TMI Blog1997 (3) TMI 36X X X X Extracts X X X X X X X X Extracts X X X X ..... L. C Ltd.). One Nagappa Chettiar was the chairman of the assessee and he was also the managing director of I. L. C. Ltd. The assessee has a tannery, but it had no purchasing centres or set up other than I. L. C. Ltd. The said 1. L. C. Ltd. has not only purchased goat skins on behalf of the assessee, but also supplied on its own to the assessee. The assessee did further processing of goat skins which came to it at semi-processed stage from other sister concerns through I. L. C. Ltd. The purchases of raw skins were largely from shandies and the purchases from shandies have been made on payment of cash by I. L. C. Ltd. The upcountry tanneries who bought good exportable items for sale expect ready cash and 1. L. C. Ltd. was keeping substantial cash in its hands to meet such contingencies and cheques were rarely accepted. The assessee and I. L. C. Ltd. had bank accounts in the same branch and both the companies had overdraft facilities. The assessee as well as I. L. C. Ltd. thought that the issue of cheque and encashment of the same would delay the process of purchase, because of the existing overdraft and hence payment of cash was made by the assessee. The Income-tax Officer, on perusa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce Nagappa Chettiar was the chief executive in both the concerns, the payments by self-cheques should be regarded as payments by cheque. The Commissioner of Income-tax (Appeals) did not accept this contention of the assessee holding that the payments made were not by cash. He, however, agreed that the assessee's case would fall under sub-rule (j) of rule 6DD of the Income-tax Rules on the ground that the genuineness of the payments and the identity of the payee were not disputed. The Commissioner of Income-tax (Appeals) also held that it was not practicable to pay by crossed cheques on every occasion and there was trade necessity to keep cash in hand for immediate cash purchases. According to the Commissioner of Income-tax (Appeals), payments through crossed cheques would delay the business operation and having regard to the nature of the relationship between the assessee and the payee and the need for keeping the cash by the seller who was under the same management and who was acting on behalf of the assessee for both the purchases and export sales, the Commissioner of Income-tax (Appeals) held that the requirements of rule 6DD were satisfied and, hence, the entire payment of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to him, where the assessee and the payee are keeping accounts in the same bank, issue of crossed cheque by one to another would not delay the encashment of the cheque. The other reason given by the Tribunal is that both the companies are having overdraft facilities and according to learned counsel, existence of overdraft facilities in the same branch would not have any effect on the encashment of the crossed cheque. Hence, he submitted that the -findings arrived at by the Appellate Tribunal that the existence of the payee is established and hence, it could not be the subject-matter of disallowance under the provisions of section 40A(3) of the Income-tax Act is erroneous in law. Mr. S. V. Subramaniam also submitted that under sub-rule (f)(ii) of rule 6DD of the Income-tax Rules, it must be a purchase of animal husbandry including hides and skins and, therefore, the rule contemplates only purchase of animal husbandry, that is, raw hides and skins and it does not include semi-dressed or dressed hides and skins. He, therefore, submitted that the Tribunal was not correct in holding that the provisions of rule 6DD(f)(ii) of the Income-tax Rules, were complied with. Mr. Janarthana Raj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s issued certain guidelines giving certain circumstances, and those circumstances are illustrative and not exhaustive and the underlying idea of the circular is that if the identity of the payee is known, it would be possible for the Income-tax Officer to cross-check whether the transaction had in fact taken place. The Tribunal took into account the commercial need in keeping cash and referred to the need for keeping cash for making purchases of raw skins from shandies when the upcountry tanneries insist upon payment of ready cash. It was also found that the cheques were rarely accepted. It is no doubt true that the payee is having a bank account in the same branch in which the assessee is having a bank account. But, working hours of the bank are of limited duration. Though both the payee and payer may have accounts in the same branch of the bank, but it may not be possible to issue a crossed cheque after the banking hours. Further, the criticism of Mr. S.V. Subramaniam is that the assessee could have made payments in advance in anticipation of purchase. It is well established that it is not for the Revenue to dictate as to how the assessee should carry on his business. The Appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cause unnecessary hurdles in the proper conduct of the business, it would be a relevant factor in considering the applicability of the provisions of section 40A(3) of the Income-tax Act and rule 6DD of the Income-tax Rules. The insistence on cash payment by the payee where such payee is identifiable and the payment is genuine and is made on business expediency would be sufficient enough not to make any disallowance because the payment was made in cash. The Allahabad High Court in CIT v. Ram Agya Shyam Narain [1991] 189 ITR 470 held that such a finding of the Tribunal is a finding of fact. The Punjab and Haryana High Court in the case of CIT v. Brij Mohan Singh and Co. [1994] 209 ITR 753, held that the finding arrived at by the Tribunal on the facts of the case that the provisions of section 40A(3) of the Act were fully satisfied is a finding of fact. We have noticed that the Tribunal has taken note of the relevant factors and found that the payments were duly accounted for in the accounts of the assessee as well as in the accounts of the payee. The Tribunal has taken into account the trading practice and need for keeping cash and found that the identity of the payee was established ..... X X X X Extracts X X X X X X X X Extracts X X X X
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