TMI Blog1994 (3) TMI 125X X X X Extracts X X X X X X X X Extracts X X X X ..... period from October 1976 to June 1977 on various dates aggregating to Rs. 44,74,000. The company also received cash on various dates from the said firm aggregating to Rs. 13,85,000. The Assessing Officer treated the balance amount of Rs. 30,89,000 as the aggregate amount of cash payments made for purchase of goods, each exceeding Rs. 2,500 in contravention of the provisions of section 40A(3). The addition made under section 40A(3) in respect of other purchases relates to one Deepak Trading Co. to whom an aggregate payment of Rs. 16 lacs in cash was made on various dates during the year under consideration. The third party to whom such cash payments were made for goods purchased is Haldharu Purva Vibhag Kapas Sahakari Mandali Ltd. An aggregate payment of Rs. 3,49,867 was made to this party in cash on various dates. A sum of Rs. 31,563 was received from the said party by cheque. The balance amount of Rs. 3,18,304 was treated as cash payments for purchase in violation of section 40A(3). The Assessing Officer thus made an addition of Rs. 50,07,304 in respect of cash payments, each exceeding Rs. 2,500 in violation of section 40A(3) in relation to payments made to these parties as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctness of the facts stated by the firm in their confirmation that they insisted for cash payments on those dates because of urgent business necessity for making payments on that very day. After examining all such relevant datewise details from the entries appearing in the books of the partnership firm as well as the assessee's books of account, he came to the conclusion that the assessee's case is clearly covered by the CBDT circular dated 31-5-1977 as well as by rule 6DD(j). He thus deleted the entire addition made under section 40A(3). 4. Before us the learned Sr. D.R. vehemently argued that the major cash payment disallowed under section 40A(3) has been made to the partnership firm in which the Directors are interested as partners. Huge amounts of cash payments have been made. Both the partnership firm and the assessee-company had their bank accounts in the same bank and the same branch. The assessee could conveniently make payment by account payee cheque/draft and such payments would have also enabled the partnership firm to meet their urgent business necessity on that very day. The same persons were operating the bank account of the company as Directors and the bank account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re not dishonoured. The ITO, the IAC and the CIT (Appeals) also thoroughly examined the books of account of the partnership firm to whom cash payments have been made and the CIT (Appeals) after being fully satisfied about the urgent necessity of funds by the firm and in view of their insistence confirmed in writing, deleted the said addition made under section 40A(3). As regards the payments made to Deepak Trading Co. and Haldharu Kapas Mandali he invited our attention towards the letters submitted before the departmental authorities as well as confirmations of both these parties to prove that the title over the goods sold by the assessee on behalf of these two parties at all times remained with those respective parties. The assessee merely carried out the job work of ginning and pressing and sold the finished product on their behalf to the customers, as the two parties did not have the licence to sell the same. The sale proceeds have been credited in their respective accounts. The payments made by the assessee to these parties is merely a payment of such sale proceeds realised on behalf of these two parties and did not in any manner represent purchases made by the assessee. Our at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be examined and considered for the purpose of invoking the provisions of section 40A(3) and for the purpose of ascertaining as to which type, of payments would be covered by the exceptions provided in rule 6DD(j) read with the Circular No. 220 dated 31-5-1977 issued by the Board. 6.1 In Circular No. 220 dated 31-5-1977, it has been clarified that it would generally satisfy the requirements of rule 6DD(j) if a latter explaining the exceptional and unavoidable circumstances such as mentioned in para 4 of the said circular is produced in respect of each transaction falling within the categories listed in para 4 of the said circular from the seller giving full particulars of his address, sales-tax number, permanent account number, if any, for the purpose of proper identification to enable the ITO to satisfy himself about the genuineness of the transaction. One of the illustration of exceptional circumstance given in para 4 of the said circular is that if the seller is refusing to accept payment by way of crossed cheque/draft and the purchasers business interest would suffer due to non-availability of goods otherwise than from this particular seller. The other illustration is that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upon the assessee-company to make payment to them in cash as and when they required cash urgently. Many a times they urgently required cash to make payments to the farmers who have no bank account and to whom the firm has to make immediate cash payments. It has also been stated in the confirmation that they insisted upon the said company to make payments to them in cash whenever their business needs required it and whenever it was not practicable to accept the cheques from the assessee-company. If the assessee-company had insisted upon making the payments only by crossed cheque/draft without any exception, ignoring their insistence for payment being made in cash whenever the firm needed so, they would have refused and stopped the business with the assessee-company. This letter was directly sent by the said partnership firm to the Assessing Officer. Thereafter the Assessing Officer and the IAC examined the books of account. The Assessing Officer has observed that (para 6 of the assessment order) scrutiny of the books of account reveal that almost every time when the assessee-company has made payments to the firm in cash, the assessee has withdrawn cash from the bank on the same day ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the cheques from the assessee-company. In this confirmation they have confirmed the cash payments received from the assessee-company. The CIT (Appeals) thereafter scrutinised the datewise details about the real utilisation of the cash payments received by the firm from the assessee-company on the different dates with a view to ensure that such cash payments received were utilised on that very day for making cash payments to other creditors or for depositing the same in the bank account by the firm with a view to ensuring the honouring of the cheques already issued by the said firm. A chart from different angle was also produced before the CIT (Appeals) (pp. 79 to 81 of the paper book) which gave the position of bank balances on the respective dates in the bank account of the firm. After completely satisfying himself, the CIT (Appeals) came to the conclusion that the facts stated in the confirmation by the firm are verifiable from the books of account and records maintained by the firm. In para 17 of the appellate order, he has recorded a finding that on going through the particulars furnished for all the 38 days, he feels that there is much substance in the claim that the firm did ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such insistence and urgent business necessity of cash funds on the respective dates has been thoroughly scrutinised and examined by the Assessing Officer as well as by the CIT (Appeals). We are, therefore, of the considered opinion that the ld. CIT (Appeals) has rightly held that payments made to the partnership firm Patidar Ginning Pressing Co. in cash on various dates are clearly covered by the exceptions provided in rule 6DD(j) read with Board's circular dated 31-5-1977. 6.4 As regards cash payments made to the remaining two parties, Deepak Trading Co. vide their letter dated 11-4-1989 submitted to the ITO had clearly confirmed that they have not sold raw cotton (kapas) to the assessee-company and title in raw cotton did not pass in favour of the said company. The company ginned and pressed raw cotton into cotton for and on their behalf and sold the same on their behalf. The company merely charged ginning charges and other expenses. They have also confirmed that the entire sale proceeds after deducting therefrom the expenses incurred by the assessee-company on their behalf was credited to their account and the same has been paid by the assessee-company to the said concern. T ..... 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