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TMI Blog2018 (3) TMI 1880X X X X Extracts X X X X X X X X Extracts X X X X ..... onsequently, the AO passed an order u/s.143(3) r.w.s.263 on 02.03.2010 making disallowance of Rs. 61,32,476/- u/s. 40A(3). Against this order, the assessee preferred an appeal before the CIT(A) which came to be dismissed. On further appeal, the ITAT vide order dated 20.06.2013 set aside the order of the AO with directions to him to re-examine the issue of disallowance u/s.40A(3) on whether the assessee is entitled for exemption under Rule 6DD in respect of all the payments or any of the payments made in cash. Pursuant to the directions of the ITAT, the AO reinitiated assessment proceedings, examined the assessee's claim and, inter alia, held that banking facilities was very much available at the place where the payee company is located, the assessee could not establish any commercial expediency apart from saying that M/s. Sitalakshmi Mills Ltd is a BIFR company and hence the assessee's case is not covered under any of the circumstances mentioned under rule 6DD. In view of that the AO held that the provisions of section 40 A(3) are applicable and accordingly added 20% of payments at Rs. 61,32,476/-. Aggrieved, the assessee filed an appeal before the CIT(A) which was dismissed. Again ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alakshmi Mills Ltd needed cash to meet the expenses including salary and wages. The assessee, being a party having substantial business interests with that company, acceded to its request to make cash payments towards yarn conversion work done for the assessee as per an agreement. In such circumstances ie when M/s. Sitalakshmi Mills Ltd did not have any bank account, the assessee made cash payments as per that company's request. Therefore, the payments were made in cash under business exigency. The AR invited our attention to the Hon'ble Supreme Court decision in the case of Attar Singh Gurumukh Singh 191 ITR 667, particularly, to the following portion "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 together, it will be clear that the provisions are not intended to restrict the 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 'cros ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our attention to the following portion of the order : "4.1 It is in this background that the payment of conversion charges by the appellant to the company in cash has to be looked into. As per the communication to the appellant vide letter dated 02.04.2004, the company informed that it was a Sick company already referred to BIFR and that their bank accounts have been frozen and requested the appellant to make payment of conversion charges in cash. The Head Office of PNB, who is also the OA, however took strong objection to the company routing it's transactions through SBI and directed it to route the transactions through their cash credit account maintained with their Madurai branch. Later, PNB also received a Prohibitory order from ESI seeking payment of Rs. 52,06,7701- but in view of the company not having sufficient credit, the bank instructed the company to contact ESI office to settle the issue. So, it is crystal clear that the company had demanded cash payments from the appellant with a view to avoid the transactions through bank and thereby scuttle recovery of loan and other statutory dues. These transactions of the company with the appellant have already been held as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowed as a deduction : Provided that where an allowance has been made in the assessment for any year not being an assessment year commencing prior to the 1st day of April, 1969, in respect of any liability incurred by the assessee for any expenditure and subsequently during any previous year the assessee makes any payment in respect thereof in a sum exceeding twenty otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft, the allowance originally made shall be deemed to have been wrongly made and the Assessing Officer may recompute the total income of the assessee for the previous year in which such liability was incurred and make the necessary amendment, and the provisions of section 154 shall, so far as may be, apply thereto, the period of four years specified in sub-section (7) of that section being reckoned from the end of the assessment year next following the previous year in which the payment was so made: Provided further that no disallowance under this sub-section shall be made where any payment in a sum exceeding twenty is made otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft, in such cases and under such circumstances ..... 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