TMI Blog2023 (9) TMI 249X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee in the instant case. To support this, assessee filed affidavits from sub-contractors of assessee firm and they insisted for cash payments to make payment to workers and confirmed the above payments. In such circumstances, it cannot be said that sub-contractors are not agents of the assessee for providing labours. Hence, on this count, the expenditure claimed on account of payment made to sub-contractors cannot be considered u/s 40A(3) of the Act as held in the case of Balaji Engineering Construction Works cited [ 2008 (1) TMI 564 - KARNATAKA HIGH COURT] as the Tribunal being subordinate to jurisdictional High Court what matters for the Tribunal is to follow the binding precedent and delete the disallowance in case of cash payments exceeding the stipulated limit coupled with the fact that cash payments are made due to business expediency and being genuine transaction and the parties are identifiable, provisions of section 40A(3) cannot be applied. Accordingly, we are inclined to delete the addition made on this count. One more payment to the labourers who are migrating labours earning wages and not permanently employed by the assessee, who have no bank accounts and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... follows: 1. The learned CIT(A)-2, Panaji erred in Passing the Order in the manner he did. 2. The learned CIT(A)-2, Panaji erred in upholding the additions of Rs. 47,33,332/- by the Assessing Officer by making disallowance under section 40A(3) of the income tax Act 1961. 3. The learned CIT(A)-2, Panaji has failed to appreciate the fact that, payment of Rs. 47,33,332/- has made on account of commercial expediency and the Legislature intention to bring the provisions of section 40A(3) was only to curb black money but genuineness of transaction, business expediency and genuine hardship has also been kept as relevant consideration by way of above provision read with Rule 6DD of the Income tax Rules, 1962. 4. The learned CIT(A)-2, Panaji has failed to appreciate the fact that, Rule 6DD of the IT Rules 1962, which provides for situations under which disallowance under section 40A(3) shall not be made and no payment shall be deemed to be the profits and gains of business or profession. 5. The learned CIT(A)-2, Panaji has grossly overlooked the following decisions, which are squarely applicable to appellant's case. 1. M.K. Agrotech Private Limited Vs. ACIT ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business premises of the Assessee on 24.6.2016. Based on the incriminating documents found during the source of search as well as survey proceedings, Assessing Officer of the opinion that, assessee had escaped its income for the assessment year under question. Hence, notice under section 148 of the Act was issued by reopening the assessment under section 147 of the Act. In response to the above notice, the assessee filed the return of income on 30.9.2018 and declared therein income of Rs. 8,21,704/-. Subsequently, notices u/s. 143(2) and 142(1) of the Act were issued calling for details and assessment was concluded as ex-parte under section 144 r.w.s.147, vide order dated 24.12.2018. In the order of assessment, the Assessing Officer has made additions of Rs. 47,33,332/- as disallowance made under section 40A(3) of the Act and thereby raised tax demand of Rs. 28,99,579/-. 3.2 Being aggrieved by the above order, the Assessee had preferred an appeal before the Commissioner of Income tax (Appeals)-2, Panaji. The Commissioner of Income tax (Appeals) vide his order dated 02.12.2021 in Appeal No.CIT(A)-2/PNJ/10230/2018-19 has dismissed the appeal filed by the Assessee, upholding the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sactions were generally held in the construction contract business. Normally, labourers won't accept cheque/DD and hence, assessee is rightly justifying the circumstances under which the payment was not practicable, or would have caused a genuine difficulty to the payee. Therefore, the assessee submitted that, when the genuineness of the payment is not in doubt and a case of business expediency made out, section 40A(3) cannot be invoked. There was no dispute as to the genuineness of the payments as to labour charges, being to identifiable persons, so that no disallowance under Section 40A(3) could be made. In support this, Assessee relied on Rule 6DD of the IT Rules 1962, which provides for situations under which disallowance under section 40A(3) shall not be made and no payment shall be deemed to be the profits and gains of business or profession. 3.5 The ld. A.R. submitted that in the assessee s case, the payment was made in exceptional and unavoidable circumstances or the payment by cheque or bank draft was not practicable or would have caused genuine difficulty-assessee made cash payments to its workers/sub-contractors to smooth carrying on its contract business in the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Board to notify in the IT Rules any exceptions to the aforesaid provision keeping in view the available banking facilities, business exigencies and other relevant factors. These exceptions have been set forth in r. 6DD. Since all the exceptional circumstances cannot be visualised, a residuary exception has been provided in sub-cl. (j). This subclause excludes from the purview of s. 40A(3) such cases where the assessee establishes that the payment could not made by a crossed cheque or a draft due to exceptional and unavoidable circumstances and also furnishes evidence to the genuineness of the payment and the identity of the payee. The Courts have been consistent in their view that the exceptional circumstances are to be seen from the point of view of a businessman keeping in view the exigencies of business. Still, further, the CBDT itself has issued a Circular No. 220 dt. 31st May, 1977 illustrating the circumstances in which residuary exceptions of r. 6DD(j) are attracted. One of the circumstances mentioned by the Board is that the seller is refusing to accept payment by way of crossed cheque or a draft. Para 4 of this circular provides that the requirement of r. 6DD(j) would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have heard the rival submissions and perused the materials available on record. In the present case, assessee is engaged in business of construction and sale of flats in agreement with the owner of the land. In the course of business of assessee, assessee made cash payment to sub-contractors in exceeds of Rs. 20,000/- otherwise by cash or demand draft or crossed cheque or through electronic mode through bank. The assessee s plea is that payment has been made to sub-contractors who in turn make payment to their labourers towards their wages/salary. The weekly payment has been made on the work acknowledged by the site engineer. The contention of ld. D.R. is that these payments have been made to the sub-contractors by way of bearer cheques and in turn these cheques were been withdrawn through assessee s employees and thereafter proceeds has been received back by the assessee. In fact, the assessee issued bearer cheque and in turn through its employees the amount has been withdrawn and received back by the assessee. Anyhow, the crux of the issue is that assessee has been paid the amount to sub-contractors in cash otherwise than by crossed cheque, Demand draft or electronic mode throug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to 68 of the assessee s paper book. In these affidavits, they have stated that they are sub-contractors of assessee firm and they insisted for cash payments to make payment to workers and confirmed the above payments. In such circumstances, it cannot be said that sub-contractors are not agents of the assessee for providing labours. Hence, on this count, the expenditure claimed on account of payment made to sub-contractors cannot be considered u/s 40A(3) of the Act as held by Hon ble Karnataka High Court in the case of Balaji Engineering Construction Works cited (supra) as the Tribunal being subordinate to jurisdictional High Court what matters for the Tribunal is to follow the binding precedent and delete the disallowance in case of cash payments exceeding the stipulated limit coupled with the fact that cash payments are made due to business expediency and being genuine transaction and the parties are identifiable, provisions of section 40A(3) cannot be applied. Accordingly, we are inclined to delete the addition made on this count. 5.3 There are one more payment to the labourers who are migrating labours earning wages and not permanently employed by the assessee, who have no ..... 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