TMI Blog2020 (12) TMI 1061X X X X Extracts X X X X X X X X Extracts X X X X ..... ar, Accountant Member For the Assessee : None For the Revenue : Sh. Sohail Malik, Sr. DR ORDER PER DR. B. R. R. KUMAR, ACCOUNTANT MEMBER: The present appeal has been filed by the revenue against the order of the ld. CIT(A)-18, New Delhi dated 25.03.2015. 2. Following grounds have been raised by the revenue: 1. The Ld. CIT( A), on the facts and in the circumstances of the case, has erred in deleting the addition of ₹ 2,25,40,000/- made by AO without appreciating the fact that assessee made purchase payments in cash in contravention to the provisions of section 40 A(3 ) of the act, read with Rule 6DDJ and that this was the practice of the assessee. 2. The Ld. CIT(A), on the facts and in the circumstances of the case, has erred in deleting the addition of ₹ 4,47,483 /- made by the AO without appreciating the fact that assessee made reimbursement of expenses in contravention to the provisions of Section 40 A(3 ) of the act, read with rule 6 DDJ. 3. During the course of assessment proceedings, the AO noticed that the assessee who is running a travel agency has made purchases exceeding ₹ 20,000/- in violation of Section 40A(3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, 54[or use of electronic clearing system through a bank account [or through such other electronic mode as may be prescribed], exceeds ten thousand rupees,] in such cases and under such circumstances as may be prescribed56, having regard to the nature and extent of banking facilities available, considerations of business expediency and other relevant factors:] [Provided further that in the case of payment made for plying, hiring or leasing goods carriages, the provisions of sub- sections (3 ) and (3 A) shall have effect as if for the words [ten] thousand rupees , the words thirty-five thousand rupees had been substituted.] 9. The rule 6DD(j) reads as under: [Cases and circumstances in which a payment or aggregate of payments exceeding ten thousand rupees may be made to a person in a day, otherwise than by an account payee cheque drawn on a ban ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrency etc. 10. In the background of the provisions of the Act, Rules, Circular and the judgment, we have examined the facts of the instant case. 11. The assessee has paid amounts for obtaining flight tickets for his client and the agency from whom the tickets have been procured by the assessee to his agents insisted for cash payment for arranging the tickets. This amounts to business contingency for the assessee. We have also given our about the genuineness of the payment. From the record, we find that the Assessing Officer has not questioned the genuineness of the payment or credential of the receivers. Assessment u/ s 143(3) primarily directed at detailed scrutiny of the return of income to confirm the correctness and genuineness of various claims, deductions, exemptions claimed by the tax payer in the return of income. The objective of the scrutiny assessment is to confirm that the tax taxpayer has not understated the income or claimed excessive loss which results ultimately under payment of taxes. In the instant case, in the scrutiny proceedings, the AO has not questioned the veracity of the payments made to Indraprashta Travels Pvt. Ltd. and Oasis Travels India Pvt. Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax Officers. The Board have considered these representations and have decided to lay down certain guidelines to ensure uniformity of approach among the Income- tax Officers in this behalf. 4. All the circumstances in which the conditions laid down in rule 6DD(j) would be applicable cannot be spelt out. However, some of them which would seem to meet the requirements of the said rule are: a. the purchaser is new to the seller, or b. the transactions are made at a place where either the purchaser or the seller does not have a bank account; or c. the transactions and payments are made on a bank holiday; or d. the seller is refusing to accept the payment by way of crossed cheque/draft and the purchaser s business interest would suffer due to non-availability of goods otherwise than from this particular seller; or e. the seller, acting as a commission agent, is required to pay cash in turn to persons from whom he has purchased the goods; or f. specific discount is given by the seller for payment to be made by way of cash. 5. It can be said that it would, generally, satisfy the requirements of rule 6 DD( j), if a letter to the above effect is produced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trative and the Assessing Officer has to take into account the surrounding circumstances, considerations of business expediency and the facts of each particular case in exercising his discretion either in favour or against the assessee. There may be an oral agreement between the assessee and the seller for payment in cash. A seller may not be willing to accept cheques; cash payment may be made at the request of the payee who is also an assessee and a certificate to that effect filed; absence of banking facilities in places where cash payments are made. All such cases would come within the purview of exceptional or unavoidable circumstances. 17. In CIT Vs. Trinity Traders [1987 ] 163 ITR 381 ( Guj.), the above circular was referred to with the following observations: The circular makes it clear that these are merely illustrative instances of cases in which rule 6DD( j) would be applicable. The circular also points out that the requirements of rule 6DD(j) can be satisfied if a letter to the above effect is produced in respect of each transaction falling within the categories listed above from the seller giving full particulars of his address, sales- tax number/permanent ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in Paul Bros. v. CIT [1990] 186 ITR 356 (Gauhati), with the following observations: Pursuant to the provision in sub-section (3 ) of section 40 A, rule 6 DD was promulgated and Circular No. 220 was issued by the Central Board of Direct Taxes on May 31, 1977. Section 40A, rule 6 DD and the Circular No. 220 recite that after March 31, 1969, any payments on account of expenditure of more than ₹ 2,500 will have to be made by a crossed cheque or by a crossed bank draft unless exempted by the revenue authorities... The Indian Parliament incorporated the above provisions to check evasion of taxes. Even in genuine cases where payments are shown to have been made in cash, the assessee is put to the necessity to prove that in the area of business, banking facilities are not adequate. Therefore, impelled by genuine difficulty, the assessee had to make payment in cash. The same idea is writ large in the Rules. The assessee will have to show that there was no way left for the assessee except to pay in cash. In the nature of things whether in the statute, rules or circulars, all the contingencies cannot be enumerated exhaustively. Parliament referred to the inadequacy of faci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... han from the particular seller, then even if the payment is made by cash, the same would be allowable as a deduction. 27. The above circular was relied on in Drill Rock Engg. Co. (P.) Ltd. v. ITO [1993] 45 ITD 149 (Hyd. - Trib.) with the following observations: .. Looking into the wording of section 40A(3 ) as well as rule 6 DD( j) and also Board s Circular No. 220 issued in 1977 one of the primary requirements of section 40 A(3 ) is that the identity of the payee should be established before the ITO. The section is specifically enacted in order to curb the transactions in black money. However, the appellant before us failed to comply with the requirements of the above provisions as well as the Board s circular. Hence for these reasons also the amount of secret commission is to be disallowed. 28. The above circular was explained in ITO v. Patidar Ginning Pressing Co. Ltd. [1994 ] 51 ITD 7 (Ahd. - Trib.), with the following observations: 6.1 In Circular No. 220 dated 31 -5-1977, it has been clarified that it would generally satisfy the requirements of rule 6DD(j) if a letter explaining the exceptional and unavoidable circumstances such as mentioned in para 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said to be exceptional and unavoidable. There may be some other exceptional and unavoidable circumstances which may not be put in writing. The Commissioner (Appeals) upheld the order of the ITO on the ground that the assessee failed to establish exceptional and unavoidable circumstances under which payment had to be made in cash exceeding ₹ 2,500. While considering the exceptional circumstances the business exigencies, convenience and security should also be looked into. 31. CIT v. G. S. Auto Industries (P.) Ltd. [1998] 144 CTR (Punj. Har.) 464 with the following observations: It would appear from the perusal of the Board s circular referred to above that the seller s refusal to accept the payment by crossed cheque or draft may permit the assessee to make payment in cash. But, at the same time, it should also be shown that the assessee s business interest would have suffered due to non-availability of goods otherwise than from that particular seller. Sub-clause (iv) of clause 4 of the circular requires the fulfillment of both the conditions as aforesaid. In this light, the factum of insistence by the recipients may not alone be sufficient to attract clause 4 (iv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of proper identification to enable the Income- tax Officer to satisfy himself about the genuineness of the transaction. It was further added that the circumstances indicated in paragraph 4 of the circular were merely illustrative and not exhaustive, but the underlying idea was that if the seller s identity can be established, it would be possible for the Income-tax Officer to cross-check whether the transaction had, in fact, taken place as stated and was of a genuine nature. 35. A similar view is expressed by the High Court of Calcutta in Girdharilal Goenka v. CIT [1989] 179 ITR 122, where it was observed that (at p. 128 ): The circular of the Board is not exhaustive, it is only illustrative and the Assessing Officer has to take into account the surrounding circumstances, considerations of business expediency and the facts of each particular case in exercising his discretion either in favour or against the assessee . It was also held that the Income- tax Officer should take a practical approach to the problem and strike a balance between the direction of law and hardship to the assessee. 36. The circular and judgments unequivocally intend at allowing the expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X
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