TMI Blog1977 (7) TMI 32X X X X Extracts X X X X X X X X Extracts X X X X ..... erative society was paid purchase price in cash to the tune of Its. 1,08,316. The amount of purchase price paid in cash as aforesaid was made up of payments made on various dates exceeding Rs. 2,500 individually. During the course of assessment to income-tax, the fact that payments as aforesaid were made on various dates in cash, although the amount involved was more than Rs. 2,500 on each occasion, came to the notice of the Income-tax Officer. The Income-tax Officer felt that, in the facts and circumstances of the case, section 40A(3) of the Income-tax Act, 1961 (hereinafter referred to as " the Act "), was attracted and he, therefore, issued a notice to the assessee on September 21, 1972, to show cause why such payments should not be disallowed. The assessee by his reply dated October 21, 1972, raised, inter alia, the following contentions : (1) the payments having been made for the purchase of the stock-in-trade and not for expenditure incurred for the purpose of carrying on of business in respect of which deduction could be claimed under the relevant provisions of the Act, provisions of section 40A(3) were not applicable ; (2) the payment had to be made in cash because sugar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommissioner. Before the Appellate Assistant Commissioner the same contentions, which were advanced before the Income-tax Officer, were reiterated on behalf of the assessee. The assessee pointed out that it had no roots at the place where the two cooperative societies in question were carrying on their business and that, therefore, it was not afforded any facility in the nature of making payment at a later date. Furthermore, the assessee pointed out that out of the payments, which were disallowed, a sum of Rs. 67,330 and another sum of Rs. 59,579 were paid to one of the two co-operative namely, Una Taluka Sahakari Khand Udyog Mandali Ltd., by paying into the current account of the said co-operative society in the former case and by paying the same in cash after 6 p.m. on the given date in the latter case . In support of this contention, the assessee produced evidence before the Appellate Assistant Commissioner. The Appellate Assistant Commissioner was of the view that, in the facts and circumstances of the case, the provisions of section 40A(3) were attracted and that no relief could be given to the assessee under rule 6DD so far as a substantial part of the payments in question was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not accept any of the contentions, advanced on behalf of the assessee. The Tribunal held that the word " expenditure " in section 40A(3) was wide enough to take in expenditure incurred on acquisition of stock-in-trade and that, therefore, the provisions of section 40A(3) were applicable to the payments in question. So far as the applicability of rule 6DD(j) is concerned, the Tribunal held that there was no dispute that the payments in question were, in fact made to the two co-operative societies for the purchase of sugar at various auctions and, to that extent, the provisions of rule 6DD(j) were satisfied. However, in the opinion of the Tribunal, except to the extent of the deposit of 10% of the purchase price immediately after the auctions were held, it was not shown that the payments had to be made in exceptional or unavoidable circumstances. The Tribunal observed that merely because the assessee took a truck for his convenience and wanted to transport the goods on the same day, it could not be said that the payment in cash was unavoidable. The payment by cheque or draft was also not shown to have been not practicable or as occassioning any difficulty to the payee. Having regard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... required to be computed in accordance with the provisions contained in sections 30 to 43A. From section 30 onwards are found some of the sections which provide for deductions. Section 40 deals with amounts which are not deductible. Then comes section 40A with which we are concerned in the present reference and the relevant portion thereof may be set out : " 40A. (1) The provisions of this section shall have effect notwithstanding anything to the contrary contained in any other provision of this Act relating to the computation of income under the head ' Profits and gains of business or profession'... (3) Where the assessee incurs any expenditure in respect of which payment is made, after such date (not being later than the 31st day of March, 1969), as may be specified in this behalf by the Central Government by notification in the Official Gazette, in a sum exceeding two thousand five hundred rupees otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft, such expenditure shall not be allowed as a deduction : Provided that where an allowance has been made in the assessment for any year not being an assessment year commencing prior to the 1st day of Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nces or (2) because payment in the manner aforesaid was not practicable, or would have caused genuine difficulty to the payee, having regard to the nature of the transaction and the necessity for expeditious settlement thereof,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. " Before entering into an analysis of the relevant statutory provisions, it would be necessary to consider the object behind the enactment of section 40A. In the course of business or profession, the assesee has to incur expenditure involving payments made from time to time, to different persons under various circumstances. The legislature found from experience that the existing provisions of the Act were inadequate to deal with evasion of tax under the cloak or guise of permissible deductions and also that many payments were made with unaccounted money possessed by, the assessee and deductions were claimed in respect of such an order to remedy such situation, section 40A was added by the Finance Act of 1968 and it came into force with effect from April 1, 1968. While introducing the Bill in the Lok Sabha for its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d sub-section which provides that no disallowance under the said sub-section shall be made where any such payment 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. As pointed out by the Finance Minister in his speech in the Lok Sabha while introducing the Finance Bill of 1968, this proviso was introduced in order to obviate any difficulties in payment by cheques or bank drafts in rural areas and in certain other cases and circumstances. For that purpose, power was conferred to enact rules to prescribe cases and circumstances in which no disallowance under sub-section (3) shall be made where any payment in a sum exceeding, Rs. 2,500 is made otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft. Be it noted that while construing the provisions of the said proviso as well as the rules enacted thereunder, this object, which the legislature had in mind, will have to be borne in mind and that any interpretation of those provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dingly, (1) due to exceptional or unavoidable circurmstances, or (2) because payment in the said manner was not practicable, or would have caused genuine difficulty to the payee, having regard to the nature of the transaction and the necessity for expeditious settlement thereof, and also furnishes to the satisfaction of the Income-tax Officer evidence as to the genuineness of the payment and the identity of the payee, no disallowance under sub-section (3) of section 40A shall be made. An analysis of clause (j) of rule 6DD would reveal that it sets out four circumstances in which the rigour of the rule contained in subsection (3) has to be relaxed, namely, where the assessee satisfies the Income-tax Officer that the payment could not be made by a crossed cheque or by a crossed bank draft, due to, (1) exceptional circumstances, (2) unavoidable circumstances, (3) because it was not practicable, having regard to the nature of the transaction and the necessity for expeditious settlement thereof, and (4) because it would have caused genuine difficulty to the payee, having regard to the nature of the transaction and the necessity for expeditious settlement thereof. Be it noted that even i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a thing is practicable depends on the actualities, the very facts and circumstances of the case, and that an act is practicable if conditions and circumstances are such as to permit its performance or to render it feasible ; but a thing is not practicable if some element essential to its accomplishment is lacking. The meaning assigned as aforesaid to the word " practicable " in the ordinary parlance must prevail even in the context of rule 6DD(j), because there is nothing in the subject or context which detracts from it and justifies the giving of a constricted meaning to the said word. In fact, as earlier stated if the object of the enactment, namely, to relax the rigour of sub-section (3) of section 40A in genuine and bona fide cases to avoid hardship and harassment, is borne in mind, the adoption of the ordinary meaning of the word which is so wide would be justified, because it would advance the cause rather than defeat it. Accordingly, the word " practicable " in rule 6DD(j)(2) must be held to signify that which is feasible, that is to say, capable of being put into practice, done, or accomplished with the available means and resources. Besides, in determining practicabili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icable " is governed by the expression " having regard to the nature of the transaction and the necessity for expeditious settlement thereof " and that, therefore, it is only from these two points of view that the practicability or otherwise of payment by a crossed cheque or a crossed bank draft has to be adjudged. We are unable to agree. It is not possible to hold, though the expression on which emphasis has been placed on behalf of the Revenue does lend itself to such suggestion, that regard should be had only to the two matters mentioned therein, isolated from other relevant factors. Such interpretation is not warranted by the statutory language which does not say " having regard only" nor is it warranted by the guideline contained in section 40A(3), second proviso. In Commissioner of Income-tax v. Gangadhar Banerjee Co. (P.) Ltd.[1965] 57 ITR 176 (SC), a similar contention advanced in the context of section 23A of the Indian Income-tax Act, 1922, before amendment in 1955, which also used a similar expression, namely, " having regard to losses incurred by the company in earlier years or to the smallness of the profit made " was negatived by the Supreme Court. The Supreme Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be made on the spot mind after the bank was closed. The dispute now survives, therefore, in respect of only the balance of the purchase price. The assessee, as earlier pointed out, pleaded three circumstances to invoke the benefit of clause (j) of rule 6DD. The assessee contended that, under those circumstances, it was not practicable to make payments by crossed bankdraft. In this connection,it require to be noted that under the terms of auction the co-operative societies in question accepted either cash or bank draft drawn only on the Girgadhada Road branch of the Junagadh District Co-operative Bank Ltd. The assessee, therefore, had no option to make payment by crossed cheque or draft drawn on any other bank. The assessee produced evidence, which is not controverted, to show that at the factory of one of the co-operative societies in question, namely, Bileshwar Khand Udyog Khedut Sahakari Mandali Ltd., there was no branch of any bank and that the factory was situated at a distance of 2 kilometres from the nearest town. The payments which are disallowed pertain mostly to the said co-operative society. The assessee also produced evidence to show that he had to cover a distance o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce of the branch of any bank in the factory or near about. On some of the occasions, owing to paucity of bank balance and short notice, the assessee had to collect cash from its customers only on the previous day in order to make payment at the auction. If a businessman wants to carry the goods purchased by him at the auction with him and to reach his usual place of business as expeditiously as possible and if he could not do so unless he made payment in cash, having regard to the circumstances mentioned above, his conduct would be justified on the ground of business expediency. It would thus appear that in the present case with the available means and resources it was not practicable for the assessee to make payment of the balance of purchase price otherwise than in cash which would be known only after the auction was held and the highest bid was accepted. Once the Tribunal accepted the plea of the assessee with regard to 10% amount which had to be paid by way of deposit, it could not possibly have rejected the assessee's contention with regard to the balance of purchase price, for, in both the circumstances, the conditions governing the payment in cash were identical. In our ..... X X X X Extracts X X X X X X X X Extracts X X X X
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