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Ellora Paper Mills Ltd. Versus Commissioner of Income Tax, Income Tax Officer, Ward 1 (1) , Mumbai

2017 (6) TMI 831 - BOMBAY HIGH COURT

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 and could not be extended to the appellant-asse .....

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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 Tribunal (Tribunal) under Section 260-A of t .....

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d 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 occasion to make cash payments to contractors, l .....

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ubmitted 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 available to the appellant. This is so as it is av .....

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n 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 had failed to prove the genuineness of the pa .....

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ssee 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, contractors, suppliers etc. was tested on the touchsto .....

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ing 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 otherwise than by a crossed cheque drawn on .....

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nk 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 following the previous year in which the payment wa .....

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ding 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) ……………. (c) ……& .....

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ellip;………. (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 expeditious settlement thereof, and also furnishes e .....

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blishment 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 cash are not covered by the earlier clauses. In .....

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efers 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 the Authorities under the Act. (B) Further th .....

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f 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 made otherwise than by a crossed cheque drawn .....

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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 expenditure is not paid by a crossed cheque dr .....

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e 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 in the context of having banking facilities w .....

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