TMI Blog2004 (8) TMI 319X X X X Extracts X X X X X X X X Extracts X X X X ..... at Bhadravathi, a small town in Shimoga District of Karnataka. The assessee for the purpose of purchase of rice approached the Regional Market Yard at Davangere. It is stated that purchase and sale of rice being agricultural commodity is regulated under the RMC Act and transaction takes place at market yard only. The assessee instead of paying cash/cheque/draft to KP prepares a challan and deposits the cash to the account of KP. Such receipted challan is produced to KP and goods are purchased. The Assessing Officer on the basis of accounting entries in the books of KP noted that they have recorded the receipt by way of cash. Thus the assessee is said to have purchased the goods by paying cash and not by way of crossed cheque/draft. He, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the nature of bills issued by them indicates that they are charging commission separately on the assessee. Further, the price of the goods is passed on to the agriculturists and the commission is retained by KP which clearly indicates that, KP is acting as an agent of the assessee. In the end he submitted that the spirit and intent of the entire provision of section 40A(3) of the Act, is to ensure monies are routed through Banking channels, which has been complied in all respects inasmuch as the amounts were deposited into the bank accounts of the supplier in a place other than, where the assessee is carrying on the business and the entire proof of the same has been furnished to the Assessing Officer which has not been disputed and hence, o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 40A(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 undisclosed sources. The terms of section 40A(3) are not absolute. Considerations of business expediency and other relevant factors are not excluded. 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 sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of un-accounted monies or to reduce the chances of use of black money for business transactions. In the present case it is seen that the assessee for purchase of rice, paid the amount directly to the bank account of the payee. The effect of issue of crossed cheque/DD is that the payee named therein receives the payment through banking channels. The purpose is dual. In the first instance it is to see that the payee and payee alone receives the payment and to ensure that the payment is routed through bank channel so as to trace the origin and conclusion of the transaction. In the case before us, it is seen that instead of issuing cheque/DD the assessee prepared a challan and along with the cash the challan was presented to the bank of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Since the assessee has paid the sum to his agent who is the payee in the present case, and who in his turn is required to make payment to the cultivator, indirectly, the assessee has paid for the purchase of agricultural produce to the cultivator through the agent. Thus, a combined reading of clauses (f) and (l) of Rule 6DD will take away the transaction from the clutches of section 40A(3). From the bills produced by the assessee to the Assessing Officer it was submitted that the assessee apart from paying price of the products also pays commission to the payee. Thus, the payee has become the agent of assessee also. Such agent is required to pay the cultivator in cash. Accordingly, there is no violation of section 40A(3). We accordingly de ..... X X X X Extracts X X X X X X X X Extracts X X X X
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