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TMI Blog2020 (10) TMI 37X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment years are 2014-15 and 2015-16. 3.The assessees have raised the following substantial questions of law for consideration of this Court:- "1. Whether on the facts and circumstances of the case, the Tribunal was right in not looking into proviso to Section 40A(3) wherein no disallowance can be made u/s.40A(3) having regard to the nature and extent of banking facilities available, consideration of business expediency and other relevant factors? 2. Whether on the facts and circumstances of the case, the Tribunal was right in holding that Rule 6DD has not been satisfied, without looking into the legality that second proviso to Section 40A(3) is a substantive provision of the law and satisfaction of Rule 6DD will not affect the exemption from the rigor of Section 40A(3)? 3. Whether on the facts and circumstances of the case, the Tribunal was right in confirming the addition when the assessee had discharged its onus of proving the genuineness of the transactions and identity of the film producers/distributors? 4. Whether on the facts and circumstances of the case, the Tribunal was right in rejecting the documents like copies of agreements and confirmation from film dist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Auditors' report filed by the assessees. Further, it is submitted that the Central Board of Direct Taxes has issued guidelines in Circular No.220, dated 31.05.1997 prescribing limits - circumstances when Income Tax Officers can relax requirements of making payments in excess of the stipulated amount. It is submitted that the Hon'ble Division Bench in Chrome Leather Co. (P) Ltd. (supra) had considered the circular and held that the circumstances mentioned therein are illustrative and not exhaustive and the underlying idea of the circular is that if the identity of the payee is known, it would be possible for the Income Tax Officer to cross check whether the transaction had, in fact, taken place. 7.Further, it is submitted that as held in Attar Singh Gurmuk Singh (supra), Section 40A(3) of the Act must not be read in isolation or to the exclusion of Rule 6DD of the Income Tax Rules, 1962 (hereinafter referred to as "the Rules") and the Section must be read along with the Rule. Reliance was placed on the decision of the Hon'ble Supreme Court in S.A.Builders Ltd. vs. CIT(A) [(2007) 288 ITR 1 (SC)] to explain as to what is business expediency and that the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... el assisted by Ms.C.P.Priya, learned counsel for the assessees and Ms.S.Premalatha, learned Standing Counsel for Mr.M.Swaminathan, learned Senior Standing Counsel appearing for the Revenue. 10.Section 40A deals with expenses or payments not deductible in certain circumstances. In this case, we are concerned about the applicability of Section 40A(3) on the assessees. For better reference, we quote the said sub-Section along with the first proviso hereunder:- "Section 40A(3):- Where the assessee incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds twenty thousand rupees, no deduction shall be allowed in respect of such expenditure. Provided that no disallowance shall be made and no payment shall be deemed to be the profits and gains of business or profession under sub-section (3) and this sub-section where a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds twenty thousand rupees, in such cases and under such circumstances as may b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considering as to whether the case would fall within any one of the circumstances set out in Rule 6DD of the Rules and not otherwise. We have seen the chart showing the payments effected by the assessees to various parties. The payments effected through the year under consideration is substantial. 15.It is the submission of the learned Senior Counsel for the appellants that only 25% of the payments effected by the assessees were by cash and the remaining 75% was through banking channels, that is, through cheque or demand draft. These factors will work against the assessees because the assessees are fully aware of the legal position that over and above Rs. 20,000/-, the assessees would not be entitled to effect payment in cash in a day. Thus, merely because the assessees were able to identify the payees, who were more than 20 in number, would not be a mitigating factor to grant relief to the assessees under the first proviso to Section 40A(3) of the Act. 16.On more aspect to be noted is that there has been periodical payments in cash. The explanation offered by the assessees is that due to compelling circumstances, they have to effect cash payments. The Revenue is right in their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ities. 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 on to enable the assessing authority to ascertain whether the payment was genuine or whether it was out of the income from disclosed sources. The terms of Section 40A(3) are not absolute. Consideration of business expediency and other relevant factors are not excluded. The 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) 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 asses- see 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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