TMI Blog1997 (4) TMI 106X X X X Extracts X X X X X X X X Extracts X X X X ..... ed under s. 40A(3). 3. The first appellate authority accepted the claim of the assessee and deleted the addition except with regard to two payments of Rs. 20,387 and Rs. 6,396 made to two parties. According to the CIT(A), those two payments were made in violation of the provisions of s. 40A(3). Against the said findings, the Revenue is in appeal before us. 4. The learned Departmental Representative strongly relied upon the order passed by the AO and submitted that it was found by the AO that the genuineness of the transactions were in doubt. Further, it was found that the assessee had sufficient stock of ghee to meet at least 10 days requirements of their sales. Hence, there was no urgent need to purchase ghee by making cash payments. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... viz., Shah Dhirenkumar Chimanlal Co., M/s Dhanjibhai Gheewala Co., and Modi Sanjaybhai Keshavlal, they were paid Rs. 19,161, Rs. 20,250 and Rs. 18,869 in cash for the purchase of ghee. There was strained relationship between the dealers and the assessee and they insisted for cash payment. The learned counsel has further submitted that r. 6DD has provided the cases and circumstances in which payment can be made in cash. In r. 6DD(j) there are circumstances where the assessee satisfied the AO that the payment could not be made by cross cheque or a cross bank draft due to exceptional or unavoidable circumstances because it was not practicable due to genuine difficulty having regard to the nature of transaction and it was a necessity for ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o perused the materials on record. While making disallowance under s. 40A(3), the AO in the present case has mainly relied on the decision of Dy. CIT(AR-II), Ahmedabad, under s. 144, dt. 31st March, 1989. The assessee is a dealer in milk and milk products. During the year he purchased ghee from different parties and made payments to these parties which amounts to Rs. 2,04,759. According to the assessee some payments were made due to the reason that those parties insisted for cash payments and the other payments were made since the parties were new to the assessee. According to the assessee, those two circumstances are covered by the circular issued by the Board i.e., Circular No. 220, dt. 31st May, 1997. On perusal of the aforesaid circular ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statements in detail. It has been observed that three payments made to M/s Sunil Kumar Gheewala Co., was in cash. In a statement it has come on record that the said party had insisted on cash payment if the assessee wanted immediate delivery of ghee. It has been specifically informed to the assessee that in case payment is made by cheque the delivery would be effected only after the clearance of the cheque. The statement of Shri Yogesh Rasiklal, partner of Balam Diary Agency, which has been discussed by the CIT(A) in para. 6 of his order wherein we find that party also insisted for cash payment. The parties viz., Mahadir Ghee Bhandar and Agarwal M. Maneklal also insisted for cash payments. The party Shah Dhirankumar Chimanlal Co., in hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the said case has held that s. 40A(3) must not be read in isolation or to the exclusion of r. 6DD. The section must be read along with the rule. Further, it was held that the terms of s. 40A(3) are not absolute considerations of business expeditious and other relevant factors are not excluded. Genuine and bona fide, transactions are not taken out of the sweep of the section. In the case reported in Hasanand Pinjomal vs. CIT, the jurisdictional High Court held that cl. (j) of r. 6DD sets out four circumstances in which the rigour of the rule contained in sub-s. (3) of s. 40A has to be relaxed. One of such circumstances is, that where payment in the manner provided in s. 40A(3) is not practicable. It was held by the Hon'ble High Court that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay in cash. This explanation was accepted by the CIT(A) but not by the ITO and the Tribunal. None of three authorities have doubted the genuineness of these payments. Once the transactions are genuine, what is to be considered is only the explanation offered by the assessee". Thereafter, the Hon'ble Judges have distinguished that case with regard to the present case reported in (1995) 216 ITR 366 (Gau) to the effect that in the present case both the assessee as well as the payee had their offices at Gauhati admittedly with their bank accounts. The certificate as contained in Annexure-A/2 does not even remotely indicate any genuine difficulty posed or presented to the parties necessitating cash payments by the assessee on the dates they w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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