of Essential Commodities Act 1955 has been produced authorizing Sub-Divisional Controller to issue direction such as to effect cash payments are produced. In regard to (b) and (c) above, if at all any such notification has been issued it ordinarily should be in form of a Gazette Publication. 9. Considering the above, I hold that the requirement on part of appellant to prove fitting in to any of the sub-clause of Rule 6DD h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... **[twenty thousand] rupees is made otherwise than by $[an account payee cheque drawn on a bank or account 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. Rule 6DD is the rule prescribed under the second proviso to Sec.40A(3) of the Act and the relevant rule, in so far as this case is concerned viz., Rule 6DD(h) reads thus: Rule 6DD. Cases and circumstances in which payment in a sum exceeding twenty thousand rupees may be made otherwise than by crossed cheque drawn on a bank or by a crossed bank draft.-No disallowance under Sub-section (3) of Section 40A shall be made where any payment in a sum exceeding twenty thousand rupees is made otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft in the cases and circumstances specified hereunder, namely: (a) To (g) .. (h) where the payment is made in a village or town, which on the date of such payment is not served by any bank, to any person who ordinarily resides, or is carrying on any business, profession or vocation, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f distribution of Kerosene Oil, from the said village, distributing the same to various M R shops in the region. 2) The said CHAKDOLA vii/age is located in a remote corner s of the District of Burdwan, nearest town being Jamuria s situated about 5 KM away , and the nearest 'bank located at Jamuria Town. 3) In the financial year 2005-06, there was no banking facility at Chakdola Village . Now in the year 2013, also there are no Banks at Chakdola Village. 4) Payments in CASH are made by the appellant for purchase of goods at Govt. fixed rates, at Chakdola village. 5) Kerosene Oil are transported in OIL TANKERS, to Chakdola Village, and stored in OIL DRUMS for further distribution, down the line, and tank are also paid by the appellant. 6) Even though the appellant has a bank Nc at Jamuria town , it is mostly inoperative, because it is practically not possible to pay by A/c payee cheques, because a single cheque will take 15 days time for clearance, and the entire chain of distribution will break down. 15. In the light of the undisputed facts set out above, we are of the view that the case of the Assessee would fall within clause (h) of Rule 6DD ..... X X X X Extracts X X X X X X X X Extracts X X X X
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