TMI Blog2018 (4) TMI 998X X X X Extracts X X X X X X X X Extracts X X X X ..... be evidenced. Subject to this factual verification, we approve the assesee’s claim, i.e., in principle. The burden to prove its’ return, and the claims preferred thereby, is only on the assessee (CIT v. Venkataswamy Naidu - (1956 (2) TMI 3 - SUPREME Court). AO shall, accordingly, adjudicate the matter, issuing definite findings of fact, on the basis of the material on record, and after allowing the assessee a reasonable opportunity to substantiate its’ case. Disallowance being 1/7th of the total expenditure under several heads of expenditure, viz. entertainment; langer; festival expenses; labour welfare; etc., incurred in cash and supported by self-made vouchers - Held that:- We find some merit in the case of either party. An expenditure does not become un-genuine merely because it stands incurred in cash. At the same time, cash expenditure per self-made vouchers is not amenable to verification. The two considerations are to be balanced, and the Revenue’s case, as we understand, is one of inflation (of expenditure), which it estimates at 1/7th of the total expenditure. We direct it at 1/10th, and the Revenue gets part relief. Disallowance at the rate of 1/5th of expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d gains of business or profession . ( 2) . ( 3) Where the assessee incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds twenty thousand rupees, no deduction shall be allowed in respect of such expenditure. ( 3A) 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 by 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 payment or aggregate of payments made to a person in a day, 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 sub-section (3) and this sub-section where a paymen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision. In the view of the AO, while the consignments could possibly take up to three days for delivery, that beyond the said period is only with a view to eschew section 40A(3), i.e., does not correspond with the business reality. Accordingly, payments ostensibly made third day onwards were considered as having been made on the third day itself, and exceeding ₹ 35,000, disallowed. Further, the payment on the first day was considered as made, firstly, toward toll, and the balance only toward freight. The payment third day onwards was thus wholly toward freight, as against being at 83 per cent thereof, as contended by the assessee. The disallowance u/s. 40A(3) was effected accordingly. In first appeal, the assessee found favour with the ld. CIT(A) on the basis that section 40A(3) is not absolute in its terms, and that considerations of business expediency and relevant factors are not excluded. It was thus open for the assessee to justify the circumstances under which the payment was not practicable, or would have caused a genuine difficulty to the payee, even as noted by the Hon'ble Apex Court in Attar Singh Gurmukh Singh [1991] 191 ITR 677 (SC), to which, as also to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... courage transmission of funds having income implication - one man s expenditure being the other man s income , through the banking channel. How could then, one may ask, its terms, which are plain, be construed to mean that it bars only non-genuine expenditure, so as to hold that it shall not apply where the genuineness (of the expenditure) is not in doubt. The section, clearly, has nothing direct to do with the genuineness of the expenditure, but is only a fiscal measure regulating the mode of payment (of a genuine expenditure), with the view to facilitate the identification of the money trail and verification of the reporting of income in its respect. A non genuine payment/expenditure, as afore-noted, stands ousted at the threshold, i.e., even otherwise, and without recourse to section 40A(3). It is then said that the cash payment/s under reference has been accepted as genuine, or its genuineness has not been doubted and, therefore, section 40A(3) cannot hold, little realizing that it is only on that basis, i.e., payment of an otherwise genuine and, thus, allowable expenditure in cash (i.e., other than through the banking channel per the prescribed mode/s) that the disabling p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e limit of ₹ 35,000 (per day) for freight payments is itself a departure from the norm of ₹ 20,000 (scaled down to ₹ 10,000 per day from AY 2018-19 onwards), considering the requirement of the trade. Further, all this, again, dispels any doubt, if any, of the provision being applicable only to non-genuine expenditure / payments, a consideration / factor sought to be introduced. Reference in this regard may be made to the decision by the Special Bench of the Tribunal in ITO v. Kenaram Saha Subash Saha [2008] 116 ITD 1 (Kol)(SB), paras 13.3 15 of which containing the gist of the decision, we reproduce as under for ready reference: From the plain reading of s. 40A(3) itself it is evident that it would be applicable where the assessee incurs any expenditure exceeding ₹ 20,000 otherwise than by a crossed cheque or by a crossed bank draft. In such circumstances, 20 per cent of such expenditure shall be disallowed. There is no ambiguity in the language of s. 40A(3) and, therefore, the section is to be interpreted by giving literal meaning to the language used in the section itself. In view of the above, the purpose behind the enactment of s. 40A(3) is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for a constitutional Court to examine and declare in appropriate proceedings before it. Given the constitutionality of the provision, the same has to be read on its terms, even as the explained by the Hon'ble Apex Court in IPCA Laboratory Ltd. v. Dy. CIT [2004] 266 ITR 521(SC) in the context of a beneficial provision, i.e., s. 80HHC. The law of interpretation of statutes is clear, as clarified once again by it in Ajmera Housing Corporation vs. CIT [2010] 326 ITR 642 (SC) in the following words: A taxing statute is to be construed strictly; in a taxing statute one has to look merely at what is said in the relevant provision. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. There is no room for any intendment. There is no equity about a tax. In interpreting a taxing statute the court must look squarely at the words of the statute and interpret them. Considerations of hardship, injustice and equity are entirely out of place in interpreting a taxing statute. Reference in this regard may also be made to CIT vs. Calcutta Knitwears [2014] 362 ITR 673 (SC), clarifying that the foremost principle of interpretation of fiscal statutes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here the same operate to defeat the very purpose of or the object that the provision stands to achieve/attain. In fact, we observe no exceptional or unavoidable circumstance, nor any stands even contended at any stage, including impracticability or genuine difficulty; the assessees s case throughout being of genuineness of expenditure . Genuineness of expenditure or genuineness of payment thereof are, as afore-stated, prerequisites for deduction of an expenditure in computing income, which falls to be considered even de hors and independent of section 40A(3), which only seeks to regulate its mode of payment. Why, would a non-genuine expenditure stand to be allowed where paid in cash in installments which do not breach the prescribed limit or paid per account payee cheque (drawn on a bank) or a bank draft? Recent demonetization of November, 2016 has brought forth the fact of currency in circulation in Indian economy, as a ratio of GDP, as one of the highest in the world. The latest scaling down of the limit u/s. 40A(3), referred to earlier, could possibly have been guided by those and such like considerations, besides of course promoting payment through the banking sector/electro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... drawing on consideration of genuineness of expenditure or of a business exigency, not specifically provided, i.e., given the clear terms of the provision, which has had a long journey, and which is itself indicative of the legislative intent, and relevant. That a decision by a non-jurisdictional High Court is even otherwise not a binding precedent for the Tribunal, is well settled (refer: Suresh Desai Ass. v. CIT [1998] 230 ITR 912 (Del); Geoffery Manners Co. Ltd. v. CIT [1996] 221 ITR 695 (Bom); CIT v . Thane Electricity Supply Ltd. [1994] 206 ITR 797 (Bom); Patil Vijayakumar v. Union of India [1985] 151 ITR 48 (Kar)). There are, on the contrary, decisions galore, rendered during the long history of the provision, clarifying that, save as provided u/r. 6DD, the breach of the monetary limit for cash (or other than the prescribed modes of) payment would attract the rigor of s. 40A(3). In fact, several, including two by the Hon ble jurisdictional High Court, were referred to by the Hon ble Apex Court in Attar Singh Gurmukh Singh (supra) (at page 674 of the Reports). There is in fact abundant reference to case law by the special bench of the tribunal in Kenaram Saha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acceptance as, clearly, the delivery to the BKOs could be over days, extending beyond a single day. Besides, an assessee is entitled to arrange his affairs in a manner that the rigor of the provision is avoided. The AO s stance that it cannot be accepted that each payment would comprise toll and freight to the extent of 17% and 83% respectively, i.e., the same ratio as obtains in the aggregate payment for the year, as canvassed by the assessee before her, is also to be upheld. Each consignment would, firstly, have a different ratio, and being a matter of fact, the toll and freight payment would have to be adopted as obtaining for that consignment. Two, there is no reason for not reimbursing the toll amount in the first instance, except where there is a doubt with regard to the payment itself or (say) shortage of cash on that date. Payment of toll, even if in excess of ₹ 20,000 per day, would stand excepted u/s. 40A(3) read with rules 6DD (b), which reads as under: (b) Where the payment is made to the Government and, under the Rules framed by it, such payment is required to be made in legal tender; Further, the AO s stand that the payment, even if staggered over the ti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . entertainment; langer; festival expenses; labour welfare; etc., incurred in cash and supported by self-made vouchers, so that the expenditure was not fully verifiable. Relief stands allowed by the first appellate authority on the ground that no specific defect stands pointed out by the AO. The Revenue s grievance is that it has not been appreciated that the expenditure stands incurred in cash per self-made vouchers, so that it is not fully verifiable. Like contentions were raised before us. We find some merit in the case of either party. An expenditure does not become un-genuine merely because it stands incurred in cash. At the same time, cash expenditure per self-made vouchers is not amenable to verification. The two considerations are to be balanced, and the Revenue s case, as we understand, is one of inflation (of expenditure), which it estimates at 1/7th of the total expenditure. We direct it at 1/10th, and the Revenue gets part relief. 8. Ground 3 is toward disallowance for ₹ 92,000/-, at the rate of 1/5th of expenditure on vehicles, viz. repair and maintenance, depreciation, etc., on account of personal, i.e., non-business user, which could not be denied in the abs ..... X X X X Extracts X X X X X X X X Extracts X X X X
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