TMI Blog1999 (8) TMI 61X X X X Extracts X X X X X X X X Extracts X X X X ..... lls the same to customers. During the year ending on March 31, 1996, she was appointed as a dealer by Sarvaraya Sugars Pvt. Ltd., which was a bottler on behalf of Coca Cola. According to the petitioner, the business being a petty business, the payments were being made in cash as per the bills issued from time to time. In the return filed for the year 1996-97, she declared income at Rs. 43,368 and total sales at Rs. 43,17,213 out of which an amount of Rs. 37,22,399 was paid to Sarvaraya Sugars Pvt. Ltd., which includes payment of Rs. 34,16,291 in cash. Since the cash payments exceeded Rs. 20,000 at a time, the Assessing Officer under section 40A(3) of the Act added 20 per cent. of the amount paid in cash, i.e., Rs. 6,83,258, as the income of the assessee and assessed her to tax on a total income of Rs. 7,26,630 and determined the tax with interest under section 234B of the Act at Rs. 4,39,288 minus the pre-paid tax of Rs. 245. The assessee unsuccessfully claimed that the cash transactions are genuine and are allowable expenditure under the Act. Sri Y. Ratnakar, Counsel for the petitioner contended that the provisions of section 40A(3) of the Act, as amended by the Finance Act of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nature of the transactions. Learned senior standing counsel for income-tax, repelling the pleas so raised, contended that the amendment brought in is well within the legislative competence of Parliament and is intended to curb the circulation of black money in the business. Before we delve into the merits of the contentions raised, it is apposite to notice sub-section (3) of section 40A of the Act as it now stands: "(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 twenty thousand rupees otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft, twenty per cent, of such expenditure shall not be allowed as a deduction.... Provided further that no disallowance under this sub-section 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 such cases and under such circumstances, as may be prescribed having regard to the nature and ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in this contention. Section 40A(3) must not be read in isolation or to the exclusion of rule 6DD. The section must be read along with the rule. If read together, it will be clear that the provisions are not intended to restrict the 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 or crossed bank draft. The payment by crossed cheque or crossed bank draft is insisted on to enable the assessing authority to ascertain whether the payment was genuine or whether it was out of the income from undisclosed sources. The terms of section 40A(3) are not absolute. Considerations of business expediency and other relevant factors are not excluded. Genuine and bona fide transactions are not taken out of the sweep of the section. It is open to the assessee to furnish to the satisfaction of 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 ide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not provide for exceptions to be prescribed by the rule-making authority in appropriate cases having due regard to the factors set out in the proviso to sub-section (3). The mere fact that the rule-making authority did not retain the old rule, does not make the main section itself unconstitutional. Moreover, to what extent exceptions could be provided to the operation of the general rule conceived in public interest to curb tax evasion is primarily for the rule making authority to judge. We cannot, therefore, accept the argument of learned counsel for the petitioner. In Union of India v. A. Sanyasi Rao [1996] 219 ITR 330, the Supreme Court while considering the validity of the provisions under section 44AC and 206C of the Act on the touchstone of article 14 of the Constitution, held : " The relevant entry therein (taxes on income other than agricultural income) should be liberally construed. There were sufficient materials before Parliament to hold that due to very many causes, income from certain trades could not be brought to tax and there was large scale evasion. The sufficiency of the material in that regard is not open to scrutiny by the court. All that is envisaged in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing authority are no longer available by reason of deletion of old rule 6DD(j). But that by itself does not make section 40A(3) arbitrary and unconstitutional. One cannot plead ignorance of law and make cash payments contrary to law. It is too late in the day to accept any such proposition. Furthermore, in the present day banking scenario, the mode of payment by way of crossed cheques or demand drafts cannot be said to be an onerous duty cast on an assessee, which can be made a foundation for attacking the validity of the said section. Therefore, it is not open for attacking the provision as violative of any provision of the Constitution. There is no arbitrariness or discrimination in the said provision warranting interference by this court under the circumstances. In view of the above there are absolutely no merits in the challenge made as to the validity of section 40A(3) of the Act by mere deletion of sub-clauses (1) and (2) of rule 6DD(j). The said provision is perfectly valid and we may hasten to add that the deletion of sub-clauses (1) and (2) of rule 6DD(j) is only a step forward in the achievement of the avowed object envisaged under section 40A(3) of the Act. The wri ..... X X X X Extracts X X X X X X X X Extracts X X X X
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