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Nirmal Kumar Das Versus ACIT, Circle-Haldia, Purba Medinipur

2015 (12) TMI 1693 - ITAT KOLKATA

Addition u/s 40A(3) - cash payment to his permanent employees for more than ₹20,000/- in a day - Held that:- It is a relevant consideration for the assessing authority under the Income Tax Act that before invoking the provisions of section 40A(3) in the light of Rule 6DD as clarified by the Circular of the CBDT that whether the failure on the part of the assessee in adhering to requirement of provisions of section 40A(3) has any such nexus which defeats the object of provision so as to inv .....

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nd placed on page 2 to 6 of the additional details. It is also pertinent to note that the Hon’ble Rajasthan High Court in the case of Smt.Harshila Chordia vs ITO reported in (2006 (11) TMI 117 - RAJASTHAN HIGH COURT) had held that the exceptions contained in Rule 6DD of Income Tax Rules are not exhaustive and that the said rule must be interpreted liberally. - Thus no hesitation in deleting the addition u/s 40A(3) - Decided in favour of assessee. - ITA No. 391/Kol/2014 - Dated:- 11-12-2015 - .....

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) vide his order dated 18.03.2013 for assessment year 2010-11. 2. Only issue raised by assessee in this case is that Ld. CIT(A) erred in confirming the addition of ₹29,42,357/- by invoking the provision of Sec. 40A(3) of the Act. 3. Briefly stated facts are that assessee is an individual engaged in business of civil construction and labour supply under the name & style of Das Development Construction. During the year under consideration, assessee has made cash payment to his permanent .....

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tion of Assessing Officer by observing as under:- I have considered the facts of the case and the appellant s submission. The appellant has not denied that the payments were made to the workers otherwise than by account payee cheques. As per the provisions of section 40A(3), such payments are not allowed as deductions. Rule 6DD provides the list of cases and circumstances in which a payment in aggregate exceeding twenty thousand rupees to a person in a day otherwise than by an account payee cheq .....

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ew that when the payment is made in contravention of section 40A(3) though the payment is genuine, that cannot be allowed, because the genuineness of payment is required in all cases but payment by account payee cheque or demand draft is additional requirement under section 40A(3)). If we follow the view that the payment is genuine, then that should not be disallowed. In that case the provision of section 40A(3) will become redundant. Therefore, unless there are unavoidable circumstances for pay .....

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visions of section 40(3) would become redundant if all genuine payments were taken out of the purview of the requirements of Section 40A(3). Therefore, according to the Hon'ble High Court the payments would be hit by the provisions of section 40A(3) unless there are unavoidable circumstances for payment in cash. The case laws relied upon by the appellant were in the context of the erstwhile Rule 6DD which read as under:- (j) in any other case, where the assessee satisfies the Income-tax Offi .....

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tity of the payee. This Rule is no longer available in the rule book. In a decision in the case of Pranaj Kr. Moulik Vs Income-tax Officer Wd 41(3) Kolkata (2011) 11 Taxmann.com 401(Kol), the Hon'ble ITAT Kolkata Bench C held that genuine and bona fide payments cannot be taken out of the purview of section 40A(3) of the Act after amendment of the rules by the Finance Act 1995, which was clarified vide Board s Cricular no. 117 dated 14.08.1995. In that case the assessment year concerned was 2 .....

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he Income-tax Act, 1961. The arrear wage payments were made in view of the so called bipartite settlement dated 24.11.2009 entered into before the Additional Labour Commissioner, West Bengal. The appellant has furnished a copy of the memorandum of settlement. This memorandum of settlement was entered into between the contractors engaged but M/s. Haldia Petrochemicals Ltd. at their plant at Haldia (including the appellant) and their workman represented by Haldia Petrochemicals Ltd. Servicing and .....

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e appellant has also furnished a copy of letter dated 14.01.2010 (in Bengali) purportedly returned by the General Secretary of the Workers Union to the appellant requesting that the payments be made in cash since the labourers do not have bank account with the warning that the appellant s business could face problems if request was not heeded to. The appellant has not explained as to how this request letter could override the elaborate memorandum of settlement entered into by various contractors .....

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has not been established during the assessment proceedings or the appellate that the appellant or the workers were not covered by banking facilities. Hence, I hold that the appellant was not compelled by any unavoidable circumstances to make the payments to the workers otherwise than by a account payee cheques. The appellant has not been able to show that his case is covered any of cases and circumstances listed under Rule 6DD. Hence it is held that the Assessing Officer correctly disallowed th .....

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end of justice the addition of ₹ 29,42,357/- should be deleted. Shri Miher Bandhopadhay, Ld. Authorized Representative appearing on behalf of assessee and Shri Anjan Prasad Ray, Ld. Departmental Representative appearing on behalf of Revenue. 5. We have heard rival contentions of both the parties and perused the materials available on record. Ld. AR submitted paper book running in pages from 1 to 82 and contented that there was a bi-partite settlement on dated 24- 11-2009 with the labour f .....

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e the hindrances in the work shall continue. The situation for the assessee was beyond control to handle the business so he finally issued bearer cheques in the name of the respective labour for the payment of wages. The assessee was forced to issue bearer cheque in lieu of account payee cheque due to abnormal and unavoidable circumstances. The ld. AR further submitted that the exception provided in rule 6DD is not exhaustive and it was the need of the situation for the purpose of business exped .....

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ment in cash in the exception provided in rule 6DD of Income Tax Rules 1962. However we find that there is no such exception in rule 6DD for allowing the payment in cash in the circumstances discussed above. We find the from the assessment year 2009-10, the earlier ceiling of ₹ 20000.00 for cash payment per transaction has been amended. Now the ceiling of ₹ 20000.00 will be aggregate in one day of all such transactions. The list provided under rule 6DD is exhaustive and not inclusive .....

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the revenue. It will be pertinent to go into the intention behind introduction of provisions of section 40A(3) of the Act at this juncture. We find that the said provision was inserted by Finance Act 1968 with the object of curbing expenditure in cash and to counter tax evasion. The CBDT Circular No. 6P dated 06.07.1968 reiterates this view that this provision is designed to counter evasion of a tax through claims for expenditure shown to have been incurred in cash with a view to frustrating pr .....

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xcept 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 .....

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the Assessing officer the circumstances under which the payment in the manner prescribed in section 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. Rule 6DD provides that an assessee can be exempted from the requirement of payment by a crossed cheque or crossed bank draft in the circumstances specified under the rule. It will be clear from the provisions of section 40A(3) a .....

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ons, rate of gross profit or the fact that the bonafide of the assessee that payments are made to producers of hides and skin are also neither doubted nor disputed by the AO. On the basis of these facts it is not justified on the part of the AO to disallow 20% of the payments made u/s 40A(3) in the process of assessment. We, therefore, delete the addition of ₹ 17,90,571/- and ground no.1 is decided in favour of the assessee. CIT vs Crescent Export Syndicate in ITA No. 202 of 2008 dated 30. .....

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ng made by bearer cheque these goods could not have been procured and it would have hampered the supply of goods within the stipulated time. Therefore, the genuineness of the purchase has been accepted 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 wa .....

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ative 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 disallowance under section 40A (3) was to be made in respect of payment made to principal - Held, yes [Paras 21 to .....

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centives and discounts - Further, seller also issued certificate in support of this - Whether since assessee had placed proof of payment of consideration for its transaction to seller, and later admitted payment and there was no doubt about genuineness of payment, no disallowance could be made under section 40A(3) - Held, yes [Para 23] [In favour of the assessee] CIT vs Smt. Shelly Passi reported in (2013) 350 ITR 227 (P&H) In this case the court upheld the view of the tribunal in not applyi .....

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ax and inculcating the banking habits. Therefore, the consequence, which were to befall on account of non-observation of section 40A(3) must have nexus to the failure of such object. Therefore, the genuineness of the transactions it being free from vice of any device of evasion of tax is relevant consideration. In the instant case, the labours were paid by the bearer cheque only in their respective name only. 5.4. The Hon ble Apex Court in the case of CTO vs Swastik Roadways reported in (2004) 3 .....

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h provisions intended for preventing the tax evasion with the object of provision before the consequence can be inflicted upon the defaulter. The Hon'ble Supreme Court has opined that the existence of nexus between the tax evasion by the owner of the goods and the failure of C & F agent to furnish information required by the Commissioner is implicit in section 57(2) and the assessing authority concerned has to necessarily record a finding to this effect before levying penalty u/s 57(2). .....

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