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TMI Blog2021 (9) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee as discussed in the Assessment Order. 4. It is prayed that the order of the Ld. CIT(A) be set-aside and that of the AO may be restored. 5. The appellant craves leave to add any other grounds of appeal which may arise at the time of hearing. 3. The brief facts relating to the issue are that the assessee is a Dealer of Verka Milk Agency, deals in sale purchase of Milk and its products. During the assessment proceedings, the Assessing Officer (herein after referred to as 'AO') noted that from one ledger account of M/s. Hoshiarpur Distt. Co-operative Milk Producer Ltd., Hoshiarpur, from where the assessee purchased milk and its products, revealed total purchases at Rs. 4,60,65,851/-, out of which purchases of Rs. 2,18,59,500/- had been made through bank drafts/cheque and Rs. 69,25,489/- on Sundays/bank holidays which were covered under rule 6DD whereas rest of purchases of Rs. 1,72,80,862/- had been made in cash in contravention of section 40A(3) of the Act. The assessee was asked by the AO to justify if its case fell within the exceptions provided under rule 6DD. The reply submitted to the AO was as under: "....... that most payments to M/s. Verka Milk Agency ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve been made in cash out of business exigency otherwise the business could not have been run. Moreover, all the payments are general and can be crossed check from the books of M/s. Verka Milk Agency. As for as contravention of section 40A(3) is regarded it is respectfully submitted that our case falls within the preview of exception enumerated in rule 6DD of the I.T. Rule where the payments is made for the purchase of: i. Agricultural forest produce. ii. The produce of animal husbandry (including live stocks, meat, hides and skin) or dairy or poultry farming or iii. Fish of fish products or iv. The products of Horticulture, apiculture, To the cultivator, grower or producer of such articles, produce or products even otherwise, our case is justified on the basis of business expediency and other relevant factors involved as have been enumerated above. Section 40A(3) and Rule 6DD are intended to regulate the business transactions and to prevent the use of unaccounted money. As detailed in above para the cash payment have been made out of business expediency as well as out of accounted/disclosed money through genuine transactions. Various judicial pronouncement are being rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (S.C.) The ld. CIT(A) after considering the submissions of the assessee, deleted the disallowance made by the AO holding as under: 7. I have considered the facts of the case and written submissions of the appellant. During assessment proceedings, the appellant claimed that no disallowance u/s. 40A(3) was warranted in its case on two grounds, that of business exigency and being covered in the exception provided in clause (e) of Rule 6DD of the I.T. Rules. Ld. A.O. held that the appellant could not be held to fall in the ambit of Rule 6DD(e) following the decision of Hon'ble H.P. High Court in the case of Smt. Chanchal Dogra Vs ITO [2012] 247 CTR (HP) 616. However, the other plea of the appellant of business expediency was rejected without any discussion. In this case, the cash payments in sums exceeding Rs. 20,000/- in the course of a single day have been made to the Hoshiarpur Distt. Co-op. Milk Producer Union Ltd. Ld. AO has not doubted the genuineness of purchases or the genuineness of the payments so made. During assessment proceedings, the appellant furnished detailed reasons for making the cash payments. It was stated by the appellant that milk being a perishable item ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty thousand rupees, 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." Rule 6DD of the IT Rules 6DD. No disallowance under sub-section (3) of section 40A shall be made and no payment shall be deemed to be the profits and gains of business or profession under sub-section (3A) of section 40A 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 [account payee bank draft or use of electronic clearing system through a bank account or through such other electronic mode as prescribed under rule 6ABBA, exceeds ten thousand rupees] in the cases and circumstances specified hereunder, namely:- where the payment is made to- (a) (i) the Reserve Bank of India or any banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949); (ii) the State Bank of India or any subsidiary bank as defined in section 2 of the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959); (iii) any co-operative bank or land mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aggregate of such sums payable to the employee or his heir does not exceed fifty thousand rupees; (i) where the payment is made by an assessee by way of salary to his employee after deducting the income-tax from salary in accordance with the provisions of section 192 of the Act, and when such employee- (i) is temporarily posted for a continuous period of fifteen days or more in a place other than his normal place of duty or on a ship; and (ii) does not maintain any account in any bank at such place or ship; (j) [***] (k) where the payment is made by any person to his agent who is required to make payment in cash for goods or services on behalf of such person; (l) where the payment is made by an authorised dealer or a money changer against purchase of foreign currency or travellers cheques in the normal course of his business. Explanation.-For the purposes of this clause, the expressions "authorised dealer" or "money changer" means a person authorised as an authorised dealer or a money changer to deal in foreign currency or foreign exchange under any law for the time being in force.] 8. A perusal of the above provisions of Section 40A(3) of the Act read with Rule 6DD ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of deposits of such payments in the bank accounts of such recipients would be available to the Assessing Officer. However, the payment made to Government, banks, Life Insurance companies etc. has been put in exclusion clause because there is no likelihood of keeping such receipts unaccounted. However, considering the business expediency, difficulties faced and other relevant factors, payment in certain cases and circumstances for the payments made in cash and under those cases and circumstances, no disallowance is attracted u/s. 40A(3) of the Act. The list provided under Rule 6DD, in our view, is not exhaustive, rather it gives a picture as to under what cases and circumstances, such payments would be out of necessity, business expediency or such other factors necessitating such payments to be made in cash. There may be a numerous factors and circumstances under which due to some difficulty or business expediency, an assessee has to make the transaction/payment in cash, however, in our view, all such cases, circumstances, examples of business expediency, difficulties and other all such factors, in our view, cannot be summed up in a list. Such type of factors and circumstances may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness transactions." 9. In our humble view, the above observations of the Hon'ble Supreme Court still hold good despite the fact that the list under Rule 6DD has been amended in the year 2008. 10. As observed by us that the said list cannot be exhaustive to list all the cases in various facts and circumstances of practicability, necessity and business expediency. As observed by the ld. CIT(A), the assessee in this case has explained about the practical difficulty and business expediency for making certain payments in cash stating that the milk being a perishable item and the fast moving consumer good, it had to be picked up early from the supply point in the early morning hours. The assessee was bound to make payments on daily basis since no credit sales were allowed by the sole supply agency M/s. Verka Milk Agency of the M/s. Hoshiarpur Distt. Co-operative Milk Producer Union Ltd. The product was released only upon making full payment for the purchase. The AO has not disbelieved the business expediency, practical difficulty in making payment in cash to the said Milk Agency. A certificate has also been produced from the General Manager, Verka, Hoshiarpur that the assessee w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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