TMI Blog2020 (4) TMI 299X X X X Extracts X X X X X X X X Extracts X X X X ..... Dated:- 3-2-2020 - Shri Sandeep Gosain, Judicial Member And Shri O.P. Meena, Accoutant Member For the Assessee : Shri Ramesh Malapani, CA For the Revenue : Mrs. Anupama Singla, Sr.D.R. ORDER PER O. P. MEENA, AM: 1. This appeal by the Assessee is directed against the order of learned Commissioner of Income tax (Appeals)-4, Surat (in short the CIT (A) ) dated 07.10.2019 pertaining to Assessment Year 2009-10, which in turn has arisen from the assessment order passed under section 143(3) dated 21.12.2011 of Income Tax Act, 1961 (in short the Act ) by the Joint Commissioner of Income-Tax, Circle -4 (OSD) Surat (in short the AO ). 2. Grounds of appeal raised by the assessee are as under: 1)That on the facts and in the circumstances of the case as well as in law, the learned Ld. CIT(A) has erred in sustaining addition made by the AO of ₹ 81,47,100 by way of disallowance under section 40A(3) of the Act whereas disallowance so made is clearly unjustified and contrary to settled law. 2) That on the facts and in the circumstances of the case as well as in law, the ld. CIT (A) has erred in upholding that the judicial pronouncements relied upon b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the Act by splitting a particular high-value payment to a person into several cash payments, each below ₹ 20,000. Therefore, irrespective of any number of transactions where the amount does exceed the prescribed amount in each transaction the rigors of section 40A (3) was applicable. Accordingly, the same were disallowed under section 40A(3) of the Act. 4. Being, aggrieved, the assessee filed an appeal before the Ld. CIT (A). Wherein it was submitted that the payments to lorry drivers is mere arrangement and the assessee is not engaged in transportation business. The nature of business of the assessee is such the assessee was forced to make payments various lorry drivers. The payments have never been made to a single person i.e. the recipient of these payments were different lorry drivers to whom payments had been made against separate LR receipts (Lorry Receipts). These payments are further adjusted in the account of the transporters who have arranged these lorries for assessee to reconcile the payments and to settle the accounts. The assessee has relied in the case of Attar Singh Gurmukh Singh v. ITO [1991] 59 Taxman 11 (SC), CIT v. Suresh Kumar Agarwal [2001] 11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere made to truck operators under at the instruction of booking Transport Companies, the same were based on business necessity. Therefore, Ld. CIT (A) was not justified in rejecting the plea of the assessee. Further, the payments are also covered by CBDT Circular No. 220 dated 31.05.1977. The learned counsel for the assessee further placed reliance in the case of DCIT v. Mayur Sales 116 Taxman 95 (JP) in which it was held that the cash payments to truck drivers for freight in excess of prescribed limit under section 40A(3) fall under exceptional circumstances covered by Rule 6DD(j) of Income-Tax Rules, 1962. Thus, view taken by the Ld. CIT (A) that these payments cannot be said to be falling under business exigency is contrary to law of decision of Co-ordinate Bench of tribunal and Hon ble Gujarat High Court. 6. Au contraire, the ld. Sr. D.R. submitted that the payments in violation of provisions of section 40A(3) has been made to 5 transport operators hence, there was no business exigency and payments to them could have been made by account payee cheques or cross cheques. Further, the genuineness of payments is nothing to do with provisions of section 40A(3) as the same is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s as per their requirements, payments made on a single day is also paid to different lorry drivers the assessee has also enclosed showing payments were made to different lorry drivers and the vehicle numbers are also mentioned that the payments made. Therefore, it was argued that no disallowance under section 40A(3) is called for. The learned counsel for the assessee relied in the case of Attar Singh Gurmukh Singh v. ITO [1991] 59 Taxman 11 (SC) wherein the Hon`ble Supreme Court observed as under: 6. As to the validity of section 40A(3), it was urged that if the price of the purchased material is not allowed to be adjusted against the sale price of the material sold for want of proof of payment by a crossed cheque or crossed bank draft, then the income-tax levied will not be on the income but it will be on an assumed income. It is said that the provision authorising levy tax on an assumed income would be a restriction on the right to carry on the business, besides being arbitrary. 7. In our opinion, there is little merit in this contention. Section 40A(3) must not be read in isolation or to the exclusion of rule 6DD. The section must be read along with the rule. If read t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der the word 'expenditure' for the purpose of the section. The expenditure for purchasing the stock-in-trade is one of such outgoings. The value of the stockin- trade has to be taken into account while determining the gross profits under section 28 of the Act on principles of commercial accounting. The payments made for purchases would also be covered by the word 'expenditure' and such payments can be disallowed if they are made in cash in the sums exceeding the amount specified under section 40A(3). We have earlier observed that rule 6DD has to be read along with section 40A(3). The rule also contemplates payments made for stock-in-trade and raw materials. This rule is in accordance with the terms of section 40A(3). The rule provides that an assessee can be exempted from the requirements of payment by crossed cheque or a crossed bank draft where the purchases are made of certain agricultural or horticultural commodities or from a village where there is no banking facility. Section 40A(3) is, therefore, attracted to payments made for acquiring stock-in-trade and other materials. This is also the view taken by several High Courts. - Sajowanlal Jaiswal v. CIT [1976] 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 40A(3) of the Act cannot be made in the light of ratio laid down by the Hon`ble Supreme Court (supra). 10. Similarly, the Punjab Haryana High Court in the case of Gurdas Garg v. CIT Bathinda [2015] 63 taxmann.com 289 (Punjab Haryana) while considering similar issue held that wherein it was held that where genuineness of transactions made in cash in excess of ₹ 20,000 was not disbelieved by authorities, same cannot be disallowed under section 40A(3) of the Act. 11. The Hon`ble Rajasthan High Court in the case of Smt. Harshila Chordia v. ITO 298 ITR 349 (Raj.) deleted the disallowance made under section 40A(3) by observing that no disallowance under section 40A(3) could be made by hyper technical view where the transaction are genuine. 12. The Hon`ble jurisdictional High Court of Gujarat in the case of Anupam Tele Services v. ITO [2014] 366 ITR 122 (Gujarat) held as under: 18. It could be appreciated that Section 40A and in particular sub-clause (3) thereof aims at curbing the possibility of onmoney transactions by insisting that all payments where expenditure in excess of a certain sum [in the present case twenty thousand rupees] must be made by way of ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... solely on Rule 6DD (j) of the Rules to hold that since the case of the assessee did not fall under the said exclusion clause nor was covered under any of the clauses of Rule 6DD, consequences envisaged in Section 40A(3) of the Act must follow. 21. In our opinion, the Tribunal committed an error in coming to such a conclusion. We would base our conclusions on the following reasons :- (a) The paramount consideration of Section 40A(3) is to curb and reduce the possibilities of black money transactions. As held by the Supreme Court in Attar Singh Gurmukh Singh (supra), section 40A(3) of the Act does not eliminate considerations of business expediencies. (b) In the present case, the appellant assessee was compelled to make cash payments on account of peculiar situation. Such situation was as follow - (i) the principal company, to which the assessee was a distributor, insisted that cheque payment from a cooperative bank would not do, since the realization takes a longer time; (ii) the assessee was, therefore, required to make cash payments only; (iii) Tata Teleservices Limited assured the assessee that such amount shall be deposited in their bank account on ..... X X X X Extracts X X X X X X X X Extracts X X X X
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