TMI Blog1987 (5) TMI 27X X X X Extracts X X X X X X X X Extracts X X X X ..... ct Sawai Madhopur and it has branch at Sawai Madhopur City where the assessee was dealing in grain and oil and was also doing commission agency. In the relevant previous year, the assessee paid a sum of Rs. 4,000 in cash to M/s. Suresh Oil Co., Kota, on May 30, 1973, Rs. 2,602,49 in cash to M/s. Shivnath Motilal, Kota, on September 29, 1973, and Rs. 10,028.30 in cash to M/s. Rajni Oil Industries, Kota, on July 2, 1973. Since the said amounts exceeded Rs. 2,500, the Income-tax Officer, Sawai Madhopur, disallowed the aforesaid expenditure of Rs. 16,630,79 under section 40A(3) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"). In the assessment order (annexure " A ") dated January 20, 1975, the Income-tax Officer observed that the assessee had failed to file any satisfactory explanation for making the aforesaid payments exceeding Rs. 2,500 in cash. In appeal before the. Appellate Assistant Commissioner of Income-tax, A Range, Jaipur, the assessee submitted that the Income-tax Officer had disallowed the expenditure without affording a proper opportunity to the assessee and the Appellate Assistant Commissioner directed the Income-tax Officer to call Sri Phool Chand, who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecified 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 two thousand five hundred rupees 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 as may be prescribed, having regard to the nature and extent of banking facilities available, considerations of business expediency and other relevant factors." Section 40A was introduced in the Act by the Finance Act, 1968, with effect from 1st April, 1968 with the object of checking tax evasion. Subsection (3) of section 40A seeks to achieve this object by directing that an expenditure would not be allowed as a deduction in cases where it exceeds Rs. 2,500 unless it is paid by a crossed cheque drawn on a bank or by crossed bank draft. The second proviso to section 40A(3) reduces the rigour of the main clause and permits a departure in such cases and under such circumstances as may be prescribed having regard to the nature and extent of banking fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act. The case of the assessee is that the payments in question were made by it for the purchase of goods and that the said payments, therefore, could not be regarded as expenditure for the purpose of section 40A(3) of the Act. The said question has been considered by various High Courts and it has been held that the term " expenditure " is of a wider import and includes payments made for purchase of goods during the course of business. In Sajowanlal Jaiswal v. CIT [1976] 103 ITR 706, the Orissa High Court has held that the payment made by the assessee for the purchase of sugar was expenditure under section 40A(3) of the Act. In the said case, it has been observed that the word " expenditure " is not defined in the statute and that all outgoings could broadly come under this head and that payment for purchase of goods would certainly be an expenditure. Similarly in U.P. Hardware Stores v. CIT [1976] 104 ITR 664, the Allahabad High Court has held that payments made for purchase would be covered by the word " expenditure ". This court has taken the same view in Fakri Automobiles v. CIT [1986] 160 ITR 504. In this case also, it has been held that the payment made for goods purch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad been received by the Board regarding difficulties that are being experienced by taxpayers due to lack of uniformity in the interpretation of the provisions of rule 6DD(j) of the Rules by the Income-tax Officers and after considering the said representations, the Board has decided to lay down certain guidelines to ensure uniformity of approach among Income-tax Officers in this behalf. After stating that all the circumstances in which the conditions laid down in rule 6DD(j) would be applicable cannot be spelt out, the Board has enumerated some of those circumstances which would meet the requirements of the said rule and the same are as follows: " (i) the purchaser is new to the seller ; or (ii) the transactions are made at a place where either the purchaser or the seller does not have a bank account; or (iii) the transactions and payments are made on a bank holiday; or (iv) 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 (v) the seller, acting as a commission agent, is required to pay cash in turn to persons fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4,000 which had been deposited on May 30, 1973, was adjusted against the aforesaid purchase. The assessee has filed a copy of the account of M/s. Suresh Oil Industries, Kota, as appearing in the account books of the assessee which shows the payment by Phool Chand of a sum of Rs. 4,000 in cash on May 30, 1973, by way of " anamat " and the said amount was adjusted against Rs. 11,483.52, the price of the oil drums which were purchased on June 5, 1973. The assessee has also filed a confirmatory letter addressed by Shri Ranglal as partner of M/s. Suresh Oil Industries to the Income-tax Officer wherein it has been stated that a sum of Rs. 4,000 was deposited by the assessee as de anamat " on May 30, 1973, and that the said amount was lying in deposit as " anamat " and that subsequently when there was a transaction for purchase of goods by the assessee, the said amount was adjusted against that account. In the said letter, M/s. Suresh Oil Industries have also stated that they are assessed to income-tax under Income-tax Ward, Special Circle I. Shri Singhal, learned counsel for the assessee, has urged that the aforesaid payment of Rs. 4,000 has been wrongly disallowed and that in the fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly then and there in full and final settlement of the account. The assessee has also stated that since this was their first transaction with the said firm, they had no alternative but to pay Rs. 2,602.49 in cash in order to save their credit in the market and, therefore, the said payment was made in cash and the balance amount of Rs. 6,000 was sent by draft from Sawai Madhopur through registered post on October 8, 1973. In support of his aforesaid case, the assessee had filed a confirmatory letter dated April 30, 1976, addressed by Shri Nathulal, son of Motilal, as partner of M/s. Rajasthan Cattle Feed Products, Kota, to the Income-tax Officer, wherein it has been stated that the assessee had purchased from the said firm 34 drums of Alsi oil of the value of Rs. 26,102.49 and that towards payment of the said amount, a draft for Rs. 17,500 had been deposited by the assessee and that on October 2, 1973, Phool Chand came to Kota and he was asked to make payment immediately and that if the payment was not made, the transaction would be cancelled and that thereupon Phoolchand deposited Rs. 2,602,49 on October 2, 1973, and for the balance amount, he sent draft from Sawai Madhopur. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion for 10 drums of oil and that there was settlement in the said transaction and no delivery was given and a sum of Rs. 575 by way of difference was paid. In the said letter it has also been stated that the assessee had deposited a sum of Rs. 10,028.30 with M/s. Rajani Oil Industries by way of advance against the said transaction and that the said amount was refunded along with a profit of Rs. 575 by bank draft No. 6,36,575 of Rajasthan Bank and that these receipts and payments are entered in the account books of the firm. In the letter, it is also stated that the firm is assessed to income-tax by the Income-tax Officer, Ward A. In view of the entries in the account books of the assessee as well as M/s. Rajani Oil Industries and the confirmatory letter of M/s. Rajani Oil Industries, it must be held that the genuineness of the payment of Rs. 10,028.30 by the assessee to M/s. Rajani Oil Industries on July 2, 1973, and the identity of the payee, namely, M/s. Rajani Oil Industries, Kota, is established. The question is whether the assessee has succeeded in establishing that the said payment was made in the circumstances referred to in clause (j) of rule 6DD of the Rules ? The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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