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TMI Blog2019 (11) TMI 647X X X X Extracts X X X X X X X X Extracts X X X X ..... confirming the addition of Rs. 9227520/- on account of purchases u/s 40A(3) of the Income Tax Act 1961 being cash payments to three parties whereas the payments were genuine and bona fide and made at the insistence of the creditors due to business expediency and are out of the sweep of section as per proviso to Sec 40A(3). (b) Without prejudice to above the appellant disputes that the quantum of addition confirmed is on higher side. 4.(a) That the ld CIT(A) is not justified in dismissing the ground of appeal regarding disallowance of depreciation of Rs. 71850/- on Motor Lorry due to difference in cost price amounting to Rs. 239500 on motor lorry by holding that no arguments or explanation was given at the appellate stage whereas the arguments and explanations were duly given in written submissions and it is explained that the difference in price is due to insurance and registration charges, which are in addition to cost of lorry. (b) Without prejudice to above the appellant disputes that the quantum of addition confirmed is on higher side." Difference in License Fee- Addition u/s 43B: 3. As per the P&L account, the assessee has shown the payment of license fees as unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pur vend, this amount has been paid in protest by the assessee as per the demand made by the Excise authorities otherwise the assessee would stand loosing the opportunity of applying the tender for continuation of the license of the vend. 8. On the other, the ld. DR vehemently relied on the orders of the revenue. 9. Heard the arguments of both the parties and perused the material available on record. The undisputed facts are as under: * Letter dated 10.01.2013 confirmed short deposit of Rs. 7,26,450/- * Letter dated 18.02.2013 confirmed the short deposit of Rs. 8,47,000/- * Letter dated 18.02.2013 confirmed total deposit of Rs. 74,23,63,400/- * Amount claimed in P&L a/c of Rs. 74,32,10,400 * The difference is about Rs. 8,47,000/- * As per the letter dated 11.05.2010, the Excise authorities confirmed the payment of Rs. 74,32,10,400/- * There was no outstanding balance payable as per the balance sheet. 10. The Provisions of Section 43B reads as under: Certain deductions to be only on the actual payment. "43B. Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable7 under this Act in respect of- 10[(a) any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by him.]" 11. In the reading of the provisions of the Act, the deduction on account of Excise duty is allowable only on the basis of actual payment. From the records, it can be gauged that the assessee has paid an amount of Rs. 74,32,10,400/- and claimed the same in the P&L account. This fact of payment of Rs. 74,32,10,400/- has been confirmed by the Excise authorities vide letter dated 11.05.2010. The balance sheet does not reflect any outstanding payments by the assessee. Hence, keeping in view, the entirety of the fact, we hereby allow the payment made by the assessee on account of Excise duty as confirmed by the Excise authorities. The appeal of the assessee on this ground is allowed. 12. The Assessing Officer has made an addition of Rs. 92,27,520/- as per the provisions of section 40A(3) on account of cash payments to three parties namely, 1. M/s Skol Breweries Ltd. 2. M/s Ashoka Distillers & Chemicals Pvt. Ltd. 3. M/s Allied Blenders & Distillers Pvt. Ltd. 13. The Assessing Officer held that the case of the assessee is not covered under rule 6DD(j) of IT Rules. The exceptions laid out specially do not apply to the facts of the case. The ld. CIT (A) confirmed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t) would be allowed to be deducted only if made by a crossed cheque or crossed bank draft (except 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 or crossed bank draft. The payment by crossed cheque or crossed bank draft is insisted upon to enable the assessing authority to ascertain whether the payment was genuine or whether it was out of income from undisclosed sources. The terms of section 40A(3) are not absolute. Consideration 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) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pute that the purchases were genuine." Anupam Tete Services vs ITO in (2014) 43 Taxmann.com 199 (Guj) "Section 40A(3) of the Income-tax Act, 1961, read with rule 6DD of the Income-tax Rules, 1962 - Business disallowance - Cash payment exceeding prescribed limits (Rule 6DD(j)-Assessment year 2006- 07 - Assessee was working as an agent of Tata Tele Services Limited for distributing mobile cards and recharge vouchers - Principal company Tata insisted that cheque payment from assessee's co-operative 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 23] [in favour of the assessee]" Sri Laxmi Satvanaravana Oil Mill vs CIT reported in (2014) 49 taxmann.com 363 (Andhra Pradesh High Court) "Section 40A(3) of the Income-tax Act, 1961, read w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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). Though in the instant case, the issue involved is not with regard to the levy of penalty, but the requirement of law to be followed by the assessee was of as technical nature as was in the case of Swastik Roadways (3 SCC 640) and the consequence to fall for failure to observe such norms in the present case are much higher than which were prescribed under the Madhya Pradesh Sales Tax Act. Apparently, 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 invite such a consequence. We hold that the purpose of section 40A(3) is only preventive and to check ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the agent of Hutchison Essar Ltd and not the assessee as could be seen very clearly from the Associate Distributor Agreement entered into by the assessee which is on records before us and before the lower authorities. Hence, the payment made by the assessee to Shri Arnit Dutta would not fall under the exception clause of Rule 6DD(k). 4.9. We find that one of the grounds raised by the assessee is violation of principles of natural justice on the part of the Learned CIT(A) to enhance the assessment without giving enhancement notice to the assessee. But from the order of the Learned CITA, it is specifically mentioned that the assessee was given due opportunity and show cause notice for enhancement of assessment by Rs. 54,01,473/- for making further additions on account of section 40A(3) of the Act. We find that the assessee had not come on any affidavit before us refuting this finding. Hence the enhancement made by the Learned AO cannot be faulted with on violation of principles of natural justice. 4.10. In view of the aforesaid facts and circumstances and respectfully following the judicial precedents relied upon hereinabove, we have no hesitation in deleting the addition made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f banking facilities available, consideration of business expediency and other relevant factors. It is not in dispute that assessee-company was engaged in the business of liquor trading and obtain supplies from the breweries. The amounts in question have been tabulated above showing the extent of amounts paid in cash. These payments are made to the distillers and breweries. The nature of business of assessed shown the expediency of payment of cash to meet the requirements of the suppliers for payment of Excise duty and clearing of cheques by the suppliers. The authorities below have not doubted the identity of the payee and the genuineness of the transaction in the matter. The source of payment is also not been doubted by the authorities below. Hence, we accordingly, set aside the orders of the authorities below and delete the addition made u/s 40A(3). Disallowance of Depreciation - Motor Lorry 21. We find that the Assessing Officer and the ld. CIT (A) have disallowed the claim as the assessee could not produce any bills for allowance of such expenditure. Even before us, the assessee did not produce any evidence in support of their claim. Hence, we decline to interfere with the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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