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TMI Blog2019 (9) TMI 1228X X X X Extracts X X X X X X X X Extracts X X X X ..... 0A(3) of the Act. 3. That ld. Commissioner of Income Tax (Appeals)-7, Kolkata erred in confirming estimated additions of Rs. 2,58,086/- made by ld. A.O. out of purchases from the 13 parties. 4. That the ld. Commissioner of Income Tax (Appeals)-7, Kolkata, erred in confirming the addition of Rs. 46,972/- and Rs. 62,284/- made by ld. A.O. being estimated 5% of the amount spent on carriage and wages. 5. That the ld. Commissioner of Income Tax (Appeals)-7, Kolkata erred in confirming the addition of Rs. 3,56,114/- made by ld. A.O. being estimated 5% of the amount spent on transportation charges. 6. I crave leave to add, alter, amend or withdraw any grounds of appeal on or before the date of hearing. 3. Ground No.1 and 2 raised by the assessee relate to addition made by ld. A.O. u/s 40A(3) of the Act on account of payment in cash Rs. 5,00,000/-. 4. Brief facts qua the issue are that during the assessment proceedings, the Assessing Officer noticed that the assessee had made cash payment of Rs. 5,00,000/- to M/s Mahima Alekha Coal Traders on 30.04.2009. The information was called for u/s 133(6) of the Act by the assessing officer from various creditors. The AO issued lette ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are not excluded. The genuine and bona fide transactions are not taken out of the sweep of the section. The ld. Counsel further pointed out that on the date of payment, the party, namely M/s Mahima Alekha Coal Traders insisted the assessee to make the payment in cash. In order to run the business, the assessee did not have any other option but to make cash payment.At the first instance, the assessee made demand draft of the bank to make the payment through banking channel only, however, M/s Mahima Alekha Coal Traders refused to take the bank draft (vide PB-13). Therefore, the ld. Counsel submitted that at the request of the party the assessee has cancelled the demand draft of Rs. 5,00,000/- and made the cash payment of Rs. 5,00,000/- (PB- 13, vide bank statement and ledger account), hence it is a genuine business payment and should be allowed. 7.On the other hand, the ld. DR for the revenue submitted before us that ignorance of law is no excuse, and therefore provisions of section 40A(3) should be followed strictly. The ld DR has primarily reiterated the stand taken by the assessing officer and prayed the Bench that addition made by AO should be upheld. 8. We have heard both ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mahima Alekha Coal Traders, but he refused to take bank draft therefore in order to run the business the assessee did not have any option but to make payment in cash. Had the assessee not been paid cash to M/s Mahima Alekha Coal Traders, his business would have been stopped or restricted to that extent. The purpose of section 40A (3) is not to restrict the assessee`s genuine business activity. 10. At this juncture, it is appropriate to go through the CBDT Circular No. 6-P dated 6.7.1968 explaining the purpose behind introduction of section 40A(3) of the Act which reads as under:- "Expenditure incurred in businesses and professions for which payment is made in an amount exceeding Rs. 2,500/-, otherwise than by a crossed cheque drawn on a bank or a crossed bank draft 76. Sub-section (3) of new section 40A makes a provision for the disallowance of expenditure incurred in businesses and professions for which payment is made in an amount exceeding Rs. 2,500/- , otherwise than by a crossed cheque drawn on a bank or a crossed bank draft. This provision will apply in respect of payments made after a date to be notified by Government, being a date not later than 31-3-1969. This prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther the payment was genuine or whether it was out of the income from disclosed sources. The terms of section 40A(3) are not absolute. Consideration 6r business expediency and other relevant factors are not excluded. The genuine and bona fide transactions are not taken out of the sweep of the section. Itis 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 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) and rule 6DD that they are intended to regulate the business transactions and to prevent the use of unaccounted money or reduce the chances to use black money for business transactions. - Mudiam Oil Co. v. ITO [1973] 92 ITR 519 (AP). If the payment is made by a crossed cheque on a bank or a crossed bank draft, then it will be easier ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (c). Estimated 5% spent on Transport charges Rs. 3,56,114/- 11. At the outset itself the ld. Counsel for the assessee submitted that the assessee's books of accounts were not rejected by the AO. Although, thereassessment was framed u/s 147/144 of the Act and the assessee submitted the books of accounts and details, therefore without rejecting the books of accounts the ad hoc disallowance should not be made. However, per contra the ld. D.R. for the revenue submitted before us that since the assessee has not submitted explanation for various expenses and there is always personal element in these expenses therefore the Assessing Officer did not have any option but to make estimated disallowance. Therefore, the order of Assessing Officer should be upheld. 12. We have heard both the parties and perused the material available on record. We note that the Assessing Officer did not find any mistake in the books of accounts and he did not examine the expenditure item wise therefore without rejecting the books of accounts, the ad hoc disallowance is not warranted. We note that the AO could have ventured into estimation only after rejecting the books of accounts of the assessee u/s 145 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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