TMI Blog2020 (1) TMI 683X X X X Extracts X X X X X X X X Extracts X X X X ..... the mining activities had been banned in the State of Haryana and the assessee had no other option but to buy construction material from State of Rajasthan where the suppliers and stone crushing units had insisted on cash payments at the time of delivery of material. Further, as held by the Hon'ble Rajasthan High Court in case of Smt. Harshila Chordia [ 2006 (11) TMI 117 - RAJASTHAN HIGH COURT] the consequences, which were to befall on account of non-observation of sub-section (3) of section 40A must have nexus to the failure of such object. Therefore the genuineness of the transactions and it being free from vice of any device of evasion of tax is relevant consideration for which section 40A(3) has been brought on the statute books and which has been satisfied in the instant case. Addition u/s 68 - addition for the reason that the creditworthiness of creditors have not been established and hence, he has confirmed the additions so made by the AO - HELD THAT:- We find that these three persons have appeared before the Assessing officer and have confirmed the transaction of advancing the money to the assessee and during the appellate proceedings, their confirmations along wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... areas where there is no banking facility and the suppliers do not accept the cheque payments and the assessee has to make payment in cash due to compelling circumstances. It was further submitted that there was complete ban on the mining in the State of Haryana since 2010 and the assessee had to purchase the grit, stone dust from the State of Rajasthan and the business of assessee s firm is mainly in the state of Haryana and the suppliers do not accept payment through cheque hence the assessee firm was under business compulsion to complete the work in a time bound manner and therefore, had to make the purchases in cash. The submissions so filed by the assessee were considered however, not found acceptable to the Assessing Officer. Firstly, the Assessing Officer observed that on various dates, the assessee has made payment through RTGS therefore, the payment so made by the assessee in cash could have been made through RTGS. Further, the Assessing Officer observed that on perusal of the photocopies of the cheques issued by the assessee firm, it reveals that the cheques so issued were self cheque without any mention of name of the party and the account number of the party and theref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pite adequate opportunity was accorded to it. Without prejudice to the above, additional evidences in the form of certificates from the Sarpanch of Gram Panchayats have been verified by the Inspector of this office. The Inspector of this office has submitted his report stating that the Gram Panchyats under consideration does not have any bank branch within the geographical territory of the Panchayats. Therefore, the additional evidences submitted by the assessee during the appellate proceedings may be entertained on merits. Further, the Assessing officer has issued another remand report on 28.09.2017 and in the said remand report has stated in para 3 as under: 3. However, clause (g) of Rule 6DD of Income Tax Rules, 1962 states that -'where the payment is made in a village or town, which on the date of such payment is not served by any bank, to any person who ordinarily resides, or is carrying on any business, profession or vocation, in any such village or town'. The provisions of the Income Tax Act were available to the assessee ab-initio. The assessee was given sufficient time to submit such evidences during the course of assessment proceedings and it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on merits. 5. The ld. CIT(A), after considering the submissions of the assessee and the remand reports of the Assessing Officer, has given a finding that the banking facility was not available in the Gram Panchayat area wherein the payment made shown by the assessee but the Assessing officer has categorically mentioned in the remand report that banking facility is available nearby 2-3 KMs from the gram panchayat and in the modern, 2-3 Kms distances doesn t mean anything. Further, he held that since certain payments have been made through RTGS, the argument of banking facility not available doesn t arise because the recipient have got the bank account for receiving the payment. Accordingly, he upheld the finding of the Assessing Officer. Against the said findings of the ld. CIT(A), the assessee is now in appeal before us. 6. During the course of hearing, the ld. AR referring to the provisions of Section 40A(3) of the Act submitted that the intent of bringing the said provisions was to curb the black money but genuineness of transaction, business expediency and genuine hardship has also been kept as relevant consideration by way of above provision. It was submitted that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld. CIT(A), it was submitted that the Rules are very clear in its language and cannot be given any other interpretation as there is no ambiguity and therefore, does not matter if there is a banking facility situated 2-3 Kms outside the village as there is no banking facility in the village where the payment is made, the condition so specified in Rule 6DD are fulfilled and both the lower authorities therefore, erred in wrongly interpreting the said provision. 8. It was further submitted that neither the AO nor ld. CIT(A) has doubted the genuineness of payment made to suppliers in respect of goods purchased by the assessee or the identity of the suppliers as the Assessing Officer as himself stated in the assessment order that the payment are made to the renowned suppliers. 9. It was further submitted that as the mining activities had been banned in the State of Haryana, assessee had no other option but to buy construction material from State of Rajasthan as the transport of grit is very expensive and to buy raw material from any other state would have increased the cost substantially. Increase in cost is a major factor because in this competitive world, a lot of tenders are fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ituated in backward areas and is not having banking facility. It was submitted that the said decision has subsequently been affirmed by the Hon ble Rajasthan High Court (in DB ITA No. 38/2017 dated 20.11.2017) and the SLP filed by the Department has been dismissed by the Hon ble Supreme Court. 13. Further, reliance was placed on the Hon ble Rajasthan High Court decision in case of Harshila Chordia vs. ITO 208 CTR 208 wherein it was held that exceptions contained in Rule 6DD are not exhaustive and that the said Rule must be interpreted liberally. It was accordingly submitted that genuineness of the transaction and identity of the payee has not been doubted and the business expediency has been established, the addition so made by the Assessing officer should be deleted. 14. It was also submitted that the AO has wrongly considered following three payments which have been made through cheques amounting to ₹ 21 lakhs and account transfer which is clearly not a subject matter of disallowance U/s 40A(3) of the Act:- S.No Date of payment Party Name Amount Cheque No. 1. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been verified by the Inspector of this office. The Inspector of this office has submitted his report stating that the Gram Panchyats under consideration does not have any bank branch within the geographical territory of the Panchayats. 18. The ld CIT(A) has also returned a similar finding stating that the banking facility was not available in Gram Panchayat area. Therefore, where there is a clear finding of both the lower authorities, the Assessing officer as well as ld CIT(A), we do not see any justifiable basis to deny the claim of the assessee that the payments so made falls under exception so carved out in Rule 6DD(g) as the language of Rule 6DD(g) is clear and unambiguous to the effect that the payment is made in a village or town, which on the date of such payment is not served by any bank which, in the instant case, is clearly demonstrated and verified by the lower authorities through physical inspection that there is no banking facility in the Gram Panchyat areas where the payments have been made by the assessee to the payees and thus, on this ground itself, no disallowance should be made invoking provisions of section 40A(3) of the Act. 19. Further, regarding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sand rupees , the words thirty-five thousand rupees had been substituted. (4) Notwithstanding anything contained in any other law for the time being in force or in any contract, where any payment in respect of any expenditure has to be made by an account payee cheque drawn on a bank or account payee bank draft in order that such expenditure may not be disallowed as a deduction under sub-section (3), then the payment may be made by such cheque or draft; and where the payment is so made or tendered, no person shall be allowed to raise, in any suit or other proceeding, a plea based on the ground that the payment was not made or tendered in cash or in any other manner.' 19. The aforesaid provisions have to be considered and interpreted in light of various authorities which have been quoted at the Bar and relied upon by the ld AR and ld DR in support of their respective contentions. 20. In case of Attar Singh Gurmukh Singh (supra), the matter which came up for consideration before the Hon'ble Supreme Court, the facts of the case were that assessee had made payment in cash exceeding a sum of ₹ 2,500/- for purchase of certain stock-in-trade. Payments were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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 to ascertain, when deduction is claimed, whether the payment was genuine and whether it was out of the income from disclosed sources. In interpreting a taxing statute the Court cannot be oblivious of the proliferation of black-money which is under circulation in our country. Any restraint intended to curb the chances and opportunities to use or create black-money should not be regarded as curtailing the freedom of trade or business. 22. Further, the Hon'ble Supreme Court upheld the applicability of section 40A(3) to payment made for acquiring stock-in-trade and raw materials and als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 25. Here, it is relevant to note that there has been no change in the provisions of section 40A(3) in so far as considerations of business expediency and other relevant factors are concerned, as existed at relevant point in time and as considered by the Hon'ble Supreme Court and the provisions of section 40A(3) as exist now and relevant for the impunged assessment year i.e. AY 2013-14. However, Rule 6DD(j) has been amended and by notification dated 10.10.2008, it now provides for an exception only in a scenario where the payment was required to be made on a day on which banks were closed either on account of holiday or strike. A question which arises for consideration is whether the legal proposition so laid down by the Hon'ble Supreme Court regarding consideration of business expediency and other relevant factors has been diluted by way of delegated legislation in form of Income Tax Rules when the parent legislation in form of section 40A(3) to which such delegated legislation is subservient has been retained in its entirety. Alternatively, can it be said that what has been prescribed as exceptional circumstances in Rule 6DD as amended are exhaustive enough and which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of business expediency and other relevant factors are concerned, the same continues to be relevant factors which needs to be considered and taken into account while determining the exceptions to the disallowance as contemplated under section 40A(3) of the Act so long as the intention of the legislature is not violated. We find that our said view find resonance in decisions of various authorities, which we have discussed below and thus seems fortified by the said decisions. 29. We refer to the decision of the Hon'ble Rajasthan High Court in case of Smt. Harshila Chordia (supra), where the facts of case were that the assessee had made certain cash payments towards purchase of scooter/mopeds which exceeded ₹ 10,000/- in each case to the principal agent instead of making payment through the cross cheques or bank draft. The Assessing Officer invoked the provisions of section 40A(3) and held that they were no exceptional circumstances falling under rule 6DD which could avoid consequences of the provisions of section 40A(3) of the Act. The ld. CIT (A) held that such exceptional circumstances did exist. However, the findings of the ld. CIT (A) were reversed by the Tribun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovided u/s 40A(3) for failure to make payments through bank is not absolute in terms nor automatic but exceptions have been provided and leverage has been left for little flexing by making a general provision in the form of clause (j) in rule 6DD. Thereafter, the Hon'ble High Court refers to the clause 6DD(j) and the circular dated 31st May, 1977 issued by the Board in the context of what shall constitute exceptional and unavoidable circumstances within the meaning of section Clause (j). The Hon'ble High Court observed that the circular in paragraph 5 gives a clear indication that rule 6DD(j) has to be liberally construed and ordinarily where the genuineness of the transaction and the payment and the identity of the receiver is established, the requirement of rule 6DD(j) must be deemed to have been satisfied. The Hon'ble High Court observed that apparently section 40A(3) was intended to penalize the tax evader and not the honest transactions and that is why after framing of rule 6DD(j), the Board stepped in by issuing the aforesaid circular and this clarification, in our opinion, is in conformity with the principle enunciated by the Supreme Court in CTO v. Swastik Roadw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 40A(3) only empowers the A.O. 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 s. 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 A.O. the circumstances under which the payment in the manner prescribed in s. 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 s. 40A(3) and r. 6DD that they are intended to regulate business transactions and to prevent the us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bank account. In the facts of the present case, rigors of s. 40A(3) of the Act must be lifted. 23. We notice that the Division Bench of the Rajasthan High Court in case of Smt. Harshila Chordia v. ITO (2007) 208 CTR (Raj) had observed that the exceptions contained in r. 6DD are not exhaustive and that the said rule must be interpreted liberally. 34. In case of Ajmer Food Products (P.) Ltd. v. JCIT [IT Appeal No. 625 (jp) of 2014, dated 28-9-2016] a similar issue has come up before the Co-ordinate Bench and speaking through one of us, it was held as under: 4.5 The genuineness of the transaction as well as the identity of the payee are not disputed. Further, the appellant has explained the business expediency of making the cash payments to both the parties which has not been controverted by the Revenue. Following the decision of Gujarat High Court in case of Anupam Tele Services (supra) and Rajasthan High Court in case of Harshila Chordia (supra), the addition of ₹ 45,738/- under section 40A(3) is deleted. 35. In case of Gurdas Garg (supra), the matter which came up for consideration before the Hon'ble Punjab Haryana High Court, the facts of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts, which we have already adverted to, have not been disbelieved. In our view, assuming these reasons to be correct, they clearly make out a case of business expediency. 36. The Co-ordinate Bench in case of Dhuri Wine v. Dy. CIT [2017] 83 taxmann.com 20 (Chd. - Trib.) has held that the proposition so laid down by the Hon'ble High Court in case of Gurdas Garg (supra) is quite unambiguous to the effect that even if the case of the assessee does not fall in any of the clauses of Rule 6DD of the Income Tax Rules, invoking the provisions of section 40A(3) of the Act can be dispensed with if the assessee is able to prove the business expediency because of which it has to make the cash payments, the genuineness of the transactions have also to be verified. 37. The Co-ordinate Bench in case of Rakesh Kumar v. Asstt. CIT [IT Appeal No. 102 (Asr.) of 2014, dated 09-03-2016] relying on the decision of Hon'ble Punjab and Haryana High Court in case of Gurdas Garg (supra) has held that the genuineness of the payment has not been doubted as the Assessing Officer himself has held that sale deeds of properties were registered with the Revenue department of the Government. There ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that the AO, on perusal of the details of the properties purchased, as per copies of the sale deed furnished, held that the assessee had made cash payments regularly and no specific circumstances have been brought to his knowledge that the cash payments were made due to some unavoidable circumstances. It was held by the AO that maximum cash payments were made to persons residing in Jaipur city and in single family, repeated cash payments were made which itself shows that there were no unavoidable circumstances to make cash payments to the sellers. What is therefore relevant to note that the AO has appreciated the necessity of determining the unavoidable circumstances which could have led the assessee to make cash payments. During the course of assessement proceedings, it was submitted by the assessee that the payment for purchase of land has been made in cash because the sellers were new to the assessee and refused to accept the cash. It was submitted that the delay in making the cash payment, it could have lost the land deals. In this regard, the ld AR submitted before us that the assessee had purchased the lands both through cash and cheques. Based on the requirement of the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - 11,57,000 7- May-12 - - - 1,14,00,000 - - 11,57,000 8-May-12 19,00,000 23,00,000 42,00,000 1,56,00,000 8-May-12 38,55,000 15,02,000 12-May-12 - - - 1,56,00,000 - - 15,02,000 14-May-12 - - - 1,56,00,000 - - 15,02,000 15-May-12 - - - 1,56,00,000 - - 15,02,000 16-May-12 - 15,00,000 15,00,000 1,71,00,000 - - 30,02,000 17-May-12 - 15,00,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithdrawals from the assessee's bank accounts and the said details were submitted before the lower authorities and have not been disputed by them. It is not the case of the Revenue either that unaccounted or undisclosed income of the assessee has been utilised in making the cash payments. 43. In the entirety of facts and circumstances of the case and respectfully following the legal proposition laid down by the various Courts and Coordinate Benches referred supra, we are of the view that the identity of the persons from whom the various plots of land have been purchased and source of cash payments as withdrawals from the assessee's bank account has been established. The genuineness of the transaction has been established as evidenced by the registered sale deeds and lastly, the test of business expediency has been met in the instant case. Further, as held by the Hon'ble Rajasthan High Court in case of Smt. Harshila Chordia (supra), the consequences, which were to befall on account of non-observation of sub-section (3) of section 40A must have nexus to the failure of such object. Therefore the genuineness of the transactions and it being free from vice of any device ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the creditworthiness of creditors have not been established and hence, he has confirmed the additions so made by the Assessing officer. The ld DR has relied on the findings of the lower authorities. In its submissions, the assessee has submitted that these three persons have appeared before the Assessing officer and have confirmed having provided loan to the assessee firm through cheque payments. It was further submitted that the creditworthiness of these persons are also established and in support, paper of ownership of agricultural land and copy of bank account statements of these persons were filed reflecting regular transactions of deposits and withdrawals. 23. We have heard the rival contentions and pursued the material available on record. We find that these three persons have appeared before the Assessing officer and have confirmed the transaction of advancing the money to the assessee and during the appellate proceedings, their confirmations along with PAN details have also been filed. The transactions have happened through the banking channel and in support of creditworthiness, agricultural land ownerships records and the bank accounts reflect regular transactions ..... X X X X Extracts X X X X X X X X Extracts X X X X
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