TMI Blog2021 (9) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... nd circumstances and business expediency, in our view, the ld. CIT(A) was justified in deleting the disallowance made by the AO. No merit in the appeal of the Revenue and the same is, accordingly, dismissed. - ITA No. 817/CHD/2018 - - - Dated:- 23-8-2021 - Sanjay Garg, Member (J) And Annapurna Gupta, Member (A) For the Appellant : Meenakshi Vohra, Addl. CIT For the Respondents : Tej Mohan Singh, Advocate ORDER Per Sanjay Garg, Judicial Member The present appeal has been preferred by the Department-Revenue against the order dated 26.03.2018 passed by ld. Commissioner of Income Tax (Appeals), Palampur (hereinafter referred to as 'CIT(A) pertaining to 2014-15 assessment year. 2. The Revenue has taken the following grounds in this appeal: 1. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of ₹ 1,72,80,862/- made by the AO on account of disallowance in contravention, of Section 40A(3) of the IT. Act for making cash payments. 2. The facts and circumstances in the case of M/s. Dhuri Wines is not identical to the instant case and AO has rightly followed the decision in the case of Smt. Chan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and then transferred through RTGS to M/s. Verka Milk Agency. However, all the retailers are not able to make the whole or part of the payment at the time of first visit for collection. Therefore, the retailers are again approached in the evening for asking their requirement of milk for the next morning and simultaneously the pending collections are also made. By the time these collections are made, the working hours of the banks get passed and generally it is not possible for us to deposits the proceeds into the bank. Resultantly we have no option left but 1 Pay this cash collection to M/s. Verka Milk Agency at the time of purchase of milk in the next morning as the supply agency, i.e., M/s. Verka Milk Agency does not allow credit sales and the purchases are released only upon the full payment of the receipt. As has been briefed in the above Para it is not possible for us to avoid the cash payments to M/s. Verka Milk Agency. As detailed above, the supplier, M/s. Verka Milk Agency, neither all credit sale nor accepts account payee cheque and we are left no any option but to make the post payment in cash as all of the retailers (to whom we supply) do not make the payment during the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur Distt. Cooperative Milk Producer Union Ltd. which was purchaser of milk from the producers/farmers and that milk was not produced by the said Union. He observed that the Clause 'e' of Rule 6DD of Income Tax Rules was not applicable as M/s. Hoshiarpur Distt. Co-operative Milk Producer Union Ltd. was not the producer of the milk. He further held that the plea of the assessee that the payments were made in exceptional circumstances would not be of any help to the assessee. He in this respect relied upon the decision of the Himachal Pradesh High Court in the case of Smt. Chanchal Dogra Vs ITO (2012)247 CTR (HP) 616 wherein it was held that M/s. Hoshiarpur Distt. Cooperative Milk Producer Union Ltd. could not be considered to be produce of milk and therefore, payments made by the assessee to the said Union would not come under Rule 6DD(e) of the IT Rules. The ld. AO, thus, held that the assessee had made payments in contravention of Section 40A(3) of the Income Tax Act. He, accordingly, made disallowance of ₹ 1,72,80,862/- and added the said amount into the income of the assessee. 5. Being aggrieved by the order of the AO, the assessee preferred appeal before the ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reproduced above. Respectfully following the decision of the jurisdictional Hon'ble ITAT, Chandigarh, it is held that Ld. AO was not justified to make disallowance u/s. 40A(3) in the facts and circumstances of the case of the appellant. The disallowance of ₹ 1,72,80,862/- is, accordingly, deleted. Ground of appeal-1 is allowed. 6. Being aggrieved by the said order of the ld. CIT(A), the Revenue has come up in appeal before us. 7. We have heard the rival contentions and gone through the record. To property appreciate the facts and circumstances of the case, we deem it fit to first reproduce the relevant provisions of Section 40A(3) of the Income Tax Act and Rule 6DD of the IT Rules: Section 40A(3): [(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 subsection ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y bank [not being a banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949)], whether incorporated or not, which is established outside India; (d) where the payment is made by way of adjustment against the amount of any liability incurred by the payee for any goods supplied or services rendered by the assessee to such payee; (e) where the payment is made for the purchase of- (i) agricultural or forest produce; or (ii) the produce of animal husbandry (including livestock, meat, hides and skins) or dairy or poultry farming; or (iii) fish or fish products; or (iv) the products of horticulture or apiculture, to the cultivator, grower or producer of such articles, produce or products; (f) where the payment is made for the purchase of the products manufactured or processed without the aid of power in a cottage industry, to the producer of such products; (g) where the payment is made in a village or town, which on the date of such payment is not served by any bank, to any person who ordinarily resides, or is carrying on any business, profession or vocation, in any such village or town; (h) where an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransaction had to be done through cash payments. Such cases and circumstances had been prescribed under Rule 6DD of the IT Rules as reproduced above. A perusal of Rule 6DD shows that a list of certain cases has been given therein wherein the transactions through cash payments has been justified considering the difficulties due to non-availability of banking facilities and also considering certain nature of business where generally the transaction has to be carried out through cash payments only, e.g. transaction done with low income group who either do not have bank account or otherwise need immediate cash to make their both ends meet. Besides that the payments made to Reserve Bank of India or a banking company, the co-operative bank, any primary Agricultural Credit Society, Life Insurance of India and any payment made to Government, if so required to be made in legal tender have also been included in the list besides other parties/cases as mentioned above. 8.1. The perusal of provision of Section 40A(3) of the Income Tax Act read with Rule 6DD of the IT Rules reveal that the purpose of enactment of the above provisions is to make it difficult for the concerned recipient to evad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad together, it will be clear that the provisions are not intended to restrict the business activities. There is no restriction on the assessee in his trading activities. Section 40-A (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 40-A(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 40-A(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 6-DD provides that an assessee can be exempted from the requirement of payment by a cro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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