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2017 (6) TMI 831 - BOMBAY HIGH COURT

2017 (6) TMI 831 - BOMBAY HIGH COURT - TMI - Addition u/s 40A - Tribunal applying Rule 6DD(j) to disallow the claim in respect of payments made in excess of ₹ 10,000/- in cash - Held that:- Where the head office or the place from where all the business operations are controlled or directed is a village or town which has a banking facilities, even such transporter would not be covered by Rule 6DD(h) of the Rules. Therefore, in the present case the benefit of Rule 6DD(h) was not available an .....

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was not produced. Consequently, the claim of the appellant-assessee was correctly denied by the Authorities under Section 40A(3) of the Act read with Rule 6DD(h) of the Rules. - Decided against assessee. - Income Tax Appeal No. 3 of 2002 - Dated:- 9-6-2017 - M.S. Sanklecha And Manish Pitale, JJ. Mr. N.S. Bhattad, Advocate for Appellant (Assessee) Mr. A.J. Bhoot, Advocate for Respondents JUDGMENT ( Per M.S. Sanklecha, J.) 1. This appeal from the order dated 18.08.2000 of the Income Tax Appellate .....

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facts and in the circumstances of the case and in law, the Tribunal was correct in applying Rule 6DD(j) of the Income Tax Rules,1962 (Rules) to disallow the claim of the appellant in respect of ₹ 21.37 lakhs in respect of payments made in excess of ₹ 10,000/- in cash? 3. This appeal relates to Assessment Year 1991-92. 4. The appellant has its factory at village Devada in Bhandara district. The village Devada has no banking facilities. In that view of the matter, the appellant had occ .....

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the subject Assessment Year, the appellant submitted a Chartered Accountant s audit report which indicated the fact that village Devada is not served by the Bank and that the payment in excess of ₹ 10,000/- made in cash was exempted as it satisfied the condition under Rule 6DD(h) of the Rules in accord with the second proviso to Section 40A(3) of the Act. 5. By an assessment order dated 30.03.1993, the Assessing Officer held that the benefits of Rule 6DD(h) of the Rules would not be avail .....

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ayments were not excluded from the application of Section 40A(3) of the Act as the Rule 6DD(h) and (j) of the Rules was not satisfied. Thus the assessment order dated 30.03.1993 added the aforesaid sum of ₹ 21.37 lakhs to the income of the appellant-assessee. 6. Being aggrieved, the appellant carried the issue in appeal to the Commissioner of Income Tax (Appeals) (CIT(A)). By an order dated 22.03.1995, CIT(A) dismissed the claim of the appellant while recording the fact that the appellant .....

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payments made in cash by the appellant -assessee to persons residing in village Devada were exempted from complying with Section 40A(3) of the Act by virtue of Rule 6DD(h) of the Rules. However, the payments which were made to transporters, contractors etc. who had business establishments at places outside the village Devada where banking facilities were available, were not entitled to the benefits of Rule 6DD(h) of the Rules. In these circumstances, the payments made to transporters, contracto .....

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r the subject Assessment Year. 8. Before dealing with the rival submissions, it would be useful to reproduce the statutory provisions and the Rules as in force during the subject assessment year, as under:- 40A(3) Where the assessee incurs any expenditure in respect of which payment is made, after such date (not being later than the 31st day of March, 1969) as may be specified in this behalf by the Central Government by notification in the Official Gazette, in a sum exceeding ten thousand rupees .....

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sed cheque drawn on a bank or by a crossed bank draft, the allowance originally made shall be deemed to have been wrongly made and the Assessing Officer may recompute the total income of the assessee for the previous year in which such liability was incurred and make the necessary amendment, and the provisions of Section 154 shall, so far as may be, apply thereto, the period of four years, specified in sub-section (7) of that section being reckoned from the end of the assessment year next follow .....

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circumstances in which payment in a sum exceeding ten 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-section (3) of section 40A shall be made where any payment in a sum exceeding ten 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) …………….. (b) ……&h .....

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such village or town; (i) ………………. (j) in any other case, where the assessee satisfies the Assessing Officer 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 expedit .....

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people did not have a permanent place of establishment in the village, they were carrying on business in village Devada which did not have the facility of banking. Consequently these payments were also covered by Rule 6DD(h) of the Rules. (B) The impugned order has incorrectly invoked Rule 6DD(j) of the Rules to disallow the benefits of payments made in excess of ₹ 10,000/- in cash. This for the reason that Rule 6DD(j) is a residuary clause and would only apply when the payments made in ca .....

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ear 1986-87 and 1991-92. The impugned order refers to the fact that wherever the genuineness of the payments were established, the benefit of Rule 6DD(j) of the Rules was made available to the appellantassessee. For the subject assessment year, the appellantassessee was not able to establish the genuineness of the payments of ₹ 21.37 lakhs made to transporters, contractors and suppliers of rice straw. Thus the benefit of exclusion from Section 40A(3) of the Act was rightly not extended by .....

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bunal had no option but to examine the case of the appellant on touchstone of Rule 6DD(j) of the Rules. On the above test, the appellant had failed to establish the genuineness of the payments. Consequently no interference with the order of the Tribunal is called for and the substantial question be answered in favour of the respondent-Revenue. 11. We find that in terms of Section 40A(3) of the Act no expenditure would be allowed as a deduction, where the payment in excess of ₹ 10,000/- is .....

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in excess of ₹ 10,000/-, otherwise then by way of a crossed cheque drawn on a bank or by a crossed bank draft, are provided in Rule 6DD of the Rules. Therefore, only on satisfaction of the same, will such a payment be allowed. 12. In terms of Rule 6DD(h) of the Rules, a person who makes the payment in a village, which does not have the facility of banking, to a person who ordinarily resides therein or is carrying on business therein, will be allowed the benefit of deduction even when the e .....

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in cash, were carrying on business in village Devada. 13. Mr. Bhattad, learned counsel for the applicantassessee states that the transporters, contractors and suppliers of rice straw who carried on business in village Devada, when the goods are supplied or taken from the appellant's factory premises. Therefore, the payment made in cash to such persons would be payments which are made to persons carrying on business under Rule 6DD(h) of the Rules. To our own mind the carrying on of business .....

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