Commissioner of Income Tax, V. Grandhi Venkata Ramana,

ITTA/244/2003

AI Insights

The case revolves around an appeal by the Commissioner of Income Tax, Rajahmundry against the decision of the Income Tax Appellate Tribunal, Visakhapatnam, which had allowed the respondent's appeal concerning the disallowance of a cash payment of Rs.30,95,540 under Section 40A(3) of the Income Tax Act, 1961. The original assessment disallowed 20% of the cash payment, which was contested by the respondent. The Tribunal found that since the cash was deposited into the recipient's bank account, the strictures of Section 40A(3) did not apply, leading to the Revenue's appeal. The High Court, referencing judgments from the Punjab and Haryana High Court and the Gujarat High Court, agreed with the Tribunal's decision, emphasizing that the objective of the Act is to ensure taxation of income and that the prohibition under Section 40A(3) is not absolute.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 739140 (HC-ANDHRA_PRADESH)
• Appeal Type: Others
• Pronouncement Date: 28-10-2014
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income Tax v. Smt. Shelly Passi, Anupam Tele Services v. Income Tax Officer
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: SHIVA KARTIKEYA
• Assessee Lawyers: S R ASHOK
• Keywords: Assessment Year 1998-99; Cash payment; Income Tax; Rule 6DD; Section 40A(3)
• Section: 143(3); 40A(3)

Judgement Text

"* THE HONOURABLE SRI JUSTICE L. NARASIMHA REDDY and * THE HON’BLE SRI JUSTICE T.SUNIL CHOWDARY + I.T.T.A.No.244 of 2003 % 28.10.2014 #Commissioner of Income Tax, Rajahmundry. …. Appellant Vs. $ Grandhi Venkata Ramana, Rajahmundry. …. Respondent ! Counsel for the Appellant: SRI S.R. ASHOK, Sr. SC for Income Tax Counsel for Respondent: SRI SHIVA KARTIKEYA Head Note: ? Cases referred: 1. [2013] 350 ITR 227 (P&H) 2 [2014] 366 ITR 122 (Guj) THE HONOURABLE SRI JUSTICE L. NARASIMHA REDDY and THE HON’BLE SRI JUSTICE T.SUNIL CHOWDARY I.T.T.A.No.244 of 2003 JUDGMENT: (Per the Hon’ble Sri Justice L.Narasimha Reddy) This appeal is filed by the Revenue, feeling aggrieved by the order passed by the Income Tax Appellate Tribunal, Visakhapatnam, in I.T.A.No.19/Vizag/2002. The respondent is an assessee under the Income Tax Act, 1961 (for short ‘the Act’). For the Assessment Year 1998-99, he filed returns. An order of assessment was passed on 22.03.2001 under Section 143(3) of the Act. It was found that a sum of Rs.30,95,540/- was paid in cash. Therefore, the Assessing Officer disallowed the amount to the extent of 20% thereof, by invoking Section 40A(3) of the Act. Aggrieved by that, the respondent filed an appeal before the Commissioner of Income Tax (Appeals), Rajahmundry. The appeal was rejected on 19.12.2001. Thereupon, he filed I.T.A.No.19/Vizag/2002 before the Tribunal. The appeal was allowed, taking the view that since the amount was remitted to the account of the recipient in a bank, the prohibition contained under Section 40A(3) of the Act does not apply. Hence, this appeal. Heard Sri S.R. Ashok, learned Senior Standing Counsel for the appellant and Sri Shiva Kartikeya, learned counsel for the respondent. Section 40A(3) of the Act mandates that any expenditure incurred by an assessee shall not be allowed if it exceeds Rs.20,000/-, but paid otherwise than through account payee cheque drawn on a bank or demand draft. The prohibition, however, is not absolute. The proviso to sub-section (3) of Section 40A of the Act directs that in case such payments are covered by the rule that is made in this behalf, they shall not be disallowed. A perusal of Rule 6DD of the Income Tax Rules, 1962 (for short ‘the Rules’) reveals that dozens of exceptions are carved out in this behalf. All payments made even in cash to Reserve Bank, State Bank of India or Industrial Development Corporations of various States, are brought under the purview of the Rule. Clause (j) of Rule 6DD conferred discretion upon the Assessing Officer to verify the circumstances under which the amount was paid in cash and if he is satisfied about it, the amount was liable to be allowed. The said clause was deleted in the year 1995. Notwithstanding the fact that the respondent cannot claim the benefit under Rule 6DD(j) of the Rules, the attendant circumstances justified the view taken by the Tribunal. In its order, the Tribunal referred to various judgments rendered by different High Courts, may be as regards the proposition that if an order is passed and if the books of account of an assessee are not believed, and the best judgment assessment made, every deduction or allowance including the one referable to Section 40A(3) of the Act can be said to have been dealt with. We do not intend to dwell into that aspect because it was in relation to a different head of amount. We have already observed that the prohibition contained in Section 40A(3) of the Act is not absolute and dozens of exceptions are carved out by the rule making authority. At least in the exceptions contained in the rule, the payment by the assessee, as well as receipt by the payee are in cash. In the instant case, the payment no doubt was in cash but it was deposited into the bank account of the recipient. It is not a case where the cash was paid by the assessee and was received by the recipient. An instance of cash being credited to the account of the recipient stands on a higher footing, compared to the different heads, under Rule 6DD of the Rules when payment of cash, even to the banks and other statutory agencies, is recognized, there is no reason why the deposit of cash into the bank account of a recipient cannot be regarded as qualifying for allowances. Further, the objective under the Act is to ensure that the income of an assessee is levied tax and every step is taken to ensure that no part of the income escapes the taxation. The prohibition contained under Section 40A(3) of the Act is more a matter, which genuinely falls in the realm of the Banking Regulation Act. A provision of that nature cannot be understood just in grammatical manner. I n Commissioner of Income Tax v. Smt. Shelly Passi, the Panjab and Haryana High Court took the view that the cash deposited to the bank account of a recipient does not fall within the purview of Section 40A(3) of the Act. To the same effect is the judgment of the Gujarat High Court in Anupam Tele Services v. Income Tax Officer. We do not find any basis to interfere with the order passed by the Tribunal. The appeal is accordingly dismissed. There shall be no order as to costs. The miscellaneous petitions filed in this appeal shall stand disposed of. __________________________ L.NARASIMHA REDDY, J Date: 28.10.2014 __________________________ T.SUNIL CHOWDARY, J Note: L.R Copy to be marked B/o va "