TMI Blog1986 (9) TMI 27X X X X Extracts X X X X X X X X Extracts X X X X ..... ricultural commodities at Kota. During the accounting year 1971-72, which ended on Diwali, 1970, it made payments to various parties for the purchase of goods in sums exceeding Rs. 2,500, aggregating Rs. 46,203. The Income-tax Officer pointed out to the assessee that the said payments contravened the mandatory provisions of sub-section (3) of section 40A of the Act and, therefore, the Income-tax Officer added the sum of Rs. 46,203 to the total income of the assessee. The case of the Revenue was that all the payments in question were not made by crossed cheques and, therefore, there was contravention of sub-section (3) of section 40A of the Act. The assessee submitted that its case is covered under rule 6DD(j). The order of assessment dated March 6, 1974, passed by the Income-tax Officer was assailed in an appeal before the Appellate Assistant Commissioner of Income-tax, Kota Range, Kota. The learned Appellate Assistant Commissioner did not accept the said contention and held that the assessee had not been able to show any exceptional or unavoidable circumstances under which, it had made the payments in cash exceeding Rs. 2,500. Aggrieved by the order of the learned Appellate Assist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2) That the case of the assessee is covered by rule 6DD(j) and the circulars issued by the Central Board of Direct Taxes which are binding on all the officers and persons employed in the execution of the Income-tax Act. (3) That the provisions of section 40A(3) of the Act are not mandatory. (4) That the word " expenditure " as used in sub-section (3) of section 40A of the Act does not include purchases and, therefore, the payments made for purchases would not be within the inhibition of section 40A(3) of the Act. Shri Surolia, learned counsel for the Revenue, submitted that the Tribunal did not commit any error of law in confirming the disallowance of the said amount of Rs. 46,203. Shri Surolia also urged that no question of law arises when the Tribunal had taken into consideration the material on record and found that there were no exceptional circumstances for making payments. Learned counsel for the Revenue also submitted that though the decision of the Tribunal in Kantilal's case has been reversed by a Division Bench of this court in [1985] 155 ITR 519, still the merits of the case remain unaffected as that case is distinguishable on facts. We have given our thought ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s from agriculturists or producers and he had to make payment to the agriculturists in cash on the same day. The submission made by the assessee before the Income-tax Officer was found to be erroneous as it was found that in almost all the cases there was a time lag of six to seven days between the date of purchase of the goods and the date of actual payment. The Income-tax Officer observed that had there been any pressing demand on behalf of Kachha Aratias to make payment on the same day, there could not have been much time lag between the date of purchase of the goods and the date of actual payment. Learned counsel for the assessee who appeared before the Income-tax Officer also submitted that the case of the assessee-firm was covered by the residuary clause of rule 6DD, but no exceptional or unavoidable circumstances warranting payment otherwise than by crossed cheque or crossed bank draft were pointed out by the assessee to the Income-tax Officer. Consequently, the Income-tax Officer observed that the assessee had not been able to establish that the payments by cheque or bank draft were not possible or the same would have caused genuine difficulty to the payee, or there were an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, includes expenditure on purchase of stock-in-trade also ? 2. Whether the word 'expenditure' occurring in section 40A(3) of the Income-tax Act is to be interpreted in the light of the Supreme Court decision in the case of Indian Molasses Co. v. CIT [1959] 37 ITR 66 ? " But the Tribunal referred the question to this court as referred to above. Shri Surolia, learned counsel for the Revenue, submitted that the question raised, viz., that the word " expenditure " does not include within it " purchases " does not require to be answered by this court. The submission made by Shri Surolia is not correct. A look at the question referred for our opinion, in a broad spectrum, would reveal that the question referred to includes the determination of the said question also. Therefore, we have considered the submission made by learned counsel for the assessee and have answered it accordingly. In Porwal Udhyog (India) v. CIT [1982] 135 ITR 591 (MP), an amount of commission of Rs. 16,400 was disallowed under section 40A(3) as the assessee could not adduce evidence to show that there were exceptional and unavoidable circumstances necessitating the payment in cash. In Bhilai Motors v. CIT [1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enchment compensation or other terminal benefits to low paid employees of the business or profession. Exceptions are laid down under clause (f) of rule 6DD of the Income-tax Rules which provide that the provisions for disallowance of the expenditure might not be applied if the assessee establishes that the payment could not be made by a crossed bank cheque or draft due to exceptional or unavoidable circumstances and also furnishes evidence to the satisfaction of the Income-tax Officer as to the genuineness of the payment and the identity of the payee. The following guidelines have been issued by the Board for the consideration of the Income-tax Officer to invoke his discretion for relaxing the requirement regarding the payment in excess of Rs. 2,500 to be made by crossed cheques or crossed bank drafts. The circumstances mentioned below are illustrative which would meet the requirement of the rules: (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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