TMI Blog2020 (3) TMI 873X X X X Extracts X X X X X X X X Extracts X X X X ..... . 2. The assessee is an individual and is engaged in three businesses namely, Trading in fish and fish food, Trading in plastic crates for fish and running of a petrol pump. The assessment was completed u/s 143(3) of the Act on 18.03.2016 by the AO determining the total income at ₹ 11,74,930/-. The Pr. CIT revised this order u/s 263 of the Act and he concluded as follows: 11. In this case before me, as the A.O. has passed the order without making enquiries or verification which should have been made by him before framing the assessment order, it amounts to incorrect assumption of facts and therefore, as held by the Hon ble Supreme Court in Malabar Industrial Co. Ltd v. CIT - (supra), , his order is erroneous. Further, such an action of the A.O. has led to loss of tax that has been treated as prejudicial to the interest of the revenue by the Hon ble Calcutta High Court in Dawjee Dadabhoy Co. [31 ITR 872 (Cal)]. Thus, it is held that the order passed by the A.O. u/s 143(3) dated 18/03/2016 is erroneous in so far as it is prejudicial to the interests of the revenue. 12. Under these circumstances, I am of the considered opinion that it is a fit case for invoking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied as the coordinate Bench of the Tribunal has on this very same issue have interpreted the provisions of Section 40A(3) of the Act and laid down certain propositions of law. This Bench of the Tribunal in the case of Binod Kumar Burnwal (supra) held as follows: Disallowance u/s 40A(3) - AO as well as the ld. CIT(A) were of the opinion that such direct payment into the bank account of the seller is not covered by the exceptions specified in Rule 6DD of the Income Tax Rules, 1962 - HELD THAT:- 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 evasion of tax and flow of unaccounted money or to check transactions which are not genuine and may be put as camouflage to evade tax by showing fictitious or false transactions. Admittedly, this is not the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of section 40A(3) of the Act in respect of payments made by the assessee to the main distributor of Hutch Sim Cards Mr.Amit Dutta. The Learned AO obtained information u/s 133(6) of the Act from Mr.Amit Dutta and obtained the ledger account of the assessee as appearing in the books of Mr.Amit Dutta. The Learned AO observed that the assessee had made total purchases from Mr.Amit Dutta to the tune of ₹ 1,51,94,459/- and made cash payments exceeding ₹ 20,000/- in a day in violation of section 40A(3) of the Act to the tune of ₹ 60,50,890/- during the Asst Year under appeal. A show cause notice dated 20.8.2010 was issued by the Learned AO to the assessee in this regard. Detailed submissions were made before the Learned AO by the assessee on 19.10.2010 explaining the facts and the legal stand taken by the assessee on the impugned issue. Sri Amit Dutta had also deposed before the Learned AO u/s 131 of the Act confirming the receipt of monies in cash from the assessee and further stated that he had persuaded the assessee to pay only in account payee cheques to get away from the rigours of section 40A(3) of the Act, but the assessee continued to make certain payments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7.1968 reiterates this view that this provision is designed to counter evasion of a tax through claims for expenditure shown to have been incurred in cash with a view to frustrating proper investigation by the department as to the identity of the payee and reasonableness of the payment. 4.4. In this regard, it is pertinent to get into the following decisions on the impugned subject:- Attar Sineh Gurmukh Sineh vs ITO reported in (1991) 191 ITR 667 (SC) Section 40A(3) of the Income-tax Act, 1961, which provides that expenditure in excess of ₹ 2,500 (₹ 10,000 after the 1987 amendment) 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 cro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 40A(3) for ₹ 78,45,580/-and disallowed @20% thereon ₹ 15,69,116/-. It is also made clear that without the payment being made by bearer cheque these goods could not have been procured and it would have hampered the supply of goods within the stipulated time. Therefore, the genuineness of the purchase has been accepted by the Id. CIT(Appeal) which has also not been disputed by the department as it appears from the order so passed by the learned Tribunal. It further appears from the assessment order that neither the Assessing Officer nor the CIT(Appeal) has disbelieved the genuineness of the transaction. There was no dispute that the purchases were genuine. Anuvam Tele 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 too ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 had held that the consequences of non-compliance of Madhyapradesh Sales Tax Act , which were intended to check the evasion and avoidance of sales tax were significantly harsh. The court while upholding the constitutional validity negated the existence of a mens rea as a condition necessary for levy of penalty for non-compliance with such technical provisions required held that in the consequence to follow there must be nexus between the consequence that befall for non-compliance with such provisions intended for preventing the tax evasion with the object of provision before the consequence can be inflicted upon the defaulter. The Supreme Court has opined that the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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