Devendrappa M Kalal, Hubli v. ITO, Hubli

ITA 220/BANG/2012 | 2008-2009
Pronouncement Date: 30-03-2012 | Result: Allowed

Appeal Details

RSA Number 22021114 RSA 2012
Assessee PAN ANNPK1032A
Bench Bangalore
Appeal Number ITA 220/BANG/2012
Duration Of Justice 1 month(s) 15 day(s)
Appellant Devendrappa M Kalal, Hubli
Respondent ITO, Hubli
Appeal Type Income Tax Appeal
Pronouncement Date 30-03-2012
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted B
Tribunal Order Date 30-03-2012
Assessment Year 2008-2009
Appeal Filed On 14-02-2012
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH B BEFORE SHRI N.K SAINI ACCOUNTANT MEMBER AND SMT. GEORGE GEORGE K JUDICIAL MEMBER ITA NO.220 /BANG/2012 (ASST. YEAR - 2008-09) SRI DEVENDRAPPA M KALAL OPP. KAMARIPETH POLICE STATION TORVI HAKKAL ROAD HUBLI. . APPELLANT PAN NO.ANNPK1032A. VS. THE INCOME-TAX OFFICER WARD-2(2) HUBLI. . RESPONDENT APPELLANT BY : SHRI H.N KHINCHA C.A RESPONDENT BY : SMT. SUSAN THOMAS JOSE JCIT DATE OF HEARING : 20-03-2012 DATE OF PRONOUNCEMENT : 30-03-2012 O R D E R PER SHRI N.K SAINI ACCOUNTANT MEMBER : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) HUBLI DATED 29.12.2011. 2. THE FOLLOWING GROUNDS HAVE BEEN RAISED IN THIS A PPEAL: 1. THE LEARNED AO HAS ERRED IN NOT ALLOWING THE CA SH PAYMENTS MADE TO SOUTH WESTERN RAILWAY TOWARDS PURCHASE OF S CRAP TO THE EXTENT OF RS.73 91 380/- INVOKING THE PROVISION S OF SEC.40A(3) OF THE INCOME-TAX ACT 1961 AND THE LEAR NED CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS.73 9 1 380/-. ITA NO.220/B /12 2 2. IN NAY CASE THE CIT(A) HAS ERRED IN DISALLOWING THE PAYMENTS MADE IN CASH TO SOUGH WESTERN RAILWAY TOWARDS PURCH ASE OF SCRAP. 3. THE LOWER AUTHORITIES HAVE NOT PROPERLY APPRECIA TED THE FACTS OF THE CASE : * THE PAYMENTS ARE MADE TO THE GOVERNMENT OF INDIA (SOUTH WESTERN RAILWAY) TOWARDS PURCHASE. * THE PURCHASE OF SCRAP IS TOTALLY ACCOUNTED IN TH E BOOKS OF ACCOUNT AND IS CROSS VERIFIABLE FROM THE RECORDS OF SOUTH WESTERN RAILWAY. * THE SCRAP DEALERS MAKE PAYMENTS IN CASH TO THE GOVERNMENT AS A GENERAL PRACTICE ONCE THEIR BID IS APPROVED IN THE AUCTION. 3. FROM THE ABOVE GROUNDS IT IS GATHERED THAT THE ONLY GRIEVANCE OF THE ASSESSEE RELATES TO THE CONFIRMATION OF DISALLOWANC E OF RS.73 91 380/- MADE BY THE AO BY INVOKING THE PROVISION OF SEC. 40A(3) OF THE INCOME-TAX ACT 1961 (HEREINAFTER REFERRED TO AS THE ACT IN SHOR T). 4. THE FACTS OF THE CASE IN BRIEF ARE THAT THE ASS ESSEE WAS TRADING IN PURCHASE AND SALE OF SCRAP MATERIALS AND FILED THE RETURN OF INCOME ON 7.10.2008 DECLARING AN INCOME OF RS.2 66 270/- WHI CH WAS PROCESSED U/S 143(1) ON 16.7.2009. LATER ON THE CASE WAS SELECTE D FOR SCRUTINY. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTICE D THAT THE ASSESSEE HAD PURCHASED RAILWAY SCRAP MATERIALS TO THE EXTENT OF RS.73 91 380/- BY MAKING CASH PAYMENT EXCEEDING RS.20 000/-. THE AO ASKED THE ASSESSEE TO GIVE REASONS FOR PAYMENTS IN CASH EXCEEDING RS.20 000/- FOR EXPENDITURE/PURCHASES AND AS TO WHY THE SAME SHOULD NOT BE DISALLOWED. ITA NO.220/B /12 3 THE ASSESSEE SUBMITTED THAT THE RAILWAY AUTHORITY I NSISTED FOR CASH PAYMENTS AND TO THIS EFFECT HE HAD FURNISHED GENERAL CONDITI ONS OF SALE BY AUCTION WHICH REVEALED THAT THE PAYMENT OF BALANCE SALE VAL UE AND DELIVERY OF LOTS SHOULD HAVE BEEN IN CASH ONLY. THE AO ASKED THE AS SESSEE VIDE LETTER DATED. 21.12.2010 TO SHOW CAUSE AS TO WHY THE CASH PAYMENT S EXCEEDING RS.20 000/- MADE TO THE RAILWAYS FOR PURCHASE OF SC ARP MATERIAL IN AUCTION SHOULD NOT BE ADDED TO THE RETURNED INCOME BY DISA LLOWING U/S 40A(3) OF THE INCOME-TAX ACT. IN RESPONSE THE ASSESSEE SUBMITTE D AS UNDER : RULE 6DD(B) SAYS THAT WHERE THE PAYMENTS IS MADE TO THE GOVERNMENT UNDER THE RULES FRAMED BY IT AND SUCH PA YMENTS IS REQUIRED TO BE MADE IN LEGAL TENDER NO DISALLOWANC E UNDER SUB SEC. (3) OF SEC. 40A SHALL BE MADE:- I HAVE MADE PAYMENTS TO THE RAILWAYS BY WAY OF LEGA L TENDER I.E IN INDIA CURRENCY. SUCH PAYMENTS HAVE BEEN MADE TO WARD PURCHASE OF SCRAP IN AUCTION HELD BY THE RAILWAYS. ONE OF T HE CONDITIONS FOR PURCHASE OF SCRAP IN AUCTION IS THAT PAYMENT IS REQ UIRED TO BE MADE IN CASH ONLY. THEREFORE THIS SATISFIES RULE 6DD(B) T HAT PAYMENTS HAS BEEN MADE IN LEGAL TENDER UNDER THE RULES FRAMED BY THE RAILWAYS. 2. THE BOARD OF DIRECT TAXES HAD RECEIVED REPRESENT ATION FROM VARIOUS CHAMBERS OF COMMERCE TRADE ASSOCIATION AND BUSINESSMEN REGARDING THE SCOPE OF PROVISION OF SEC. 40A(3) AND RULE DD. BASED ON THE POINTS RAISED THEREIN THE BOARD HAD ISSUED C LARIFICATIONS. ONE OF THE CLARIFICATIONS IS BY WAY OF CIRCULAR NO.34. THE CIRCULAR 34 OF THE BOARD DATED 5.3.1970 SAYS TH AT SO FAR AS PAYMENTS OF FREIGHT CHARGES/BOOKING OF WAGON TO RAI LWAYS AND PAYMENT OF SALES TAX/EXCISE DUTY ARE COVERED BY THI S EXCEPTION. THE CIRCULAR ONLY INDICATES THE TYPES OF PAYMENT BUT DO ES NOT RESTRICT THE TYPES AND NATURE OF EXPENDITURE. IT DOES NOT SAY T HAT ONLY SUCH PAYMENTS ARE COVERED BY THIS EXCEPTION. IT COVERS ANY TYPE OF PAYMENTS MADE TO THE GOVERNMENT. THE CIRCULAR SAY S THAT THE PAYMENTS SUCH AS FREIGHT CHARGES/BOOKS OF WAGONS TO RAILWAYS AND PAYMENT OF SALES TAX/EXCISE DUTY ARE ALSO COVERED. IT DOES NOT SAY THAT ONLY SUCH TYPES OF PAYMENTS ARE COVERED. HENC E SINCE THERE IS ITA NO.220/B /12 4 NO RESTRICTION UNDER THE RULES FOR THE PAYMENTS AR E COVERED. HENCE SINCE THERE IS NO RESTRICTION UNDER THE RULES FOR THE PAYMENTS MADE TO RAILWAYS IN CASH AS PER THE CONDITIONS OF AUCTION/ BID THE PAYMENT MADE BY US TO RAILWAY AUTHORITIES ARE COVERED UNDER RULE 6DD AND THEY CANNOT BE DISALLOWED U/S 40A(3) OF THE INCOME- TAX ACT 1961. 5. THE AO AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE OBSERVED THAT THE COPY OF THE GENERAL CONDITIONS OF SALES IS SUED BY THE RAILWAYS WHICH WAS FURNISHED BY THE ASSESSEE REVEALED THAT THE CON DITION NO.9 MENTIONED THAT THE PAYMENT OF BALANCE SALE VALUE AND DELIVERY OF LOTS SHOULD BE PAID IN CASH ONLY. ACCORDING TO THE AO THE RULE 6DD(B) CO VERS CASES WHERE THE PAYMENT IS MADE TO THE GOVERNMENT UNDER THE RULES F RAMED BY IT AND SUCH PAYMENTS WERE REQUIRED TO BE MADE IN LEGAL TENDER . THE AO POINTED OUT THAT THE ASSESSEE HAD PAID AUCTION AMOUNT IN CASH T O THE GOVERNMENT IN THIS CASE TO THE RAILWAYS IT COULD BE DONE ONLY IN CASE S RELEVANT TO LEGAL TENDERS . SUCH AS DIRECT TAXES CUSTOMS EXCISE RAILWAY FREIGHT SALES TAX ETC. ACCORDING TO HIM THE PAYMENTS MADE BY THE AS SESSEE ON ACCOUNT OF AUCTION FOR THE PURCHASE OF SCRAP MATERIAL FROM RAI LWAYS COULD NOT BE A LEGAL TENDER AND HENCE RULE 6DD(B) WAS NOT APPLICABLE. HE ALSO POINTED OUT THAT SWR IN ITS WEBSITE ( WWW.SOUTH WESTERN RAILWAY.IN) HAS CAME OUT WITH GENERAL CONDITION OF SALE WHEREIN CONDITION NO.9 CO VERS BESIDES EMD THE MODE OF PAYMENT WHICH COVERS NOT ONLY CASH BUT ALSO THROUGH ELECTRONIC FUND TRANSFER AND FOR THE PURPOSE OF ELECTRONIC TRA NSFERS THE RAILWAYS HAVE ITA NO.220/B /12 5 OPENED AN INTERMEDIATE POOLING ACCOUNT TO FACILITAT E THE COVERAGE OF RISK. HE THEREFORE DID NOT ACCEPT THIS CONTENTION OF TH E ASSESSEE THAT RAILWAYS INSISTED FOR CASH PAYMENT. THE AO ALSO POINTED OUT THAT THE BOARD CIRCULAR NO.34 F.NO.13A/92/69-IT(A-II) DATED 5.3.1970 SPEC IFICALLY EXEMPTED PAYMENTS FROM THE PURVIEW OF SEC. 40A(3) ONLY IN R ESPECT OF PAYMENTS MADE TO RAILWAY BEING FREIGHT CHARGES FOR BOOKING W AGONS. THE AO HELD THAT ANY OTHER PAYMENT BY CASH FOR ANY OTHER PURPOS ES SUCH AS PURCHASE OF SCRAP WAS NOT COVERED U/S 40A(3). HE THEREFORE ADD ED BACK A SUM OF RS.73 91 380/- TO THE INCOME OF THE ASSESSEE. 6. THE ASSESSEE CARRIED THE MATTER TO THE LEARNED CIT(A) AND SUBMITTED THAT THE BOARD CIRCULAR ONLY INDICATES THE TYPES OF PAYMENT BUT DOES NOT REFLECT THE TYPES AND NATURE OF EXPENDITURE AND DOE S NOT SAY THAT ONLY SUCH PAYMENTS ARE COVERED BY THIS EXCEPTION IT COVERS A NY TYPE OF PAYMENTS MADE TO THE GOVERNMENT. IT WAS STATED THAT SINCE T HERE WAS NO RESTRICTION UNDER THE RULES FOR THE PAYMENTS MADE TO THE RAILWA YS IN CASH AS PER THE CONDITIONS OF AUCTION/BID THE PAYMENTS MADE BY THE ASSESSEE TO RAILWAY AUTHORITIES WERE COVERED UNDER RULE 6DD AND COULD N OT BE DISALLOWED U/S 40A(3) OF THE ACT. IT WAS FURTHER SUBMITTED THAT I N THE ASSESSMENT ORDER THE AO MENTIONED THAT IN THE GENERAL CONDITION OF SALES ISSUED BY RAILWAYS CONDITION NO.9 MENTIONED THAT THE PAYMENT OF BALANC E OF SALE VALUE AND DELIVERY OF LOTS SHOULD HAVE BEEN PAID IN CASH ONLY . ITA NO.220/B /12 6 7. THE LEARNED CIT(A) AFTER CONSIDERING THE SUBMIS SIONS OF THE ASSESSEE OBSERVED THAT THE RULE 6DD(B) COVERS CASES WHEREIN THE PAYMENTS IS MADE TO THE GOVERNMENT UNDER THE RULES FRAMED BY IT SUC H PAYMENTS WERE REQUIRED TO BE MADE IN LEGAL TENDER AND THOUGH THE ASSESSEE HAD PAID THE AUCTION AMOUNT IN CASH TO THE GOVERNMENT ACCOUNT O F AUCTION THEREFORE IT COULD NOT BE A LEGAL TENDER AND HENCE RULE 6DD( B) WAS NOT APPLICABLE. THE LEARNED CIT(A) CONFIRMED THE ADDITION MADE BY T HE AO BY OBSERVING THAT THE ASSESSEE HAD NOT SHOWN THE UNAVOIDABLE EX CEPTIONAL AND JUSTIFIABLE REASON FOR MAKING CASH PAYMENTS U/S 40A(3) OF THE A CT. REFERENCE WAS MADE TO THE FOLLOWING CASE LAWS: 1. WALFORD TRANSPORT (EASTERN INDIA) VS. CIT 240 ITR 902 (GAU) 2. ATTAR SINGH GURMUKH SINGH 136 ITR 589 (P&H) 3. JANMABHOOMI VS. CIT 225 ITR 517 1997 (GAU). 8. NOW THE ASSESSEE IS IN APPEAL. 9. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND FURTHER SUBMITTED THAT THE ASSESSEE HAS MADE THE PAYMENT TO THE RAILWAYS WHICH IS PART OF THE G OVERNMENT DEPARTMENT THEREFORE THE PAYMENT WAS OUTSIDE THE PURVIEW OF T HE SEC. 40A(3) OF THE ACT SINCE IT WAS COVERED UNDER THE EXCEPTIONS LAID DOWN IN RULE 6DD(B) OF THE INCOME-TAX RULES 1962. IT WAS CONTENDED THAT T HE RAILWAY DEPARTMENT INSISTED FOR CASH PAYMENT AND IT WAS AN ALLOWABLE E XPENSES. RELIANCE WAS ITA NO.220/B /12 7 PLACED ON THE JUDGMENT OF THE HONBLE JURISDICTION AL HIGH COURT IN THE CASE OF CIT VS. RHYDBURG PHARMACEUTICALS LTD. 269 ITR 5 61. IT WAS FURTHER SUBMITTED THAT THE AO AS WELL AS THE LEARNED CIT(A) WRONGLY INTERPRETED THE MEANING OF LEGAL TENDER WHILE MAKING THE ADDITION S. IT WAS CONTENTED THAT THE INTENTION OF LEGISLATURE WHILE INTRODUCING THE PROVISIONS OF SEC. 40A(3) OF THE ACT AND RULE 6DD(B) OF THE INCOME-TAX RULES 196 2 WAS TO REGULATE BUSINESS TRANSACTIONS AND TO PREVENT THE USE OF UNA CCOUNTED MONEY OR REDUCE THE CHANCES TO USE BLACK MONEY FOR BUSINESS TRANSAC TIONS. RELIANCE WAS PLACED ON THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF ATTAR SINGH GURMUKH SINGH VS. ITO 191 ITR 667. IT WAS FURTHER SUBMITTED THAT THERE WAS A CONDITION BY THE SOUTH WESTERN RAILWAYS THAT THE PAYMENT AGAINST THE PURCHASES SHOULD BE MADE IN CASH ONLY AND THE PURCH ASER WOULD BE AT RISK WHILE MAKING THE PAYMENT BY PAY ORDER/DEMAND DRAFT. IT WAS CONTENTED THAT THE PAYMENT MADE IN CASH BY THE ASSESSEE TO TH E GOVERNMENT CANNOT BE DISALLOWED U/S 40A(3) OF THE ACT IN VIEW OF RULE 6D D(B) OF THE INCOME-TAX RULES 1962. RELIANCE WAS PLACED ON THE JUDGMENT OF THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. KALYAN PRASAD GUP TA (2011) 239 CTR 447 . HE THEREFORE SUBMITTED THAT THE LEARNED CIT(A) W AS NOT JUSTIFIED IN CONFIRMING THE ADDITION MADE BY THE AO. 10. IN HER RIVAL SUBMISSIONS THE LEARNED DR STRONG LY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW AND FURTHER SUBMITTED THAT THE PAYMENT TO THE ITA NO.220/B /12 8 RAILWAY FOR FREIGHT ETC. MADE IN CASH CAN ONLY BE A LLOWED BUT THE ASSESSEE MADE THE PAYMENT IN CASH AGAINST THE PURCHASES THE REFORE THE PROVISION OF SEC. 40A(3) OF THE ACT WERE APPLICABLE AND THE AO R IGHTLY MADE THE DISALLOWANCE BY INVOKING THE PROVISION OF SEC. 40A( 3) OF THE ACT. IT WAS FURTHER STATED THAT THE PAYMENT MADE BY THE ASSESS EE WAS NOT COVERED UNDER THE EXCEPTION LAID DOWN IN RULE 6DD OF THE INCOME-T AX RULES 1962. RELIANCE WAS PLACED ON THE JUDGMENT OF HONBLE KARN ATAKA HIGH COURT IN THE CASE OF MUNGI BROTHERS VS. ACIT 296 ITR 665. 11. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. IN THE P RESENT CASE IT IS NOT IN DISPUTE THAT THE ASSESSEE PURCHASED THE SCRAP IN TH E AUCTION THROUGH BID BY THE SOUTH WESTERN RAILWAY AND THE PAYMENT WAS MADE IN CASH. THE AO MADE THE ADDITION OF RS.73 91 380/- BY INVOKING THE PROVISION OF SEC. 40A(3) OF THE INCOME-TAX ACT IT WAS CONFIRMED BY T HE LEARNED CIT(A) BY STATING THAT THE PAYMENT MADE IN LEGAL TENDER ONL Y COMES UNDER THE EXCEPTIONS PRESCRIBED IN RULE 6DD(B) OF THE INCOME- TAX RULES 1962. NOW WE HAVE TO ANALYZE THE VARIOUS PROVISIONS OF SEC. 4 0A(3) AND EXCEPTIONS LAID DOWN IN RULE 6DD(B) OF THE INCOME-TAX RULES 1962. THE PROVISION CONTAINED IN SEC. 40A(3) OF THE INCOME-TAX ACT READ S AS UNDER : WHERE THE ASSESSEE INCURS ANY EXPENDITURE IN RESPE CT OF WHICH A PAYMENT OR AGGREGATE OF PAYMENT MADE TO A P ERSON IN A DAY OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUES D RAWN ON A ITA NO.220/B /12 9 BANK OR ACCOUNT PAYEE BANK DRAFT EXCEEDS TWENTY TH OUSAND RUPEES NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF SUCH EXPENDITURE. 12. FROM THE ABOVE PROVISIONS IT IS CLEAR THAT TH E DEDUCTIONS FOR THE EXPENDITURE INCURRED IN CASH EXCEEDING RS.20 000/- COULD NOT BE ALLOWED AGAINST THE INCOME UNDER THE HEAD PROFIT AND GAINS OF BUSINESS OR PROFESSION. HOWEVER CERTAIN EXCEPTIONS ARE LAID DOWN IN RULE 6DD OF THE INCOME-TAX RULES 1962 WHICH PROVIDES THE CASES AND CIRCUMSTANCES IN WHICH A PAYMENT OR AGGREGATE OF PAYMENTS EXCEEDING TWENTY THOUSAND RUPEES MAY BE MADE TO A PERSON IN A DAY OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUES DRAWN ON A BANK OR ACCOUNT PAYEE BANK DRAFT. 13. THE EXCEPTION LAID DOWN IN CLAUSE (B) OF RULE 6 DD OF THE INCOME-TAX RULES 1962 RELATES TO THE PAYMENT MADE TO THE GOVER NMENT AND READS AS UNDER:- WHERE THE PAYMENT IS MADE TO GOVERNMENT AND UNDER THE RULES FRAMED BY IT SUCH PAYMENT IS REQUIRED TO BE MADE IN LEGAL TENDER; 14. FROM THE ABOVE PROVISIONS IT IS CLEAR THAT IF THE PAYMENT EXCEEDING RS.20 000/- IS MADE TO THE GOVERNMENT IT IS NOT HI T BY THE PROVISIONS OF SEC. 40A(3) OF THE INCOME-TAX ACT IF IT IS MADE IN LEGA L TENDER. THE MEANING OF LEGAL TENDER HAS NOT BEEN DEFINED IN THE INCOME-TAX ACT. HOWEVER THE DICTIONARY MEANING OF LEGAL TENDER AS MENTIONED I N AIYERS LAW TERMS ITA NO.220/B /12 10 AND PHRASES IS THE COINAGE OF A COUNTY IN WHICH THE DEBTS MAY BE PAID AND WHICH THE CREDITOR IS BOUND TO ACCEPT . THE DICTIONARY MEANING OF THE COIN IS; METAL USED FOR THE TIME BEING AS MONEY AND STAMPED AND ISSUED BY THE AUTHORITIES OF THE STATE IN ORDER TO BE USED . THEREFORE IT CAN BE SAID THAT LEGAL TENDER MEANS THE CURRENCY OF A STATE WHICH IS TO BE USED AS MONEY. IN THE PRESENT CASE THE ASSESSEE MADE THE PAYMENT IN CASH I.E IN INDIAN CURRENCY BECAUSE IT IS NOT THE CASE OF THE DEPARTME NT THAT THE PAYMENT WAS MADE IN FOREIGN CURRENCY TO THE SOUTH WESTERN RAIL WAY TOWARDS PURCHASE OF SCRAP BY THE ASSESSEE. WE THEREFORE ARE OF TH E CONFIRMED VIEW THAT THE PAYMENT MADE IN CASH BY THE ASSESSEE WAS ACTUALLY MADE IN LEGAL TENDER. THEREFORE IT CAN SAFELY BE HELD THAT THE CASH PAY MENT MADE BY THE ASSESSEE TO THE SOUTH WESTERN RAILWAY WHICH IS A PART OF T HE GOVERNMENT WAS COVERED IN THE EXCEPTIONS PROVIDED IN CLAUSE (B) OF RULE 6DD OF THE INCOME- TAX RULES 1962. THEREFORE THE PROVISIONS OF SEC. 40A(3) AS INVOKED BY THE AO WERE NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. ON A SIMILAR ISSUE THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT (A) VS. KALYAN PRASAD GUPTA (CITED SUPRA) HAS HELD THAT THE PAYMENT MADE IN CASH BY THE ASSESSEE TO THE GOVERNMENT CANNOT BE DISALLOWED U/S 40A(3) O F THE ACT IN VIEW OF RULE 6DD(B) OF THE INCOME-TAX RULES 1962. IN THE P RESENT CASE ALSO THE ASSESSEE MADE THE PAYMENT TO THE SOUTH WESTERN RAIL WAY WHICH IS A PART OF THE GOVERNMENT OF INDIA THEREFORE NO DISALLOWANCE WAS CALLED FOR. ON ITA NO.220/B /12 11 SIMILAR ISSUE THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. RHYDBURG PHARMACEUTICALS LTD. 269 ITR 561(CITED SUPRA) HAS HELD THAT THE PAYEE INSISTED ON CASH PAYMENT AND THE TRANSACTIONS WERE FOUND TO BE GENUINE AND BONAFIDE THE TRIBUNAL WAS JUSTIFIED IN ALLOWING T HE EXPENDITURE. 15. IN THE PRESENT CASE ALSO THE SOUTH WESTERN RA ILWAY FOR ITS PUBLIC AUCTION SALE PUT THE GENERAL CONDITION THAT THE PAY MENT OF BALANCE OF SALE VALUE AND DELIVERY OF LOTS SHOULD BE PAID IN CASH O NLY. THIS FACT HAS ALSO BEEN ACCEPTED BY THE AO AS HAS BEEN MENTIONED AT PA GE NO.3 OF THE ASSESSMENT ORDER DATED 27.12.2010. ON A SIMILAR IS SUE THE HONBLE SUPREME COURT IN THE CASE OF ATTAR SINGH GURMUKH SI NGH (CITED SUPRA) HELD AS UNDER : SECTION 40A(3) OF THE INCOME-TAX ACT 1961 WHICH PROVIDES THAT EXPENDITURE IN EXCESS OF RS.2 500 (RS .10 000 AFTER THE 1987 AMENDMENT) WOULD BE ALLOWED TO BE DEDUCTED ONLY IF MADE BY A CROSSED CHEQUES OR CROSSED BANK DRAFT (EX CEPT IN SPECIFIED CASES) IS NOT ARBITRARY AND DOES NOT AMOU NT TO A RESTRICTION ON THE FUNDAMENTAL RIGHT TO CARRY ON BU SINESS. IF READ TOGETHER WITH RULE 6DD OF THE INCOME-TAX RULES 196 2 IT WILL BE CLEAR THAT THE PROVISIONS ARE NOT INTENDED TO RESTR ICT BUSINESS ACTIVITIES. THERE IS NO RESTRICTION ON THE ASSESSE E IN HIS TRADING ACTIVITIES. SECTION 40A(3) ONLY EMPOWERS THE ASSES SING OFFICER TO DISALLOW THE DEDUCTION CLAIMED AS EXPENDITURE IN RE SPECT OF WHICH PAYMENT IS NOT MADE BY CROSSED CHEQUE OR CROSSED BA NK DRAFT. THE PAYMENT BY CROSSED CHEQUE OR CROSSED BANK DRAFT IS INSISTED UPON TO ENABLE THE ASSESSING AUTHORITY TO ASCERTAIN WHET HER THE PAYMENT WAS GENUINE OR WHETHER IT WAS OUT OF INCOME FROM U NDISCLOSED SOURCES. THE TERMS OF SECTION 40A(3) ARE NOT ABSO LUTE. CONSIDERATION OF BUSINESS EXPEDIENCY AND OTHER RELE VANT FACTORS ARE NOT EXCLUDED. GENUINE AND BONAFIDE TRANSACTION S ARE NOT TAKEN OUT OF THE SWEEP OF THE SECTION. IT IS OPEN TO THE ASSESSEE TO ITA NO.220/B /12 12 FURNISH TO THE SATISFACTION OF THE ASSESSING OFFICE R THE CIRCUMSTANCES UNDER WHICH THE PAYMENT IN THE MANNER PRESCRIBED IN SECTION 40A(3) WAS NOT PRACTICABLE OR WOULD HAVE CAUSED GENUINE DIFFICULTY TO THE PAYEE. T IS ALSO OPEN TO THE ASSESSEE TO IDENTIFY THE PERSON WHO HAS RECEIVED THE CASH PAYME NT. RULE 6DD PROVIDES THAT AN ASSESSEE CAN BE EXEMPTED FROM THE REQUIREMENT OF PAYMENT BY A CROSS CHEQUES OR CROSSED BANK DRAFT IN THE CIRCUMSTANCES SPECIFIED UNDER THE RULE. IT WILL BE CLEAR FROM THE PROVISIONS OF SECTION 40A(3) AND RULE 6DD THAT THEY ARE INTENDED TO REGULATE BUSINESS TRANSACTIONS AND TO PREVENT TH E USE OF UNACCOUNTED MONEY OR REDUCE THE CHANCES TO USE BLAC K MONEY FOR BUSINESS TRANSACTIONS. 16. FROM THE RATIO LAID DOWN IN THE AFORESAID REFE RRED CASE IT IS CLEAR THAT THE ASSESSEE CAN BE EXEMPTED FROM THE REQUIREMENT O F PAYMENT BY A CROSS CHEQUE OR BANK DRAFT IN THE CIRCUMSTANCES SPECIFIED UNDER THE RULE. IN THE PRESENT CASE THE PAYMENT MADE BY THE ASSESSEE IS C OVERED UNDER CLAUSE (B) OF RULE 6DD OF THE INCOME-TAX RULES 1962 THEREFOR E WE ARE OF THE CONFIRMED VIEW THAT THE LEARNED CIT(A) WAS NOT JUST IFIED IN CONFIRMING THE ADDITION MADE BY THE AO. 17. BEFORE PARTING IT IS RELEVANT TO POINT OUT TH AT THE JUDGMENT OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF MUNGI BROTHERS VS. ACIT (CITED SUPRA) RELIED ON BY THE LEARNED DR IS DISTIN GUISHABLE ON FACTS BECAUSE IN THE SAID CASE NONE OF THE EXCEPTIONAL CIRCUMST ANCES UNDER RULE 6DD(J)(I) & (II) OF THE INCOME-TAX RULES 1962 WERE AVAILABLE. HOWEVER IN THE PRESENT CASE THE EXCEPTIONS LAID DOWN IN RULE 6DD(B) OF TH E INCOME-TAX RULES 1962 ITA NO.220/B /12 13 ARE APPLICABLE TO THE ASSESSEES CASE THEREFORE T HE CASE RELIED ON BY THE LEARNED DR IS DISTINGUISHABLE. 18. IN VIEW OF THE ABOVE DISCUSSION AND BY CONSIDE RING THE TOTALITY OF THE FACTS OF THE PRESENT CASE WE HOLD THAT THE PAYMENT MADE BY THE ASSESSEE IN CASH TO THE SOUTH WESTERN RAILWAY WHO INSISTED FOR CASH PAYMENT WERE COVERED BY THE EXCEPTION LAID DOWN IN RULE 6DD(B) OF THE INCOME-TAX RULES 1962 AS SUCH IT WAS OUTSIDE THE PURVIEW OF THE PROVISION CONTAINED IN SEC.40A(3) OF THE INCOME-TAX ACT THEREFORE THE LEARNED CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE ADDITION MADE BY THE AO . WE THEREFORE DELETE THE SAME. 19. IN THE RESULT THE APPEAL OF THE ASSESSEE IS A LLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30TH MARCH 2012. SD/- SD/- (GEORGE GEORGE K) (N.K SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER VMS. BANGALORE DATED : 30/03/2012 COPY TO : 1. THE ASSESSEE 2. THE REVENUE 3.THE CIT CONCERNED. 4.THE CIT(A) CONCERNED. 5.DR 6.GF BY ORDER ASST. REGISTRAR I TAT BANGALORE.