A DAGA ROYAL ARTS, Jaipur V. ITO, Jaipur

ITA 1065/JPR/2016

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 6138 (ITAT-JAIPUR)
• Duration Of Justice: 1 year(s) 5 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-05-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 05-12-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: J C KULHARI
• Keywords: Capital asset; Income from undisclosed sources; Reasonable cause
• Section: 40A(3); 28

Judgement Text

ITA NO. 1065/JP/2016 M/S A DAGA ROYAL ARTS, JAIPUR VS ITO, JAIPUR 1 VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH FOT; IKY JKO] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS[KK LNL; DS LE{K BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM VK;DJ VIHY LA-@ ITA NO.1065/JP/2016 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2013-14 M/S A DAGA ROYAL ARTS, JAIPUR CUKE VS. ITO, WARD-2(2), JAIPUR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AAJFA6768J VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ L S@ ASSESSEE BY : SHRI RAJEEV SOGANI (C.A) JKTLO DH VKSJ LS @ REVENUE BY : SHRI J. C. KULHARI (JCIT) LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 16/04/2018 MN?KKS'K.KK DH RKJH[ K@ DATE OF PRONOUNCEMENT: 15/05/2018 VKNS'K@ ORDER PER: VIKRAM SINGH YADAV, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF LD. CIT(A)-1, JAIPUR DATED 28.10.2016 FOR ASSESSMENT YEAR 2013-14 WHEREIN THE ASSESSEE HAS TAKEN THE FOLLOWING GROUND OF APPEAL:- IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS GROSSLY ERRED IN CONFIRMING THE ACTION OF LD. AO IN DISALLOWING THE CLAIM OF EXPENDITURE OF RS. 1,71,67,000/- BY APPLYING SECTIO N 40A(3) OF INCOME TAX ACT, 1961. THE ACTION OF THE LD. CIT(A) IS ILLEGAL, UNJUSTIFIED, ARBITRARY AND AGAINST THE FACTS OF THE CASE. RELIEF MAY PLEASE MA Y BE GRANTED BY DELETING THE ENTIRE ADDITION RS. 1,71,67,000/- IMPOSED UNDER SECTION 40A(3). 2. THE FACTS OF THE CASE ARE THAT DURING THE YEAR U NDER CONSIDERATION, THE ASSESSEE FIRM HAS PURCHASED 26 PIECES OF PLOT OF LA ND IN THE MONTH OF APRIL AND MAY, 2012 FROM VARIOUS PERSONS FOR A TOTAL CONSIDER ATION OF RS. 2,46,28,425/-, ITA NO. 1065/JP/2016 M/S A DAGA ROYAL ARTS, JAIPUR VS ITO, JAIPUR 2 OUT OF WHICH PAYMENT AMOUNTING TO RS. 1,71,67,000/- WERE MADE IN CASH TO VARIOUS PERSONS, PAYMENT AMOUNTING TO RS. 59,48,920 /- WERE MADE IN CHEQUE TO VARIOUS PERSONS, AND RS. 8,15,700/- AND RS. 6,8 4,296/- WERE PAID IN CASH TOWARDS STAMP DUTY AND COURT FEE RESPECTIVELY. 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A S HOW-CAUSE NOTICE WAS ISSUED TO THE ASSESSEE AS TO WHY THE PURCHASES MADE IN CASH SHOULD NOT BE DISALLOWED U/S 40A(3) OF THE ACT. IN ITS SUBMISSION FILED VIDE LETTER DATED 24.02.2016, THE ASSESSEE SUBMITTED THAT IT HAS PURC HASED THE PLOTS OF LAND IN THE MONTH OF APRIL AND MAY, 2012 AS CAPITAL ASSET B UT LATER ON, THE SAME HAVE BEEN CONVERTED INTO STOCK-IN-TRADE AND THE REFLECTI ON AND PRESENTATION IN THE ANNUAL ACCOUNTS HAS BEEN MADE ACCORDINGLY. IT WAS F URTHER SUBMITTED THAT THE PAYMENT FOR PURCHASE OF LAND HAS BEEN MADE IN CASH BECAUSE THE SELLERS WERE NEW TO THE ASSESSEE AND REFUSED TO ACCEPT THE CASH. IT WAS SUBMITTED THAT THE DELAY IN MAKING THE CASH PAYMENT, IT COULD HAVE LOS T THE LAND DEALS. IN SUPPORT, RELIANCE WAS PLACED ON THE CBDT CIRCULAR N O. 220 (F NO. 206/17/76- IT (A-11)) DATED 31.05.1977. FURTHER, THE ASSESSEE REFERRED TO THE INTENTION BEHIND INTRODUCTION OF THE PROVISIONS OF SECTION 40 A(3) WHICH IS TO CHECK EVASION OF TAX SO THAT THE PAYMENT IS MADE FROM THE DISCLOSED SOURCE. FURTHER RELIANCE WAS PLACED ON THE VARIOUS DECISIONS INCLUD ING THE DECISIONS OF HONBLE RAJASTHAN HIGH COURT IN CASE OF CIT V. MAHENDRA & C O. LTD, (1987) 163 ITR 316 (RAJ), BADRILAL PHOOL CHAND RODAWAT V. CIT (198 7) 167 ITR 404 (RAJ), KANTI LAL PURSHOTTAM & CO. VS. CIT (1985) 155 ITR 5 19 (RAJ.) AND CIT VS. BANSWARA FABRICS LTD (2004) 267 ITR 398 (RAJ.). 4. THE SUBMISSIONS SO FILED BY THE ASSESSEE WERE CO NSIDERED BUT WERE NOT FOUND ACCEPTABLE TO THE ASSESSING OFFICER. THE ASSE SSING OFFICER OBSERVED THAT IN ALL THESE CASES WHICH HAVE BEEN RELIED UPON BY T HE ASSESSEE, THE EMPHASIS WAS GIVEN ON THE FACT THAT THE SELLER HAS PRESSED T O MAKE CASH PAYMENT AND THE IDENTITY OF THE SELLER IS GENUINE. THE AO, ON P ERUSAL OF THE DETAILS OF THE PROPERTIES PURCHASED, AS PER COPIES OF THE SALE DEE D FURNISHED DURING THE COURSE OF ASSESSMENT PROCEEDINGS, NOTICED THAT THE ASSESSEE HAD MADE CASH ITA NO. 1065/JP/2016 M/S A DAGA ROYAL ARTS, JAIPUR VS ITO, JAIPUR 3 PAYMENTS REGULARLY, NO SPECIFIC CIRCUMSTANCES HAVE BEEN BROUGHT TO HIS KNOWLEDGE THAT THE CASH PAYMENTS WERE MADE DUE TO S OME UNAVOIDABLE CIRCUMSTANCES. 5. THE ASSESSING OFFICER FURTHER REFERRED TO THE NA TURE OF BUSINESS DISCLOSED IN THE AUDIT REPORT AS WELL AS THE FACT T HAT THE ASSESSEE HAS SOLD PLOTS OF LAND AMOUNTING TO RS. 82 LACS DURING THE YEAR UN DER CONSIDERATION AND HELD THAT THE ASSESSEE IS IN THE BUSINESS OF REAL ESTATE AND HAS PURCHASED THE SUBJECT PROPERTIES FOR BUSINESS PURPOSES AND THE SA ME WERE STOCK-IN- TRADE AND NOT INVESTMENT AS CONTENDED BY THE ASSESSEE. 6. FURTHER, THE AO REFERRED TO THE RULE 6DD OF THE INCOME TAX RULES AND STATED THAT THE CASE OF THE ASSESSEE DOES NOT FALL IN ANY OF THE SUB-CLAUSES OF RULE 6DD. REGARDING THE CIRCULAR NO. 220 (F NO. 206 /17/76-IT(A-11) DATED 31.05.1977 RELIED UPON BY THE ASSESSEE, IT WAS OBSE RVED BY THE AO THAT THE SAID CIRCULAR IS VERY OLD AND NO RELIANCE CAN BE PL ACED ON THE SAID CIRCULAR. 7. THE AO FURTHER HELD THAT THE WORD EXPENDITURE HAS NOT BEEN DEFINED IN THE ACT. IT IS A WORD OF WIDE IMPORTANCE. SECTION 4 0A(3) REFERS TO EXPENDITURE INCURRED BY THE ASSESSEE IN RESPECT OF WHICH PAYMEN T IS MADE. IT MEANS ALL OUTGOINGS ARE BROUGHT UNDER THE WORD EXPENDITURE FOR THE PURPOSE OF THE SECTION. THE EXPENDITURE FOR PURCHASING THE STOCK-I N-TRADE IS ONE OF SUCH OUTGOINGS. THE VALUE OF THE STOCK-IN-TRADE HAS TO B E TAKEN INTO ACCOUNT WHILE DETERMINING THE GROSS PROFITS U/S 28 ON PRINCIPLES OF COMMERCIAL ACCOUNTING. IT WAS ACCORDINGLY HELD BY THE AO THAT THE PAYMENT MAD E FOR PURCHASE OF STOCK- IN-TRADE WOULD BE COVERED BY THE TERM EXPENDITURE AND WHICH WOULD BE SUBJECT MATTER OF DISALLOWANCE U/S 40A(3) OF THE AC T. 8. IT WAS FURTHER OBSERVED BY THE AO THAT THE MAXIM UM PURCHASES WERE MADE FROM THE PERSONS WHO ARE RESIDING IN JAIPUR CI TY AND THERE ARE BANKING FACILITIES IN THE CITY. IT WAS FURTHER OBSERVED BY THE AO THAT IN SINGLE FAMILY, REPEATED CASH PAYMENTS WERE MADE WHICH SHOWS THAT T HERE WERE NO UNAVOIDABLE CIRCUMSTANCES TO MAKE CASH PAYMENT TO T HE SELLERS AND THE AO ITA NO. 1065/JP/2016 M/S A DAGA ROYAL ARTS, JAIPUR VS ITO, JAIPUR 4 ACCORDINGLY MADE DISALLOWANCE OF RS. 1,71,67,000/- IN RESPECT OF PURCHASE OF PROPERTY IN CASH INVOKING THE PROVISIONS OF SECTION 40A(3) OF THE ACT. HOWEVER NO DISALLOWANCE WAS MADE IN RESPECT OF CASH PAYMENT FOR STAMP DUTIES AND COURT FEES PAID BY THE ASSESSEE. 9. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTE R IN APPEAL BEFORE LD. CIT(A). IT WAS CONTENDED BEFORE THE LD. CIT(A) THA T THE PIECES OF LAND WERE PURCHASED AS INVESTMENT IN THE MONTH OF APRIL, MAY 2012 WITH AN INTENTION TO HOLD THESE FOR LONGER PERIOD AS INVESTMENTS. HOWEVE R, ON THE BASIS OF THE LUCRATIVE MARKET AND REPETITIVE ENQUIRIES ABOUT THE VARIOUS PLOTS OF LAND IN WHICH IT HAD INVESTED, THE ASSESSEE DECIDED TO CONV ERT THE SAID PLOTS OF LAND INTO ITS STOCK-IN-TRADE IN THE MONTH OF JUNE 2012. THE ASSESSEE FURTHER SUBMITTED THAT WHETHER A PARTICULAR ASSET IS HELD A S CAPITAL ASSET OR STOCK-IN- TRADE IS A MATTER OF INTENTION OF THE ASSESSEE, WH ICH IS KNOWN ONLY TO THE ASSESSEE AND THE INTENTION IS BEST REFLECTED THROUG H THE ENTRIES PASSED IN THE BOOKS OF ACCOUNTS. AT THE TIME OF PURCHASE, THE ENT RIES PASSED IN THE BOOKS OF ACCOUNTS OF ACCOUNTS REFLECTED THESE TRANSACTIONS A S INVESTMENTS. 10. IT WAS FURTHER SUBMITTED THAT IN THE REAL ESTAT E BUSINESS, BUSINESSMAN DOES NOT TRANSFER THE PURCHASED PROPERTY/LAND IN HI S OWN NAME AS REGISTRATION CHARGES AND STAMP DUTY ON TRANSFER IS REQUIRED TO B E PAID WHICH MAKES IT A COSTLY AFFAIR. ALTERNATIVELY, THEY OBTAIN POWER OF ATTORNEY FROM THE SELLER AND PAY ADVANCE ON THE BASIS OF AGREEMENT TO SELL AND AFTER IDENTIFICATION OF THE CUSTOMER, THE REGISTRY IS BEING DONE IN THE NAME OF FINAL BUYER/CUSTOMER ONLY, THROUGH THE VALID POWER OF ATTORNEY. WHEREAS IN THE INSTANT CASE UNDER CONSIDERATION, ALL THE LANDS WERE TRANSFERRED IN TH E NAME OF ASSESSEE FIRM THROUGH REGISTERED SALE DEEDS AND IT INCURRED A SUM OF RS. 14,99,996/- TOWARDS REGISTRATION CHARGES AND STAMP DUTY THEREON , WHICH SUPPORT THE ASSESSEES INTENTION OF HOLDING THE PURCHASED LANDS FOR LONGER TERM AS INVESTMENTS. ITA NO. 1065/JP/2016 M/S A DAGA ROYAL ARTS, JAIPUR VS ITO, JAIPUR 5 11. IT WAS FURTHER SUBMITTED THAT CASH PAYMENTS FOR THE PURPOSE OF ACQUIRING CAPITAL ASSET, BEING INVESTMENTS, ARE NOT COVERED BY THE PROVISIONS OF SECTION 40A(3) OF ACT. REGARDING AOS OBSERVATION T HAT THE AUDITORS HAVE MENTIONED THAT THE ASSESSEE IS ENGAGED IN THE REAL ESTATE BUSINESS, IT WAS SUBMITTED THAT THE AUDITORS HAVE RIGHTLY MENTIONED THEIR REAL ESTATE BUSINESS AND NOTHING ADVERSE COULD HAVE BEEN INFERRED BY THE AO BECAUSE THE INVESTMENTS IN LAND WERE CONVERTED INTO STOCK-IN-TR ADE ON 1 ST JUNE, 2012 BY PASSING APPROPRIATE ENTRIES IN BOOKS OF ACCOUNTS AN D DURING ASSESSMENT PROCEEDINGS, THIS FACTUAL ASPECT WAS ALSO CONVEYED. FURTHER, THERE WAS A REAL ESTATE BUSINESS TURNOVER TO THE TUNE OF RS. 82,00,0 00/- AND ACCORDINGLY THE AUDIT REPORT CONTAINED THIS FACTUAL ASPECT. IT WAS SUBMITTED THAT THE SAME CAN HAVE NO ADVERSE EFFECT ON THE FACT OF CASH BEING PA ID FOR ACQUIRING INVESTMENT IN THE FORM OF LAND. 12. IT WAS FURTHER SUBMITTED THAT EVEN IF THE PURCH ASES ARE TREATED AS STOCK- IN-TRADE, SECTION 40A(3) DOES NOT IN BLANKET MANNER MANDATE DISALLOWANCE IN RESPECT OF ALL SITUATIONS WHERE CASH PAYMENT HAS BE EN MADE. IT WAS SUBMITTED THAT THE CASH PAYMENTS WERE MADE ON THE SPECIFIC CO NDITION PUT UP BY THE SELLER AND THEY BEING RESIDENT OF JAIPUR OR BELONGI NG TO THE SAME FAMILY DOES NOT MAKE ANY DIFFERENCE. IN THIS REGARD, IT WAS FUR THER SUBMITTED THAT CBDT CIRCULAR NO. 220(F NO. 206/17/76-IT (A-II) DATED 31 .05.1977 WAS BROUGHT TO THE NOTICE OF THE AO AND WHICH WAS BINDING ON THE A O AND HIS ACTION OF IGNORING THE SAID CIRCULAR IS ILLEGAL. 13. IT WAS FURTHER SUBMITTED THAT THE LANDS WERE PU RCHASED THROUGH REGISTERED SALE DEEDS, IDENTITY OF THE SELLERS AND GENUINENESS OF THE TRANSACTIONS IS FULLY ESTABLISHED AND THE AO HAS NO T RAISED ANY DOUBT OVER THE GENUINENESS OF THE PAYMENTS AND IT WAS ACCORDINGLY SUBMITTED THAT WHERE THE GENUINENESS OF THE PAYMENTS WHICH ARE AS PER THE RE GISTERED SALE DEEDS ARE NOT DOUBTED BY THE AO, NO DISALLOWANCE COULD BE MAD E. IN SUPPORT, RELIANCE WAS PLACED ON THE DECISION OF HONBLE PUNJAB AND HA RYANA HIGH COURT IN CASE OF GURDAS GARG VS. CIT [2015] 63 TAXMANN.COM 289. ITA NO. 1065/JP/2016 M/S A DAGA ROYAL ARTS, JAIPUR VS ITO, JAIPUR 6 14. THE LD AR FURTHER PLACED RELIANCE ON THE DECISI ON OF HONBLE SUPREME COURT IN CASE OF ATTAR SINGH GURMUKH SINGH VS. ITO 59 TAXMANN.COM 11, THE DECISION OF HONBLE RAJASTHAN HIGH COURT IN CASE OF HARSHILA CHORDIA VS. ITO 298 ITR 349, AND DECISION OF HONBLE GUJARAT HIGH C OURT IN ANUPAM TELE SERVICES (2014) 362 ITR 92 (GUJ), BESIDES VARIOUS O THER DECISIONS. 15. THE SUBMISSIONS AND THE CONTENTIONS SO MADE BY THE ASSESSEE WERE CONSIDERED BUT WERE NOT FOUND ACCEPTABLE TO THE LD. CIT(A) AND HIS FINDINGS ARE CONTAINED AT PARAS 5 TO 12 WHICH WE DEEM IT APP ROPRIATE TO REPRODUCE AS UNDER:- (V) I HAVE DULY CONSIDERED THE SUBMISSIONS OF THE APPELLANT, ASSESSMENT ORDER AND THE MATERIAL PLACED ON RECORD. THE FIRST CONTENTION OF THE APPELLANT WAS THAT IT HAS MADE INVESTMENT IN THE 26 PLOTS PURCHASED BY IT IN THE MONTHS OF APRIL-MAY, 2012 AN D THESE WERE CONVERTED INTO STOCK IN TRADE ON 01.06.2012 BY PASS ING THE JOURNAL ENTRIES IN ITS BOOKS OF ACCOUNTS. IT IS NOTED FROM COLUMN NO. 28 OF THE TAX AUDIT REPORT RELATING TO QUANTITATIVE DETAILS OF PR INCIPAL ITEMS OF TRADED GOODS FOR THE YEAR UNDER CONSIDERATION THAT OPENING STOCK OF LAND WAS SHOWN AT 2270.71 SQUARE YARDS, WHICH WAS VALUED AT RS. 49,25,295/- IN ITS PROFIT AND LOSS ACCOUNT. FURTHER, IN COLUMN NO. 8(A) OF TAX AUDIT REPORT, THE AUDITOR HAS MENTIONED THE NATURE OF BUS INESS AS MANUFACTURING & TRADING OF FURNITURE, HANDICRAFTS, IRON SCRAP AND REAL ESTATES AND GENERATION OF WIND POWER AND IN COLUMN NO. 8(B), WHICH IS RELATED TO CHANGE IN THE NATURE OF BUSINESS DURING THE YEAR, IT HAS BEEN STATED BY THE AUDITOR THAT THE ASSESSEE HAS UNDERTA KEN THE BUSINESS OF MANUFACTURING OF BALLOT BOXES. THEREFORE, IT IS EVI DENT FROM THESE FACTS THAT THE CONTENTION OF THE APPELLANT THAT IT MADE I NVESTMENTS IN 26 PLOTS IN THE MONTHS OF APRIL-MAY 2012 DO NOT MATCH WITH I TS FINANCIAL STATEMENTS AND TAX AUDIT REPORT, WHICH REVEAL THAT THE APPELLANT WAS ENGAGED IN THE REAL ESTATE BUSINESS AT LEAST FROM T HE FINANCIAL YEAR 2011- 12 PRECEDING TO THE ASSESSMENT YEAR UNDER CONSIDERA TION. THUS, THIS ITA NO. 1065/JP/2016 M/S A DAGA ROYAL ARTS, JAIPUR VS ITO, JAIPUR 7 CONTENTION OF THE APPELLANT DESERVES TO BE REJECTED AND IT IS HELD THAT THE AO WAS JUSTIFIED IN TREATING THE PURCHASE OF 26 PLO TS AS STOCK IN TRADE AND NOT AS INVESTMENT, AS CLAIMED BY THE APPELLANT. (VI) I HAVE ALSO EXAMINED THE ALTERNATE CONTENTION OF THE APPELLANT THAT THE SELLERS OF THE PLOTS INSISTED FOR CASH PAY MENTS AND DUE TO BUSINESS EXIGENCIES, IT MADE THE CASH PAYMENTS IN V IOLATION OF PROVISIONS OF SECTION 40A(3) OF THE ACT AND THESE P AYMENTS WERE GENUINE AND THE AO HAS ALSO NOT RAISED ANY DOUBT AB OUT THE GENUINENESS OF THESE PAYMENTS AND THUS THE PROVISIO NS OF SECTION 40A(3) OF THE ACT ARE NOT APPLICABLE. IT WOULD BE R ELEVANT TO REPRODUCED THE PROVISIONS OF SECTION 40A(3) OF THE ACT AS UNDER:- (3) WHERE THE ASSESSEE INCURS ANY EXPENDITURE IN R ESPECT OF WHICH A PAYMENT OR AGGREGATE OF PAYMENTS MADE TO A PERSON I N A DAY, OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE DRAWN ON A BANK OR ACCOUNT PAYEE BANK DRAFT, EXCEEDS TWENTY THOUSAND RUPEES, NO DEDU CTION SHALL BE ALLOWED IN RESPECT OF SUCH EXPENDITURE. (3A) WHERE ............ EXCEEDS TWENTY THOUSAND RUP EES: PROVIDED THAT NO DISALLOWANCE SHALL BE MADE AND NO PAYMENT SHALL BE DEEMED TO BE THE PROFITS AND GAINS OF BUSINESS OR P ROFESSION UNDER SUBSECTION (3) AND THIS SUB-SECTION WHERE A PAYMENT OR AGGREGATE OF PAYMENTS MADE TO A PERSON IN A DAY, OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE DRAWN ON A BANK OR ACCOUNT PAYEE BANK DRAFT, EXCEEDS TWENTY THOUSAND RUPEES, IN SUCH CASES AND UNDER SUC H CIRCUMSTANCES AS MAY BE PRESCRIBED, HAVING REGARD TO THE NATURE A ND EXTENT OF BANKING FACILITIES AVAILABLE, CONSIDERATIONS OF BUS INESS EXPEDIENCY AND OTHER RELEVANT FACTORS : (VII) IT MAY BE MENTIONED HERE THAT RULE 6DD PROVID ES RELIEF TO THE ASSESSEE FROM THE RIGOUR OF SECTION 40A(3) IN THE CIRCUMSTAN CES PRESCRIBED THEREIN AND ITA NO. 1065/JP/2016 M/S A DAGA ROYAL ARTS, JAIPUR VS ITO, JAIPUR 8 THUS RULE 6DD HAS TAKEN INTO ACCOUNT, THE CIRCUMSTA NCES HAVING REGARD TO THE NATURE AND EXTENT OF BANKING FACILITIES AVAILABLE, CONSIDERATIONS OF BUSINESS EXPEDIENCY AND OTHER RELEVANT FACTORS. (VIIA) THE RELEVANT EXTRACT OF RULE 6DD IS REPRODUC ED AS UNDER: 6DD. NO DISALLOWANCE UNDER SUB-SECTION (3) OF SECT ION 40A SHALL BE MADE AND NO PAYMENT SHALL BE DEEMED TO BE THE PROFITS AN D GAINS OF BUSINESS OF PROFESSION UNDER SUB-SECTION (3A) OF SECTION 40A WHERE A PAYMENT OR AGGREGATE OF PAYMENTS MADE TO A PERSON IN A DAY, OT HERWISE THAN BY AN ACCOUNT PAYEE CHEQUE DRAWN ON A BANK OR ACCOUNT PAY EE BANK DRAFT, EXCEEDS TWENTY THOUSAND RUPEES IN THE CASES AND CIR CUMSTANCES SPECIFIED THEREIN, NAMELY: (VIII) IT IS EVIDENT FROM THE ABOVE THAT THE RULE 6DD HAS SPECIFIED THE CIRCUMSTANCES IN WHICH PAYMENTS EXCEEDING THE PRESC RIBED LIMITS CAN BE MADE IN CASH. IT WAS THE CONTENTION OF THE APPEL LANT THAT THE PAYMENTS WERE MADE IN CASH OUT OF BUSINESS EXPEDIEN CY TO SAFEGUARD ITS INTEREST. IT MAY BE MENTIONED THAT IT WAS THE STAND OF THE APPELLANT THAT IT PURCHASED 26 PLOTS AS INVESTMENT AND NOW IT IS TAKING PLEA THAT DUE TO BUSINESS EXIGENCIES, IT HAD TO MAK E CASH PAYMENTS WHICH ARE CONTRADICTORY TO EACH OTHER. THE APPELLAN T HAS RELIED UPON A NUMBER OF JUDICIAL PRONOUNCEMENTS, WHEREIN IT WAS H ELD THAT THE TERMS OF SECTION 40A(3) ARE NOT ABSOLUTE, CONSIDERATION O F BUSINESS EXPEDIENCY AND OTHER RELEVANT FACTORS ARE NOT EXCLU DED. GENUINE AND BONA FIDE TRANSACTIONS ARE NOT TAKEN OUT OF THE SWE EP OF THE SECTION. IT IS OPEN TO THE APPELLANT TO FURNISH TO THE SATISFAC TION OF THE ASSESSING OFFICER THE CIRCUMSTANCES UNDER WHICH THE PAYMENT I N THE MANNER PRESCRIBED IN SECTION 40A(3) WAS NOT PRACTICABLE OR WOULD HAVE CAUSED GENUINE DIFFICULTY TO THE PAYEE. ITA NO. 1065/JP/2016 M/S A DAGA ROYAL ARTS, JAIPUR VS ITO, JAIPUR 9 (IX) IT MAY BE MENTIONED HERE THAT RULE 6DD PROVIDE S RELIEF TO THE ASSESSEE FROM THE RIGOUR OF SECTION 40A(3) IN THE C IRCUMSTANCES PRESCRIBED THEREIN AND THUS RULE 6DD HAS TAKEN INTO ACCOUNT, T HE CIRCUMSTANCES HAVING REGARD TO THE NATURE AND EXTENT OF BANKING FACILITI ES AVAILABLE, CONSIDERATIONS OF BUSINESS EXPEDIENCY AND OTHER RELEVANT FACTORS. HOWEVER, IN THE INSTANT CASE UNDER CONSIDERATION, THE APPELLANT WAS NOT ABL E TO SPECIFY UNDER WHICH CLAUSE OF RULE 6DD ITS CASE FALLS. IT MAY BE MENTIO NED THAT THE RULE 6DD HAS BEEN AMENDED BY THE INCOME TAX (7TH AMENDMENT RULES ), 2008 W.E.F. AY 2009-10 AND THE MOST OF THE JUDICIAL PRONOUNCEMENTS RELIED UPON BY THE APPELLANT PERTAINED TO PRE AMENDED RULE 6DD. HENCE, THESE ARE DISTINGUISHABLE AND ARE OF NO HELP TO THE APPELLANT COMPANY. (X) THE APPELLANT RELIED UPON THE DECISION OF HONB LE PUNJAB & HARYANA HIGH COURT IN THE CASE OF GURDAS GARG VS. CIT (SUPR A), WHEREIN IT WAS HELD THAT WHERE THE GENUINENESS OF PAYMENTS IS NOT DISBE LIEVED, THE DISALLOWANCE U/S 40A(3) CANNOT BE MADE AND THE DECI SION OF HON'BLE ITAT, AMRITSAR BRANCH, AMRITSAR IN ITA NO 102(ASR)/ 2014 FOR A Y 2010- 11 WHEREIN HON'BLE ITAT, HAS HELD THAT DISALLOWANCE U/S 40A(3) FOR CASH PAYMENTS CANNOT BE MADE IF GENUINENESS IS NOT DOUBTED. IT MAY BE MENTIONED THAT IN THE CASE OF GURDAS GARG VS CIT (SUPRA), THE APPEAL FOR THE AY 2009-10 WAS BEFORE THE HON'BLE CO URT, HOWEVER THE SAID DECISION WAS PRONOUNCED ON THE BASIS OF PRE AM ENDED RULE 6DD. IN VIEW OF THE ABOVE, THE DECISION OF GURDAS GARG V S CIT (SUPRA) IS OF NO HELP TO THE APPELLANT. (XI) HOWEVER, IT MAY BE MENTIONED THAT IN THE CASE OF DC IT VS. A. RAMAMURTHY (2016) 46 CCH 0323 (CHEN TRIB), VIDE ITS ORDER DATED 18.03.2016, THE HON'BLE ITAT HELD AS UNDER: 'WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MAT ERIAL ON RECORD. THE MAIN PLEA OF THE ASSESSEE IS THAT THE PAYMENTS WERE MADE IN CASH ITA NO. 1065/JP/2016 M/S A DAGA ROYAL ARTS, JAIPUR VS ITO, JAIPUR 10 OTHERWISE THAN CHEQUE OR DEMAND DRAFT IN VIEW OF CO MMERCIAL EXPEDIENCY AS WELL AS INSISTED BY THE RECIPIENTS. HOWEVER, THE RE IS NO MATERIAL ON RECORD TO SHOW THAT THOSE RECIPIENTS HAVE NO BANK A CCOUNT, BANKING FACILITY IS NOT AVAILABLE. BEING SO, IN OUR OPINION , THE ASSESSEE HAS NOT SHOWN ANY REASONABLE CAUSE FOR MAKING SUCH PAYMENTS IN CASH OTHERWISE THAN BY CROSSED CHEQUE OR DEMAND DRAFT.' (XII) IT IS TO BE NOTED THAT IN THE INSTANT CASE UNDER CO NSIDERATION, THE APPELLANT HAS NOT BROUGHT ON RECORD ANY REASONABLE CAUSE FOR MAKING CASH PAYMENTS IN VIOLATION OF PROVISIONS OF SECTION 40A( 3) OF THE ACT AND ALSO NOT BEEN ABLE TO SPECIFY UNDER WHICH CLAUSE OF AMENDED RULE 6DD ITS CASE FALLS TO BRING IT OUT FROM THE RIGOURS OF PROVISIONS OF SECT ION 40A(3) OF THE ACT. IT WAS STATED BY THE APPELLANT THAT THE SELLERS INSISTED O N CASH PAYMENT BUT NO EVIDENCE HAS BEEN BROUGHT ON RECORD TO SUBSTANTIATE THE CLAIM AND IT HAS ALSO FAILED TO BROUGHT ON RECORD THAT IF IT DID NOT MADE THE CASH PAYMENTS, THE SELLERS WOULD CANCEL THE DEALS. IT IS IMPORTANT TO MENTION HERE THAT THE SELLERS WERE RESIDENTS OF JAIPUR AND MOST OF THEM BELONGED TO THE SAME FAMILY AND MORE THAN 50% OF THE PAYMENTS WERE ACCEPTED BY THEM THROUGH CHEQUES. THUS, IN THE ABSENCE OF ANY DOCUMENTARY EVIDENCE, T HE CONTENTION OF THE APPELLANT THAT THE SELLERS INSISTED ON CASH PAYMENT S DESERVES TO BE REJECTED. 16. NOW, THE ASSESSEE IS IN APPEAL BEFORE US AGAINS T THE AFORESAID FINDINGS OF THE LD CIT(A). THE LD AR TOOK US THROUGH THE FIN DINGS OF THE AO AND THE LD CIT(A) AND REITERATED THE SUBMISSIONS MADE BEFORE T HE LOWER AUTHORITIES. FURTHER, THE LD AR RAISED VARIOUS CONTENTIONS WHICH FIND MENTION IN THE WRITTEN SUBMISSIONS AND WHICH WE DEEM IT APPROPRIATE TO REP RODUCE AS UNDER: 3.1 THE SUBMISSIONS MADE BEFORE LD. CIT(A) APPEARI NG AT CIT(A) ORDER PAGES 8 -14 MAY PLEASE BE CONSIDERED IN CORRECT PERSPECTIVE. 3.2 LD. CIT(A) AT PAGE 18 OF HIS ORDER HAS REJECTE D THE APPELLANTS CONTENTION THAT SAID 26 PLOTS PURCHASED, IN APRIL, 2012, WERE PART OF INVESTMENT. FOR THIS ITA NO. 1065/JP/2016 M/S A DAGA ROYAL ARTS, JAIPUR VS ITO, JAIPUR 11 HE REFERRED TO TAX AUDIT REPORT AS WELL AS AUDITED FINANCIAL STATEMENT. IT IS SUBMITTED THAT THE FIRM WHILE IN REAL ESTATE BUSINE SS CAN PURCHASE CERTAIN REAL ESTATE FOR BUSINESS PURPOSE AND CAN ALSO PURCHASE C ERTAIN REAL ESTATE FOR INVESTMENT PURPOSE. THIS ASPECT IS ALSO ACCEPTED BY CBDT IN ITS CIRCULAR DATED 31/05/1977 AS PER WHICH THERE IS NO RESTRICTION UND ER THE LAW FOR A TRADER OF A PARTICULAR ITEM LIKE JEWELLERY, DIAMOND, REAL ESTAT E OR SHARE TO HOLD THE SAME AS INVESTMENT ALSO. FURTHER, THE ASSESSEE FIRM BEFO RE LOWER AUTHORITIES HAVE SUBMITTED THAT IT HAD PAID THE REGISTRATION CHARGES AND STAMP DUTIES OF RS. 14,99,996 FOR GETTING THE LAND REGISTERED IN ITS NA ME, WHICH IS NOT A GENERAL PRACTICE OF A REAL ESTATE BUSINESSMAN. THIS FACT WA S NOT CONTROVERTED BY LD. LOWER AUTHORITIES. 3.3 LD. CIT(A) ALSO ERRED IN HOLDING THAT THE CONTENTION OF THE ASSESSEE THAT THE LANDS WERE PURCHASED AS INVESTMENTS AND TH E ALTERNATE PLEA THAT DUE TO BUSINESS EXIGENCIES, PAYMENT WAS MADE IN CASH IS CONTRADICTORY TO EACH OTHER. IN THIS REGARD IT IS SUBMITTED THAT THE ASSE SSEE FIRM IS A BUSINESS ENTITY WHICH AIMS AT MAXIMIZING ITS PROFITS. THEREFORE, EV EN WHILE PURCHASING INVESTMENTS, BUSINESS EXIGENCIES ARE KEPT IN MIND. OTHERWISE ALSO IT IS SUBMITTED THAT THE ASSESSEE FIRM, WITHOUT AGREEING, HAS TAKEN AN ALTERNATE PLEA THAT IF, IT IS NOT CONSIDERED THAT THE LANDS W ERE PURCHASED AS INVESTMENTS AND WERE SUBSEQUENTLY CONVERTED INTO STOCK-IN-TRADE , THEN, BUSINESS EXPEDIENCY SHOULD BE CONSIDERED. 3.4 IT IS SUBMITTED THAT THE LD. AO OR LD. CIT(A) , HAS NOT RAISED ANY DOUBT ABOUT THE GENUINENESS OF THE TRANSACTION AND, THERE FORE, THERE IS NO DISPUTE REGARDING THE IDENTITY OF THE PAYEE AND GENUINENESS OF THE TRANSACTIONS. THE ONLY OBJECTION RAISED IS THAT THERE IS VIOLATION OF PROVISIONS OF SECTION 40A(3). 3.5 TO APPRECIATE THE FACTS IN A BETTER MANNER LET US LOOK INTO THE HISTORY OF SECTION 40A(3). IT WAS INTRODUCED BY THE FINANCE AC T, 1968 W.E.F 1-4-1968. ITA NO. 1065/JP/2016 M/S A DAGA ROYAL ARTS, JAIPUR VS ITO, JAIPUR 12 THE OBJECT OF INSERTION WAS EXPLAINED BY HONBLE SU PREME COURT IN THE CASE OF ATTAR SINGH GURMUKH SINGH V. ITO 59 TAXMANN.COM 11 AS UNDER: IT WILL BE CLEAR FROM THE PROVISIONS OF SECTION 40 A(3) AND RULE 6DD THAT THEY ARE INTENDED TO REGULATE THE BUSINESS TRANSACTIONS AND TO PREVENT THE USE OF UNACCOUNTED MONEY OR REDUCE THE CHANCES TO USE BLAC K-MONEY FOR BUSINESS TRANSACTIONS. 3.6 IN VIEW OF ABOVE IT WILL BE APT TO STATE THAT THE P ROVISIONS OF SECTION 40A(3) HAVE BEEN ENACTED AS ONE OF THE MEASURES FOR COUNTERING EVASION OF TAX. THE PROVISIONS WERE ENACTED TO ENABLE THE ASSE SSING AUTHORITY TO ASCERTAIN WHETHER THE PAYMENT WAS GENUINE OR WHETHER IT WAS O UT OF THE INCOME FROM UNDISCLOSED SOURCES. GENUINE AND BONA FIDE TRANSACT IONS ARE TAKEN OUT OF THE SWEEP OF SECTION 40A(3). 3.7 IN THE PRESENT CASE THE ASSESSEE FIRM HAS NOT MAD E USE OF BLACK MONEY FOR PURCHASE OF LAND IN CASH. IT WAS JUST ON THE IN SISTENCE OF THE SELLERS, CASH WAS WITHDRAWN FROM BANK AND THE PAYMENT WAS MADE IN CASH KEEPING IN MIND THE BUSINESS EXIGENCIES. THIS FACT IS CLEAR FROM PE RUSAL OF WORKING TABLE SUBMITTED AND APPEARING AT CIT(A) ORDER (PAGE 12) A ND FROM BANK STATEMENTS OF THE ASSESSEE FIRM. 3.8 JUST AFTER INTRODUCTION OF SECTION 40A(3), CERTAI N EXCEPTIONS WERE ALLOWED TO BE PROVIDED BY WAY OF DELEGATED LEGISLAT IONS. ACCORDINGLY, RULE 6DD WAS NOTIFIED IN THE YEAR 1969 SETTING OUT THE EXCEP TIONS. 3.9 ATTENTION IS DRAWN TOWARDS THE DECISIONS OF HONBLE JURISDICTIONAL RAJASTHAN HIGH COURT IN THE CASE OF HARSHILA CHORDI A VS. ITO 298 ITR 349 WHEREIN IT WAS HELD THAT LIST OF EXCEPTIONS PROVIDE D UNDER RULE 6DD IS NOT EXHAUSTIVE. MEANING THEREBY THAT MORE COULD BE READ INTO IT, IF THE SAME DOES NOT VIOLATE THE REASON FOR WHICH SECTION 40A(3) WAS INTRODUCED. THUS, THE ITA NO. 1065/JP/2016 M/S A DAGA ROYAL ARTS, JAIPUR VS ITO, JAIPUR 13 CONTENTION OF LD. CIT(A) THAT THE APPELLANT WAS UNA BLE TO SPECIFY UNDER WHICH CLAUSE OF RULE 6DD ITS CASE FALL IS BASELESS. AFTER INTRODUCTION OF RULE 6DD, IN THE YEAR 1970, V IDE IT (FOURTH AMDT.) RULES, 1970, CLAUSE (J) TO RULE 6DD WAS INTRODUCED WHICH P ROVIDED AS UNDER. RULE 6DD: (J) IN ANY OTHER CASE WHERE THE ASSESSEE SATISFIES THE INCOME-TAX OFFICER THAT THE PAYMENT COULD NOT BE MADE BY WAY OF A CROSSED C HEQUE DRAWN ON A BANK OR BY A CROSSED BANK DRAFT A. DUE TO EXCEPTIONAL OR UNAVOIDABLE CIRCUMSTANCES; OR B. BECAUSE PAYMENT IN THE MANNER AFORESAID WAS NOT PRACTICABLE, OR WOULD HAVE CAUSED GENUINE DIFFICULTY TO THE PAYEE, HAVING REGARD TO THE NATURE OF THE TRANSACTION AND THE NECESSITY FOR EXPEDITIOUS SETTL EMENT THEREOF, 3.11 THEREAFTER, CBDT ISSUED CIRCULAR NO. 220 DATED 31.05.1977 PROVIDING AN ILLUSTRATIVE LIST OF EXCEPTIONAL CASES WHEREIN CASH PAYMENT COULD NOT ATTRACT DISALLOWANCE U/S 40A(3) BY VIRTUE OF RULE 6DD(J). 3.12 THE ABOVE RULE 6DD(J) WAS OMITTED W.E.F. 25.07 .1995 VIDE IT(FOURTEENTH AMDT.) RULES, 1995. THEREAFTER, RULE 6DD WAS AMENDE D MANY A TIMES. 3.13 THE ABOVE SERIES OF EVENTS AND RELATED AMENDME NTS IS TABULATED AS UNDER: PARTICULARS W.E.F INTRODUCTION OF SECTION 40A(3) 1.4.1968 INTRODUCTION OF RULE 6DD 1.4.1969 INSERTION OF RULE 6DD(J) IN ANY OTHER CASE, WHERE THE ASSESSEE SATISFIES THE ASSESSING OFFICER THAT THE PAYMENT COULD NOT BE MADE BY A CRO SSED 1.4.1970 ITA NO. 1065/JP/2016 M/S A DAGA ROYAL ARTS, JAIPUR VS ITO, JAIPUR 14 CHEQUE DRAWN ON A BANK OR BY A CROSSED BANK DRAFT- (1) DUE TO EXCEPTIONAL OR UNAVOIDABLE CIRCUMSTANCES, OR (2) BECAUSE PAYMENT IN THE MANNER AFORESAID WAS NOT PRACTICABLE, OR WOULD HAVE CAUSED GENUINE DIFFICULT Y TO THE PAYEE, HAVING REGARD TO THE NATURE OF THE TRANSACTION AND THE NECESSITY FOR EXPEDITIOUS SETTLEMENT THEREOF; AND ALSO FURNISHES EVIDENCE TO THE SATISFACTION OF THE ASSESSING OFFICER AS TO THE GENUINENESS OF THE PAYM ENT AND THE IDENTITY OF THE PAYEE. CBDT CIRCULAR NO. 220: CIRCUMSTANCES WHEN ITO CAN RELAX REQUIREMENT OF MAKING PAYMENT IN EXCESS OF RS. 2,50 0 BY CROSSED CHEQUES UNDER CLAUSE (J) OF RULE 6DD 31.05.1977 OMISSION OF RULE 6DD(J) 27.7.1995 REINTRODUCTION OF RULE 6DD(J) WHERE THE PAYMENT IS MADE BY AN ASSESSEE BY WAY OF SALARY TO HIS EMPLOYEE AFTER DEDUCTING THE INCOME-TAX FROM SALARY IN ACCORDANCE WITH THE PROVISIONS OF SECTION 192 OF TH E INCOME- TAX ACT, 1961, AND WHEN SUCH EMPLOYEE- (A) IS TEMPORARILY POSTED FOR A CONTINUOUS PERIOD OF FI FTEEN DAYS OR MORE IN A PLACE OTHER THAN HIS NORMAL PLACE OF DUTY OR ON A SHIP; AND (B) DOES NOT MAINTAIN ANY ACCOUNT UN ANY BANK AT SUCH P LACE OR SHIP 1.12.1995 SUBSTITUTION OF RULE 6DD(J) BY NOTIFICATION DATED 1 0.10.2008 WHERE THE PAYMENT WAS REQUIRED TO BE MADE ON A DAY ON WHICH THE BANKS WERE CLOSED EITHER ON ACCOUNT OF HO LIDAY OR STRIKE 1.4.2008 ITA NO. 1065/JP/2016 M/S A DAGA ROYAL ARTS, JAIPUR VS ITO, JAIPUR 15 3.14 LD. CIT(A) WHILE PASSING THE ORDER MISREAD THE PROVISIONS OF RULE 6DD BY STATING THAT THE AMENDED RULE WITH EFFECT FROM A.Y. 2009-10 HAS DELETED THE CONSIDERATIONS OF EXCEPTIONAL AND UNAVOIDABLE CIRCU MSTANCES AND, THEREFORE, THE JUDICIAL PRONOUNCEMENTS RELIED UPON BY THE ASSE SSEE FIRM PERTAIN TO PRE- AMENDED PERIOD AND ARE OF NO HELP TO THE ASSESSEE F IRM. IT IS SUBMITTED THAT THE CONSIDERATIONS OF EXCEPTIONAL AND UNAVOIDABLE C IRCUMSTANCES IN RULE 6DD WAS DELETED W.E.F. 25.07.1995 ONLY AND, HENCE, THE CASE LAWS RELIED UPON BY THE ASSESSEE FIRM PERTAIN TO POST AMENDMENT PERIOD ONLY AS ALL THE CASES HAVE DEALT WITH THE POST AMENDMENT ASSESSMENT YEARS. 3.15 ATTENTION IS AGAIN DRAWN TOWARDS THE JUDGMENT OF HONBLE PUNJAB AND HARYANA HIGH COURT PRONOUNCED ON 16 TH JULY, 2015 PERTAINING TO THE ASSESSMENT YEAR 2009-10 IN THE CASE OF GURDAS GARG V. CIT(A), BATHINDA [2015] 63 TAXMANN.COM 289, IN THIS CASE REFERENCE O F CBDT CIRCULAR NO. 220 DATED 31.05.1977, WAS MADE. THIS CBDT CIRCULAR WAS INTRODUCED WITH REFERENCE TO RULE 6DD(J). EVEN AFTER 25.07.1995, WH EN RULE 6DD(J) PROVIDING FOR EXCEPTIONAL CIRCUMSTANCES WAS DROPPED, THE REFE RENCE BY HONBLE HIGH COURT DENOTES ITS RELEVANCE WHICH IS REPRODUCED BEL OW FOR READY REFERENCE NEEDLESS TO MENTION THAT ASSESSEE CASE IS COVERED I N CLAUSE (D) OF PARA 4 OF THE SAID CBDT CIRCULAR. 7. THE RESPONDENT/ASSESSEE'S CASE IS SUPPORTED BY SEVERAL JUDGMENTS. THE RAJASTHAN HIGH COURT IN SMT. HARSHILA CHORDIA V. IT O [2008] 298 ITR 349 HELD AS UNDER: '14. ABOUT THIS CLAUSE, MANY DOUBTS WERE RAISED AND ENQUIRIES WERE DIRECTED TO THE BOARD AS TO WHAT SHALL CONSTITUTE EXCEPTIONA L AND UNAVOIDABLE CIRCUMSTANCES WITHIN THE MEANING OF CLAUSE (J). THA T LED TO ISSUANCE OF CIRCULAR BY THE BOARD ON MAY 31, 1977 ([1977] 108 I TR (ST.) 8), WHICH IS PUBLISHED IN TAXMANN, VOL. 1, 1988 EDITION. SIGNIFI CANTLY PARAGRAPH 4 OF THE AFORESAID CIRCULAR SHOWS VERY CLEARLY THAT ALL THE CIRCUMSTANCES IN WHICH THE CONDITIONS LAID DOWN IN RULE 6DD(J) COULD BE APPLIC ABLE CANNOT BE SPELT OUT. ITA NO. 1065/JP/2016 M/S A DAGA ROYAL ARTS, JAIPUR VS ITO, JAIPUR 16 HOWEVER, SOME OF THEM WHICH WILL SEEM TO MEET THE R EQUIREMENTS OF THE SAID RULE ARE AS FOLLOWS: A. THE PURCHASER IS NEW TO THE SELLER; OR B. THE TRANSACTIONS ARE MADE AT A PLACE WHETHER EIT HER THE PURCHASER OR THE SELLER DOES NOT HAVE A BANK ACCOUNT; OR C .THE TRANSACTIONS AND PAYMENTS ARE MADE ON A BANK HOLIDAY; OR D. THE SELLER IS REFUSING TO ACCEPT THE PAYMENT BY WAY OF CROSSED CHEQUE/DRAFT AND THE PURCHASER'S BUSINESS INTEREST WOULD SUFFER DUE TO NON-AVAILABILITY OF GOODS OTHERWISE THAN FROM THIS PARTICULAR SELLER ; OR E. THE SELLER, ACTING AS A COMMISSION AGENT, IS REQ UIRED TO PAY CASH IN TURN TO PERSONS FROM WHOM HE HAS PURCHASE THE GOODS; OR F. SPECIFIC DISCOUNT IS GIVEN BY THE SELLER FOR PAY MENT TO BE MADE BY WAY OF CASH. 15. IT WAS FURTHER CLARIFIED IN PARAGRAPH 6 THAT TH E ABOVE CIRCUMSTANCES ARE NOT EXHAUSTIVE BUT ILLUSTRATIVE. 16. THEREFORE, IN OUR OPINION, THE TRIBUNAL WAS CLE ARLY IN ERROR IN NOT TRAVELLING BEYOND THE CIRCUMSTANCES REFERRED TO IN PARAGRAPH 4 OF THE CIRCULAR AND TO CONSIDER THE EXPLANATION SUBMITTED BY THE ASSESSEE ON ITS OWN MERIT 3.16 LD. CIT(A) MISDIRECTED HIMSELF IN DISTINGUISHI NG THE CASE OF GURDAS GARG (SUPRA) WITH THAT OF THE ASSESSEE FIRM BY HOLDING THAT THE JUDGMENT SHALL NOT APPLY FOR THE PERIOD AFTER A.Y. 2009-10. IT IS SUBM ITTED THAT IN THE SAID JUDGMENT HONBLE PUNJAB HIGH COURT RELATES TO A.Y. 2009-10 I.E. WAY AFTER THE SUBSTITUTION OF 6DD(J) IN 1995. THE COURT HAS SIMP LY MENTIONED THE FACT OF AMENDMENT WHICH HAS BEEN BROUGHT IN A.Y. 2009-10 AN D, THEREFORE, THE POSITION PRIOR TO AMENDMENT IN A.Y. 2009-10 IS CLEA R THAT EVEN AFTER 1995, THE CONSIDERATIONS OF EXCEPTIONAL AND UNAVOIDABLE CIRCU MSTANCES HAS TO BE TAKEN INTO ACCOUNT BEFORE INVOKING THE PROVISIONS OF SECT ION 40A(3). ITA NO. 1065/JP/2016 M/S A DAGA ROYAL ARTS, JAIPUR VS ITO, JAIPUR 17 3.17 IT IS FURTHER SUBMITTED THAT THE DEPARTMENT HA S NOT GONE FOR REVISION PETITION OR FOR SLP AGAINST THE JUDGMENT OF HONBLE PUNJAB & HARYANA HIGH COURT AND IN SUCH A SITUATION THE CASE LAW IS A BIN DING PRECEDENCE. 3.18 ATTENTION IS DRAWN TOWARDS THE FOLLOWING CASES WHEREIN JUDGMENT OF HONBLE PUNJAB HIGH COURT IN THE CASE OF GURDAS GAR G (SUPRA) HAS BEEN STILL FOLLOWED: S.NO A.Y. CASE LAW COURT DATE OF ORDER 1 2010-11 DHURI WINE (2016) 48 ITR (TRIB) 289 ITAT, CHANDIGARH BENCH 09.10.2015 2 2010-11 RAKESH KUMAR (2016) 46 CCH 270 ITAT, AMRITSAR BENCH 09.03.2016 3.18.I HONBLE ITAT, CHANDIGARH BENCH, IN THE CASE OF DHURI WINE (2016) 48 ITR (TRIB) 289 (CHANDIGARH), PERTAINING TO THE A Y 2010-11, PRONOUNCED ON 09.10.2015, HELD AS UNDER: THE PROPOSITION LAID DOWN BY THE HON'BLE HIGH COU RT IS QUITE UNAMBIGUOUS TO THE EFFECT THAT EVEN IF THE CASE OF THE ASSESSEE DOES NOT FALL IN ANY OF THE CLAUSES OF RULE 6DD OF THE INCOME TAX RULES, INVOKI NG THE PROVISIONS OF SECTION 40A(3) OF THE ACT CAN BE DISPENSED WITH IF THE ASSESSEE IS ABLE TO PROVE THE BUSINESS EXPEDIENCY BECAUSE OF WHICH IT H AVE TO MAKE THE CASH PAYMENTS, THE GENUINENESS OF THE TRANSACTIONS HAVE ALSO TO BE VERIFIED. THE LEARNED CIT (APPEALS) WHILE ADJUDICATING THE CONTENTION OF THE ASSESSEE WITH REGARD TO THE GENUINENESS HIMSELF HAS HELD THA T IT IS NOT SUFFICIENT FOR THE ASSESSEE TO ESTABLISH THAT THE PAYMENTS WERE GENUIN E AND THE PARTIES WERE IDENTIFIABLE. HE WAS OF THE VIEW THAT THE ASSESSEE IS FURTHER REQUIRED TO PROVE THAT DUE TO EXCEPTIONAL AND UNAVOIDABLE CIRCUMSTANC ES AS PROVIDED UNDER THE RULES, THE PAYMENTS WERE MADE IN CASH. THEREFORE, I T IS NOT A CASE OF THE ITA NO. 1065/JP/2016 M/S A DAGA ROYAL ARTS, JAIPUR VS ITO, JAIPUR 18 DEPARTMENT THAT THE PAYMENTS SO MADE IN CASH WERE N OT GENUINE. THE REASONS GIVEN BY THE ASSESSEE AT EVERY STAGE HAVE N OT BEEN DISBELIEVED. SINCE THESE REASONS ARE CORRECT, THEY REALLY MAKE OUT A C ASE OF BUSINESS EXPEDIENCY. IN THIS VIEW, RESPECTFULLY FOLLOWING THE JUDGMENT O F THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF GURDAS GARG (SUPR A), WE HOLD THAT THE PAYMENTS CANNOT BE DISALLOWED UNDER SECTION 40A(3) OF THE ACT [CLC 24-15] 3.18.II HONBLE ITAT, AMRITSAR BENCH IN THE CASE O F RAKESH KUMAR (2016) 46 CCH 270, PERTAINING TO THE AY 2010-11, PRONOUNCE D ON 09.03.2016 HAS HELD AS UNDER: IN THE PRESENT CASE, THE GENUINENESS OF PAYMENT H AS NOT BEEN DOUBTED AS ASSESSING OFFICER HIMSELF HAS HELD THAT SALE DEEDS OF PROPERTIES WERE REGISTERED WITH THE REVENUE DEPARTMENT OF GOVT. THE REFORE, THE CASE OF THE ASSESSEE IS FULLY COVERED BY THE ABOVE DECISION OF HONBLE PUNJAB AND HARYANA HIGH COURT. THEREFORE, RESPECTFULLY FOLLOWING THE S AME WE ALLOW THE GROUND OF APPEAL FILED BY ASSESSEE. 3.19 THE ASSESSEE FIRMS CASE IS SQUARELY COVERED I N ITS FAVOUR BY THE FOLLOWING JUDGMENT OF HONBLE COURTS, WHICH RELATE TO POST AMENDMENT PERIOD AND HAS HELD THAT WHERE THE CASH PAYMENT IN MADE, K EEPING IN MIND THE EXCEPTIONAL AND UNAVOIDABLE CIRCUMSTANCES, NO DISAL LOWANCE U/S 40A(3) CAN BE MADE. A.Y. CASE LAW COURT DATE OF ORDER 2005-06 ANUPAM TELE SERVICES (2014) 362 ITR 92 (GUJ) HIGH COURT OF GUJARAT 04.02.2014 2011-12 M/S AJMER FOOD PRODUCTS PVT. LTD. VS. JCIT, RANGE-2, AJMER [ITA NO. 625/JP/14] ITAT, JAIPUR BENCH 28.07.2016 2010-11 M/S CH. HANUMANTHA RAO V. INCOME- TAX OFFICER, WARD-2(2), GUNTUR ITAT, VISHAKAPATNAM BENCH 05.05.2017 ITA NO. 1065/JP/2016 M/S A DAGA ROYAL ARTS, JAIPUR VS ITO, JAIPUR 19 2010-11 DHURI WINE (2016) 48 ITR (TRIB) 289 ITAT, CHANDIGAR H BENCH 09.10.2015 2010-11 D. TAMILRAJAN (2016) 47 CCH 392 ITAT, COCHIN BENCH 30.06.2016 2009-10 M. KANNAPPAN (2016) 47 CCH 0654 ITAT, CHENNAI BENCH 10.08.2016 2010-11 RAKESH KUMAR (2016) 46 CCH 270 ITAT, AMRITSAR BENCH 09.03.2016 2010-11 SHILA MONDAL, ITA NO.336/KOL /2014 ITAT, KOLKATA BE NCH 12.08.2016 3.20. LD. CIT(A) HAS PLACED RELIANCE ON THE DECISION OF HONBLE ITAT CHENNAI BENCH IN THE CASE OF DCIT VS. A. RAMAMURTHY (2016) 46 CCH 0323 (CHEN TRIB) WHEREAS THE ASSESSEE FIRM HAS PLACED RELIANCE ON PL ETHORA OF JUDGMENTS AS MENTIONED ABOVE. REGARD DIFFERENT VIEWS TAKEN BY DI FFERENT COURTS, IT IS SUBMITTED THAT HONBLE SUPREME COURT IN CASE OF CIT V. M/S VEGETABLES PRODUCTS LTD. 88 ITR 192 (SC) HAS HELD THAT WHEN DI FFERENT HIGH COURTS HAVE DIFFERENT VIEWS THE ONE IN FAVOUR OF THE ASSESSEE S HOULD BE ADOPTED. THE RELEVANT EXTRACT IS SET OUT AS UNDER: IT IS FOR THE LEGISLATURE TO STEP IN AND REMOVE TH E ABSURDITY. ON THE OTHER HAND, IF TWO REASONABLE CONSTRUCTIONS OF A TAXING P ROVISION ARE POSSIBLE THAT CONSTRUCTION WHICH FAVOURS THE ASSESSEE MUST BE ADO PTED. 3.21 LD. CIT(A) FURTHER REJECTED THE ASSESSEE FIRM S CONTENTION THAT SOME OF THE SELLERS INSISTED FOR CASH PAYMENT FOR LACK OF D OCUMENTARY EVIDENCE IN THIS REGARD. IT IS SUBMITTED THAT LD. CIT(A) HIMSELF HAS ADMITTED THAT MORE THAN 50% OF PAYMENTS WERE ACCEPTED THROUGH CHEQUES. IT S UPPORT THE CONTENTION OF APPELLANT THAT WHERE EVER CASH WAS NOT DEMANDED PAYMENTS WERE MADE THROUGH CHEQUES. COMPLETE TRAILS OF CASH BEING WITH DRAWN FROM BANK AND PAID TO SELLERS WAS ESTABLISHED BEFORE LD. CIT(A) [CIT(A ) PAGE 6]. LD CIT(A) HAS NOT DISPUTED THE SAID FACTUAL ASPECT. ONCE THE FACTUAL ASPECT IS ACCEPTED BY LD. CIT(A) THERE CANNOT BE ANY REASON FOR REJECTION OF APPELLANTS CONTENTION OF CASH REMITTANCE BECAUSE IF NOT INSISTED WHY WOULD W E DRAW CASH FROM BANK AND MAKE PAYMENT IN CASH RATHER THAN ISSUING CHEQUE S IS DONE IN OTHER CASES. ITA NO. 1065/JP/2016 M/S A DAGA ROYAL ARTS, JAIPUR VS ITO, JAIPUR 20 3.22 LD. CIT(A) IN ORDER TO REJECT THE CLAIM OF THE ASSESSEE FIRM HAS HELD THAT THE ASSESSEE FIRM HAS FAILED TO BRING ON RECORD THA T IF IT DID NOT MADE THE CASH PAYMENT, THE SELLERS WOULD CANCEL THE DEALS. IN THI S REGARD IT IS SUBMITTED THAT THE SELLERS WHILE NEGOTIATING THE DEAL HAVE PUT SUC H CONDITION AND, THEREFORE, EVIDENCES IN THIS REGARD DO NOT EXISTS. LD. CIT(A) HAS ASKED FOR TOO MUCH. 3.23 LD. CIT(A) HAS ALSO HELD THAT THE SELLERS WERE RESIDENTS OF JAIPUR AND MOST OF THEM BELONGED TO THE SAME FAMILY AND MORE T HAN 50% OF THE PAYMENTS WERE ACCEPTED BY THEM THROUGH CHEQUES. IN THIS REGARD IT IS SUBMITTED THAT BELONGING TO SAME FAMILY DOES NOT MA NDATE TO FOLLOW SAME PRACTICE AS OTHERS DID. THE MODE OF ACCEPTING THE P AYMENT IS ALWAYS AT THE DISCRETION OF THE SELLER. 3.24 IT IS ALSO SUBMITTED THAT DURING THE ASSESSMENT PRO CEEDINGS, THE ASSESSEE FIRM HAS PROVIDED COMPLETE ADDRESS OF THE SELLERS TO THE LD. LOWER AUTHORITIES. LD. LOWER AUTHORITIES, HAVING DOUBT AB OUT THE CLAIM OF THE ASSESSEE FIRM, COULD HAVE EXERCISED HIS STATUTORY POWERS AND EXAMINED THOSE SELLERS TO ASCERTAIN THE TRUTH. ALSO, LD. AO FAILED TO BRING O N RECORD ANY EVIDENCE TO CONTROVERT THE CLAIM OF THE ASSESSEE FIRM. IN VIEW OF THE ABOVE, DISALLOWANCE OF RS. 1,71,67,0 00 U/S 40A(3) MAY PLEASE BE QUASHED. 17. THE LD DR IS HEARD WHO HAS VEHEMENTLY ARGUED TH E MATTER AND TOOK US THROUGH THE FINDINGS OF THE LOWER AUTHORITIES WHICH WE HAVE ALREADY NOTED ABOVE. HE SUBMITTED THAT THE MATTER DOESNT FALL I N ANY SPECIFIC CLAUSE OF RULE 6DD AND HENCE, THE DISALLOWANCE HAS BEEN RIGHTLY MA DE UNDER SECTION 40A(3) OF THE ACT AND WHICH SHOULD BE SUSTAINED. 18. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IT WOULD BE RELEVANT TO REFER TO THE PR OVISIONS OF SECTION 40A(3) OF THE ACT WHICH READS AS UNDER: ITA NO. 1065/JP/2016 M/S A DAGA ROYAL ARTS, JAIPUR VS ITO, JAIPUR 21 (3) WHERE THE ASSESSEE INCURS ANY EXPENDITURE IN RESPECT OF WHICH A PAYMENT OR AGGREGATE OF PAYMENTS MADE TO A PERSON I N A DAY, OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE DRAWN ON A BANK OR ACCOU NT PAYEE BANK DRAFT EXCEEDS TWENTY THOUSAND RUPEES, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF SUCH EXPENDITURE. (3A) WHERE AN ALLOWANCE HAS BEEN MADE IN THE ASSESS MENT FOR ANY YEAR IN RESPECT OF ANY LIABILITY INCURRED BY THE ASSESSEE F OR ANY EXPENDITURE AND SUBSEQUENTLY DURING ANY PREVIOUS YEAR (HEREINAFTER REFERRED TO AS SUBSEQUENT YEAR) THE ASSESSEE MAKES PAYMENT IN RESPECT THEREOF , OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE DRAWN ON A BANK OR ACCOUNT PAY EE BANK DRAFT, THE PAYMENT SO MADE SHALL BE DEEMED TO BE THE PROFITS A ND GAINS OF BUSINESS OR PROFESSION AND ACCORDINGLY CHARGEABLE TO INCOME-TAX AS INCOME OF THE SUBSEQUENT YEAR IF THE PAYMENT OR AGGREGATE OF PAYM ENTS MADE TO A PERSON IN A DAY, EXCEEDS TWENTY THOUSAND RUPEES: PROVIDED THAT NO DISALLOWANCE SHALL BE MADE AND NO PAYMENT SHALL BE DEEMED TO BE THE PROFITS AND GAINS OF BUSINESS OR P ROFESSION UNDER SUB-SECTION (3) AND THIS SUB-SECTION WHERE A PAYMENT OR AGGREGA TE OF PAYMENTS MADE TO A PERSON IN A DAY, OTHERWISE THAN BY AN ACCOUNT PAY EE CHEQUE DRAWN ON A BANK OR ACCOUNT PAYEE BANK DRAFT EXCEEDS TWENTY THO USAND RUPEES, IN SUCH CASES AND UNDER SUCH CIRCUMSTANCES AS MAY BE PRESCR IBED, HAVING REGARD TO THE NATURE AND EXTENT OF BANKING FACILITIES AVAILAB LE, CONSIDERATIONS OF BUSINESS EXPEDIENCY AND OTHER RELEVANT FACTORS : PROVIDED FURTHER THAT IN THE CASE OF PAYMENT MADE FOR PLYING, HIRING OR LEASING GOODS CARRIAGES, THE PROVISIONS OF SUB-SECT IONS (3) AND (3A) SHALL HAVE EFFECT AS IF FOR THE WORDS 'TWENTY THOUSAND RUPEES' , THE WORDS 'THIRTY-FIVE THOUSAND RUPEES' HAD BEEN SUBSTITUTED. (4) NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER LAW FOR THE TIME BEING IN FORCE OR IN ANY CONTRACT, WHERE ANY PAYMENT IN RESP ECT OF ANY EXPENDITURE HAS TO BE MADE BY AN ACCOUNT PAYEE CHEQUE DRAWN ON A BA NK OR ACCOUNT PAYEE ITA NO. 1065/JP/2016 M/S A DAGA ROYAL ARTS, JAIPUR VS ITO, JAIPUR 22 BANK DRAFT IN ORDER THAT SUCH EXPENDITURE MAY NOT B E DISALLOWED AS A DEDUCTION UNDER SUB-SECTION (3), THEN THE PAYMENT M AY BE MADE BY SUCH CHEQUE OR DRAFT; AND WHERE THE PAYMENT IS SO MADE O R TENDERED, NO PERSON SHALL BE ALLOWED TO RAISE, IN ANY SUIT OR OTHER PRO CEEDING, A PLEA BASED ON THE GROUND THAT THE PAYMENT WAS NOT MADE OR TENDERED IN CASH OR IN ANY OTHER MANNER. 19. THE AFORESAID PROVISIONS HAVE TO BE CONSIDERED AND INTERPRETED IN LIGHT OF VARIOUS AUTHORITIES WHICH HAVE BEEN QUOTED AT TH E BAR AND RELIED UPON BY THE LD AR AND LD DR IN SUPPORT OF THEIR RESPECTIVE CONTENTIONS. 20. IN CASE OF ATTAR SINGH GURMUKH SINGH V. ITO (SUPRA), THE MATTER WHICH CAME UP FOR CONSIDERATION BEFORE THE HONBLE SUPREME COURT , THE FACTS OF THE CASE WERE THAT ASSESSEE HAD MADE PAYME NT IN CASH EXCEEDING A SUM OF RS. 2,500/- FOR PURCHASE OF CERTAIN STOCK-IN -TRADE. PAYMENTS WERE NOT ALLOWED AS DEDUCTIONS IN THE COMPUTATION OF INCOME UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSIONS AS THE SAME W ERE HELD TO BE IN CONTRAVENTION OF SECTION 40A(3) READ WITH THAT 6DD OF THE INCOME RULES. IN THAT FACTUAL BACKGROUND, THE QUESTION REGARDING VAL IDITY OF SECTION 40A(3) AND APPLICABILITY OF THE SAID PROVISIONS TO PAYMENT MAD E FOR ACQUIRING STOCK-IN- TRADE CAME UP FOR CONSIDERATION BEFORE THE HONBLE SUPREME COURT. 21. THE HONBLE SUPREME COURT REFERRING TO THE PROV ISIONS OF SECTION 40A(3) AND RULE 6DD AND IN PARTICULAR, RULE 6DD(J), AS EXI STED AT RELEVANT POINT IN TIME, HAS HELD AS UNDER:- 6. AS TO THE VALIDITY OF SECTION 40A(3), IT WAS U RGED THAT IF THE PRICE OF THE PURCHASED MATERIAL IS NOT ALLOWED TO BE ADJUSTED AG AINST THE SALE PRICE OF THE MATERIAL SOLD FOR WANT OF PROOF OF PAYMENT BY A CRO SSED CHEQUE OR CROSSED BANK DRAFT, THEN THE INCOME-TAX LEVIED WILL NOT BE ON THE INCOME BUT IT WILL BE ITA NO. 1065/JP/2016 M/S A DAGA ROYAL ARTS, JAIPUR VS ITO, JAIPUR 23 ON AN ASSUMED INCOME. IT IS SAID THAT THE PROVISION AUTHORIZING LEVY TAX ON AN ASSUMED INCOME WOULD BE A RESTRICTION ON THE RIGHT TO CARRY ON THE BUSINESS, BESIDES BEING ARBITRARY. 7. IN OUR OPINION, THERE IS LITTLE MERIT IN THIS CO NTENTION. SECTION 40A(3) MUST NOT BE READ IN ISOLATION OR TO THE EXCLUSION O F RULE 6DD. THE SECTION MUST BE READ ALONG WITH THE RULE. IF READ TOGETHER, IT W ILL BE CLEAR THAT THE PROVISIONS ARE NOT INTENDED TO RESTRICT THE BUSINESS ACTIVITIE S. THERE IS NO RESTRICTION ON THE ASSESSEE IN HIS TRADING ACTIVITIES. SECTION 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 C ROSSED BANK DRAFT. THE PAYMENT BY CROSSED CHEQUE OR CROSSED BANK DRAFT IS INSISTED ON TO ENABLE THE ASSESSING AUTHORITY TO ASCERTAIN WHETHER THE PAYMEN T WAS GENUINE OR WHETHER IT WAS OUT OF THE INCOME FROM DISCLOSED SOURCES. TH E TERMS OF SECTION 40A(3) ARE NOT ABSOLUTE. CONSIDERATION OF BUSINESS EXPEDIE NCY AND OTHER RELEVANT FACTORS ARE NOT EXCLUDED. THE GENUINE AND BONA FIDE TRANSACTIONS ARE NOT TAKEN OUT OF THE SWEEP OF THE SECTION. IT IS OPEN T O THE ASSESSEE TO FURNISH TO THE SATISFACTION OF THE ASSESSING OFFICER THE CIRCU MSTANCES UNDER WHICH THE PAYMENT IN THE MANNER PRESCRIBED IN SECTION 40A(3) WAS NOT PRACTICABLE OR WOULD HAVE CAUSED GENUINE DIFFICULTY TO THE PAYEE. IT IS ALSO OPEN TO THE ASSESSEE TO IDENTIFY THE PERSON WHO HAS RECEIVED TH E CASH PAYMENT. RULE 6DD PROVIDES THAT AN ASSESSEE CAN BE EXEMPTED FROM THE REQUIREMENT OF PAYMENT BY A CROSSED CHEQUE OR CROSSED BANK DRAFT IN THE CI RCUMSTANCES SPECIFIED UNDER THE RULE. IT WILL BE CLEAR FROM THE PROVISION S OF SECTION 40A(3) AND RULE 6DD THAT THEY ARE INTENDED TO REGULATE THE BUSINESS TRANSACTIONS AND TO PREVENT THE USE OF UNACCOUNTED MONEY OR REDUCE THE CHANCES TO USE BLACK- MONEY FOR BUSINESS TRANSACTIONS. MUDIAM OIL CO. V . ITO [1973] 92 ITR 519 (AP). IF THE PAYMENT IS MADE BY A CROSSED CHEQUE ON A BANK OR A CROSSED BANK DRAFT, THEN IT WILL BE EASIER TO ASCERTAIN, WH EN DEDUCTION IS CLAIMED, WHETHER THE PAYMENT WAS GENUINE AND WHETHER IT WAS OUT OF THE INCOME FROM ITA NO. 1065/JP/2016 M/S A DAGA ROYAL ARTS, JAIPUR VS ITO, JAIPUR 24 DISCLOSED SOURCES. IN INTERPRETING A TAXING STATUTE THE COURT CANNOT BE OBLIVIOUS OF THE PROLIFERATION OF BLACK-MONEY WHICH IS UNDER CIRCULATION IN OUR COUNTRY. ANY RESTRAINT INTENDED TO CURB THE CHANCE S AND OPPORTUNITIES TO USE OR CREATE BLACK-MONEY SHOULD NOT BE REGARDED AS CUR TAILING THE FREEDOM OF TRADE OR BUSINESS. 22. FURTHER, THE HONBLE SUPREME COURT UPHELD THE APPLICABILITY OF SECTION 40A(3) TO PAYMENT MADE FOR ACQUIRING STOCK-IN-TRADE AND RAW MATERIALS AND ALSO AFFIRMED THE DECISION OF HONBLE RAJASTHAN HIG H COURT IN CASE OF FAKRI AUTOMOBILES V. CIT [1986] 160 ITR 504 (RAJ) TO THE EFFECT THAT THE PAYMENTS MADE FOR PURCHASING STOCK-IN-TRADE OR RAW MATERIAL SHOULD ALSO BE REGARDED AS EXPENDITURE FOR THE PURPOSES OF SECTION 40A(3) OF T HE ACT. 23. THE HONBLE SUPREME COURT HAS THEREFORE UPHELD THE CONSTITUTIONAL VALIDITY OF SECTION 40A(3) OF THE ACT AND HAS HELD THAT THE PROVISIONS ARE NOT INTENDED TO RESTRICT THE BUSINESS ACTIVITIES AND RESTRAINT S O PROVIDED ARE ONLY INTENDED TO CURB THE CHANCES AND OPPORTUNITIES TO USE OR CREATE BLACK MONEY AND THE SAME SHOULD NOT BE REGARDED AS CURTAILING THE FREED OM OF TRADE OR BUSINESS. THE HONBLE SUPREME COURT HAS THUS LAID GREAT EMPHA SIS ON THE INTENTION BEHIND INTRODUCTION OF THESE PROVISIONS AND IT WOUL D THEREFORE BE RELEVANT TO EXAMINE WHETHER IN THE PRESENT CASE, THERE IS ANY V IOLATION OF SUCH INTENTION AND IF ULTIMATELY, IT IS DETERMINED THAT SUCH INTEN TION HAS BEEN VIOLATED, THEN CERTAINLY, THE ASSESSEE DESERVES THE DISALLOWANCE O F THE EXPENDITURE SO CLAIMED. 24. THE HONBLE SUPREME COURT REFERRING TO THE PRO VISIONS OF SECTION 40A(3) AS EXISTED AT RELEVANT POINT IN TIME WHICH TALKS AB OUT CONSIDERATIONS OF BUSINESS EXPEDIENCY AND OTHER RELEVANT FACTORS AND RULE 6DD(J) WHICH PROVIDES FOR THE EXCEPTIONAL OR UNAVOIDABLE CIRCUMS TANCES AND THE FACT THAT THE PAYMENT IN THE MANNER AFORESAID WAS NOT PRACTIC AL OR WOULD HAVE CAUSED ITA NO. 1065/JP/2016 M/S A DAGA ROYAL ARTS, JAIPUR VS ITO, JAIPUR 25 GENUINE DIFFICULTY TO THE PAYEE AND FURNISHING THE NECESSARY EVIDENCE TO THE SATISFACTION OF THE ASSESSING OFFICER AS TO THE GEN UINENESS OF THE PAYMENTS AND THE IDENTITY OF THE PAYEE HAS HELD THAT: THE TERMS OF SECTION 40A(3) ARE NOT ABSOLUTE. CONS IDERATION OF BUSINESS EXPEDIENCY AND OTHER RELEVANT FACTORS ARE NOT EXCLU DED. THE 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 SECTION 40A(3) WAS NOT PRACTICABLE OR WOULD HAVE CAUSED GEN UINE DIFFICULTY TO THE PAYEE. IT IS ALSO OPEN TO THE ASSESSEE TO IDENTIFY THE PERSON WHO HAS RECEIVED THE CASH PAYMENT. RULE 6DD PROVIDES THAT AN ASSESSE E CAN BE EXEMPTED FROM THE REQUIREMENT OF PAYMENT BY A CROSSED CHEQUE OR C ROSSED BANK DRAFT IN THE CIRCUMSTANCES SPECIFIED UNDER THE RULE. 25. HERE, IT IS RELEVANT TO NOTE THAT THERE HAS BE EN NO CHANGE IN THE PROVISIONS OF SECTION 40A(3) IN SO FAR AS CONSIDERA TIONS OF BUSINESS EXPEDIENCY AND OTHER RELEVANT FACTORS ARE CONCERNED, AS EXISTE D AT RELEVANT POINT IN TIME AND AS CONSIDERED BY THE HONBLE SUPREME COURT AND THE PROVISIONS OF SECTION 40A(3) AS EXIST NOW AND RELEVANT FOR THE IMPUNGED A SSESSMENT YEAR I.E. AY 2013-14. HOWEVER, RULE 6DD(J) HAS BEEN AMENDED AND BY NOTIFICATION DATED 10.10.2008, IT NOW PROVIDES FOR AN EXCEPTION ONLY I N A SCENARIO WHERE THE PAYMENT WAS REQUIRED TO BE MADE ON A DAY ON WHICH B ANKS WERE CLOSED EITHER ON ACCOUNT OF HOLIDAY OR STRIKE. A QUESTION WHICH A RISES FOR CONSIDERATION IS WHETHER THE LEGAL PROPOSITION SO LAID DOWN BY THE H ONBLE SUPREME COURT REGARDING CONSIDERATION OF BUSINESS EXPEDIENCY AND OTHER RELEVANT FACTORS HAS BEEN DILUTED BY WAY OF DELEGATED LEGISLATION IN FOR M OF INCOME TAX RULES WHEN THE PARENT LEGISLATION IN FORM OF SECTION 40A(3) TO WHICH SUCH DELEGATED LEGISLATION IS SUBSERVIENT HAS BEEN RETAINED IN ITS ENTIRETY. ALTERNATIVELY, CAN IT BE SAID THAT WHAT HAS BEEN PRESCRIBED AS EXCEPTIONA L CIRCUMSTANCES IN RULE ITA NO. 1065/JP/2016 M/S A DAGA ROYAL ARTS, JAIPUR VS ITO, JAIPUR 26 6DD AS AMENDED ARE EXHAUSTIVE ENOUGH AND WHICH VISU ALIZES ALL KINDS AND NATURE OF BUSINESS EXPEDIENCY IN ALL POSSIBLE SITUA TIONS. 26. IF WE LOOK AT THE LEGISLATIVE HISTORY OF SECTIO N 40A(3) AND RULE 6DD, WE FIND THAT INITIALLY, SECTION 40A(3) PROVIDES FOR DI SALLOWANCE OF 100% OF THE EXPENDITURE UNLESS THE MATTER FALLS UNDER EXCEPTION AS PROVIDED IN RULE 6DD(J) LATER ON, SECTION 40A(3) HAS BEEN AMENDED TO PROVID E FOR DISALLOWANCE OF 20% OF THE EXPENDITURE INCURRED IN CASH AND RULE 6D D(J) WAS OMITTED. THEREAFTER, BY VIRTUE OF ANOTHER AMENDMENT, DISALLO WANCE UNDER SECTION 40A(3) WAS INCREASED FROM 20% TO 100%, HOWEVER, RUL E 6DD(J) WAS NOT REINTRODUCED IN ORIGINAL FORM TO PROVIDE FOR EXCEPT IONAL AND UNAVOIDABLE CIRCUMSTANCES RATHER IT WAS RESTRICTED TO PAYMENT B Y WAY OF SALARY TO EMPLOYEES AND THEREAFTER, BY VIRTUE OF LASTEST AMEN DMENT IN YEAR 2008 TO PAYMENTS MADE ON A DAY ON WHICH THE BANKS WERE CLOS ED ON ACCOUNT OF HOLIDAY OR STRIKE. 27. WE DO NOT BELIEVE THAT BY VIRTUE OF THESE AMEND MENTS, THE LEGAL PROPOSITION SO LAID DOWN BY THE HONBLE SUPREME COU RT REGARDING CONSIDERATION OF BUSINESS EXPEDIENCY AND OTHER RELEVANT FACTORS H AS BEEN DILUTED IN ANY WAY. AT THE SAME TIME, WE ALSO BELIEVE THAT RULE 6DD AS AMENDED ARE NOT EXHAUSTIVE ENOUGH AND WHICH VISUALIZES ALL KINDS AN D NATURE OF BUSINESS EXPEDIENCY IN ALL POSSIBLE SITUATIONS AND IT IS FOR THE APPROPRIATE AUTHORITY TO EXAMINE AND PROVIDE FOR A MECHANISM AS ORIGINALLY E NVISAGED WHICH PROVIDES FOR EXCEPTIONAL OR UNAVOIDABLE CIRCUMSTANCES TO THE SATISFACTION OF THE ASSESSING OFFICER WHEREBY GENUINE BUSINESS EXPENDIT URE SHOULD NOT SUFFER DISALLOWANCE. 28. FURTHER, THE COURTS HAVE HELD FROM TIME TO TIME THAT THE RULES MUST BE INTERPRETED IN A MANNER SO AS TO ADVANCE AND NOT TO FRUSTRATE THE OBJECT OF THE LEGISLATURE. THE INTENTION OF THE LEGISLATURE IS MA NIFESTLY CLEAR AND WHICH IS TO ITA NO. 1065/JP/2016 M/S A DAGA ROYAL ARTS, JAIPUR VS ITO, JAIPUR 27 CURB THE CHANCES AND OPPORTUNITIES TO USE OR CREATE BLACK MONEY AND TO ASCERTAIN WHETHER THE PAYMENT WAS GENUINE OR WHETHE R IT WAS OUT OF THE INCOME FROM DISCLOSED SOURCES. AND SECTION 40A(3) C ONTINUES TO PROVIDE THAT NO DISALLOWANCE SHALL BE MADE IN SUCH CASES AND UND ER SUCH CIRCUMSTANCES AS MAY BE PRESCRIBED HAVING REGARD TO THE NATURE AND E XTENT OF THE BANKING FACILITIES AVAILABLE, CONSIDERATION OF BUSINESS EXP EDIENCY AND OTHER RELEVANT FACTORS. IN OUR VIEW, GIVEN THAT THERE HAS BEEN NO CHANGE IN THE PROVISIONS OF SECTION 40A(3) IN SO FAR AS CONSIDERATION OF BUSINE SS EXPEDIENCY AND OTHER RELEVANT FACTORS ARE CONCERNED, THE SAME CONTINUES TO BE RELEVANT FACTORS WHICH NEEDS TO BE CONSIDERED AND TAKEN INTO ACCOUNT WHILE DETERMINING THE EXCEPTIONS TO THE DISALLOWANCE AS CONTEMPLATED UNDE R SECTION 40A(3) OF THE ACT SO LONG AS THE INTENTION OF THE LEGISLATURE IS NOT VIOLATED. WE FIND THAT OUR SAID VIEW FIND RESONANCE IN DECISIONS OF VARIOUS AU THORITIES, WHICH WE HAVE DISCUSSED BELOW AND THUS SEEMS FORTIFIED BY THE SAI D DECISIONS. 29. WE REFER TO THE DECISION OF THE HONBLE RAJASTHAN HIGH COURT IN CASE OF SMT. HARSHILA CHORDIA VS. ITO (SUPRA), WHERE THE FACTS OF CASE WERE THAT THE ASSESSEE HAD MADE CERTAIN CASH PAYMENTS TO WARDS PURCHASE OF SCOOTER/MOPEDS WHICH EXCEEDED RS. 10,000/- IN EACH CASE TO THE PRINCIPAL AGENT INSTEAD OF MAKING PAYMENT THROUGH THE CROSS C HEQUES OR BANK DRAFT. THE ASSESSING OFFICER INVOKED THE PROVISIONS OF SEC TION 40A(3) AND HELD THAT THEY WERE NO EXCEPTIONAL CIRCUMSTANCES FALLING UNDE R RULE 6DD WHICH COULD AVOID CONSEQUENCES OF THE PROVISIONS OF SECTION 40A (3) OF THE ACT. THE LD. CIT(A) HELD THAT SUCH EXCEPTIONAL CIRCUMSTANCES DID EXIST. HOWEVER, THE FINDINGS OF THE LD. CIT(A) WERE REVERSED BY THE TRI BUNAL AND THE MATTER CAME UP FOR CONSIDERATION BEFORE THE HONBLE HIGH COURT. 30. THE HONBLE HIGH COURT OBSERVED THAT THE PRINCI PAL REASON WHICH WEIGHED WITH THE TRIBUNAL IN DISCARDING THE EXPLANA TION FURNISHED BY THE ASSESSEE WAS THAT THE CASE OF THE ASSESSEE DID NOT FALL IN ANY OF THE CLAUSES ITA NO. 1065/JP/2016 M/S A DAGA ROYAL ARTS, JAIPUR VS ITO, JAIPUR 28 ENUMERATED IN THE CIRCULAR ISSUED BY THE CBDT ABOUT THE EXPLANATORY NOTE APPENDED TO CLAUSE (J) WAS TO OPERATE AS IT WAS EXI STING AT THE RELEVANT TIME AND ENUMERATED CIRCUMSTANCES IN THE CIRCULAR WAS EX HAUSTIVE OF EXCEPTIONAL CIRCUMSTANCES. THE HONBLE HIGH COURT OBSERVED THAT THE TRIBUNAL HAS ERRONEOUSLY ASSUMED THAT ENUMERATION OF INSTANCES I N THE CIRCULAR IN WHICH THE PROVISIONS OF CLAUSE (J) UNDER RULE 6DD WOULD OPERA TE TO BE EXHAUSTIVE OF SUCH CIRCUMSTANCES AND HAD NOT BEEN PROPERLY UNDERSTOOD ITS IMPLICATION. IT WAS FURTHER OBSERVED BY THE HONBLE HIGH COURT THAT PRI MARY OBJECT OF ENACTING SECTION 40A(3) IN ITS ORIGINAL INCARNATION WAS TWO- FOLD, FIRSTLY, PUTTING A CHECK ON TRADING TRANSACTIONS WITH A MIND TO EVADE THE LI ABILITY TO TAX ON INCOME EARNED OUT SUCH TRANSACTION AND, SECONDLY, TO INCUL CATE THE BANKING HABITS AMONGST THE BUSINESS COMMUNITY. THE CONSEQUENCE WHI CH WAS PROVIDED WAS TO DISALLOW OF DEDUCTION OF SUCH PAYMENTS/EXPENSES WHICH WERE NOT THROUGH BANK EITHER BY CROSSED CHEQUES OR BY DEMAND DRAFT O R BY PAY ORDER. IT WAS FURTHER HELD BY THE HONBLE HIGH COURT THAT: APPARENTLY, THIS PROVISION WAS DIRECTLY RELATED TO CURB THE EVASION OF TAX AND INCULCATING THE BANKING HABITS. THEREFORE, THE CONSEQUENCES, WHICH WERE TO BEFALL ON ACCOUNT OF NON-OBSERVATION OF SUB-SECT ION (3) OF SECTION 40A MUST HAVE NEXUS TO THE FAILURE OF SUCH OBJECT. THEREFORE THE GENUINENESS OF THE TRANSACTIONS AND IT BEING FREE FROM VICE OF ANY DEV ICE OF EVASION OF TAX IS RELEVANT CONSIDERATION WHICH HAS BEEN OVERLOOKED BY THE TRIBUNAL. 31. IT WAS ACCORDINGLY HELD BY THE HONBLE HIGH COU RT THAT IT IS THE RELEVANT CONSIDERATION FOR THE ASSESSING AUTHORITY UNDER THE INCOME TAX ACT THAT BEFORE INVOKING THE PROVISIONS OF SECTION 40A(3) IN LIGHT OF RULE 6DD AS CLARIFIED BY CIRCULAR OF THE CBDT THAT WHETHER THE FAILURE ON TH E PART OF THE ASSESSEE IN ADHERING TO REQUIREMENT OF PROVISIONS OF SECTION 40 A(3) HAS ANY SUCH NEXUS WHICH DEFEATS THE OBJECT OF PROVISION SO AS TO INVI TE SUCH A CONSEQUENCE. THIS IS PARTICULARLY SO, BECAUSE THE CONSEQUENCE PROVIDE D U/S 40A(3) FOR FAILURE TO ITA NO. 1065/JP/2016 M/S A DAGA ROYAL ARTS, JAIPUR VS ITO, JAIPUR 29 MAKE PAYMENTS THROUGH BANK IS NOT ABSOLUTE IN TERMS NOR AUTOMATIC BUT EXCEPTIONS HAVE BEEN PROVIDED AND LEVERAGE HAS BEEN LEFT FOR LITTLE FLEXING BY MAKING A GENERAL PROVISION IN THE FORM OF CLAUSE (J ) IN RULE 6DD. THEREAFTER, THE HONBLE HIGH COURT REFERS TO THE CLAUSE 6DD(J) AND THE CIRCULAR DATED 31 ST MAY, 1977 ISSUED BY THE BOARD IN THE CONTEXT OF WHA T SHALL CONSTITUTE EXCEPTIONAL AND UNAVOIDABLE CIRCUMSTANCES WITHIN TH E MEANING OF SECTION CLAUSE (J). THE HONBLE HIGH COURT OBSERVED THAT TH E CIRCULAR IN PARAGRAPH 5 GIVES A CLEAR INDICATION THAT RULE 6DD(J) HAS TO BE LIBERALLY CONSTRUED AND ORDINARILY WHERE THE GENUINENESS OF THE TRANSACTION AND THE PAYMENT AND THE IDENTITY OF THE RECEIVER IS ESTABLISHED, THE REQUIR EMENT OF RULE 6DD(J) MUST BE DEEMED TO HAVE BEEN SATISFIED. THE HONBLE HIGH CO URT OBSERVED THAT APPARENTLY SECTION 40A(3) WAS INTENDED TO PENALIZE THE TAX EVADER AND NOT THE HONEST TRANSACTIONS AND THAT IS WHY AFTER FRAMING O F RULE 6DD(J), THE BOARD STEPPED IN BY ISSUING THE AFORESAID CIRCULAR AND TH IS CLARIFICATION, IN OUR OPINION, IS IN CONFORMITY WITH THE PRINCIPLE ENUNCIATED BY T HE SUPREME COURT IN CTO VS. SWASTIK ROADWAYS REPORTED IN [2004] 2 RC 539; [2004 ] 3 SCC 640. 32. THE LEGAL PROPOSITION THAT ARISES FROM THE ABOV E DECISION OF THE HONBLE RAJASTHAN HIGH COURT IS THAT THE CONSEQUENCES, WHIC H WERE TO BEFALL ON ACCOUNT OF NON-OBSERVATION OF SUB-SECTION (3) OF SE CTION 40A MUST HAVE NEXUS TO THE FAILURE OF SUCH OBJECT. THEREFORE THE GENUIN ENESS OF THE TRANSACTIONS AND IT BEING FREE FROM VICE OF ANY DEVICE OF EVASIO N OF TAX IS RELEVANT CONSIDERATION AND WHICH SHOULD BE EXAMINED BEFORE I NVOKING THE RIGOURS OF SECTION 40A(3) OF THE ACT. 33. IN CASE OF ANUPAM TELE SERVICES V. INCOME TAX OFFICER , THE MATTER WHICH CAME UP FOR CONSIDERATION BEFORE THE HONBLE GUJARAT HIGH COURT , THE FACTS OF THE CASE WERE THAT THE ASSESSEE WHO IS INVOLVED IN THE BUSINESS OF DISTRIBUTION MOBILE AND RECHARGE VOUCHERS OF TATA T ELE SERVICES LTD HAD MADE PAYMENT OF RS. 33,10,194/- TO TATA TELE SERVICES LT D., BY CASH ON DIFFERENT ITA NO. 1065/JP/2016 M/S A DAGA ROYAL ARTS, JAIPUR VS ITO, JAIPUR 30 DATES. THE ASSESSEE HAD MADE SUCH PAYMENT THROUGH A CCOUNT PAYEE CHEQUES TILL 22 ND AUG, 2005, WHEN A CIRCULAR WAS ISSUED BY TATA TELE SERVICES LTD., REQUIRING THE APPELLANT TO DEPOSIT CASH AT THE COMP ANYS OFFICE AT SURAT. IN THAT FACTUAL BACKGROUND , THE HONBLE HIGH COURT HELD AS UNDER:- 17. RULE 6DD OF THE IT RULES, 1962 PROVIDES FOR SITUATI ONS UNDER WHICH DISALLOWANCE UNDER S. 40A(3) SHALL NOT BE MADE AND NO PAYMENT SHALL BE DEEMED TO BE THE PROFITS AND GAINS OF BUSINESS OR P ROFESSION UNDER THE SAID SECTION. AMONGST THE VARIOUS CLAUSES, CL. (J) WHICH IS RELEVANT, READ AS UNDER: (J) WHERE THE PAYMENT WAS REQUIRED TO BE MADE ON A DAY ON WHICH THE BANKS WERE CLOSED EITHER ON ACCOUNT OF HOLIDAY OR S TRIKE; 18. IT COULD BE APPRECIATED THAT S. 40A AND IN PART ICULAR SUB-CL. (3) THEREOF AIMS AT CURBING THE POSSIBILITY OF ON-MONEY TRANSAC TIONS BY INSISTING THAT ALL PAYMENTS WHERE EXPENDITURE IN EXCESS OF A CERTAIN S UM (IN THE PRESENT CASE TWENTY THOUSAND RUPEES) MUST BE MADE BY WAY OF ACCO UNT PAYEE CHEQUE DRAWN ON A BANK OR ACCOUNT PAYEE BANK DRAFT. 19. AS HELD BY THE APEX COURT IN CASE OF ATTAR SING H GURMUKH SINGH (SUPRA). '..IN OUR OPINION, THERE IS LITTLE MERIT I N THIS CONTENTION. SEC. 40A(3) MUST NOT BE READ IN ISOLATION OR TO THE EXCLUSION O F R. 6DD. THE SECTION MUST BE READ ALONG WITH THE RULE. IF READ TOGETHER, IT W ILL BE CLEAR THAT THE PROVISIONS ARE NOT INTENDED TO RESTRICT THE BUSINES S ACTIVITIES. THERE IS NO RESTRICTION ON THE ASSESSEE IN HIS TRADING ACTIVITI ES. SEC. 40A(3) ONLY EMPOWERS THE A.O. TO DISALLOW THE DEDUCTION CLAIMED AS EXPENDITURE IN RESPECT OF WHICH PAYMENT IS NOT MADE BY CROSSED CHE QUE OR CROSSED BANK DRAFT. THE PAYMENT BY CROSSED CHEQUE OR CROSSED BAN K 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 UNDISCLOSE D SOURCES, THE TERMS OF S. 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 T O THE ASSESSEE TO FURNISH TO ITA NO. 1065/JP/2016 M/S A DAGA ROYAL ARTS, JAIPUR VS ITO, JAIPUR 31 THE SATISFACTION OF THE A.O. THE CIRCUMSTANCES UNDE R WHICH THE PAYMENT IN THE MANNER PRESCRIBED IN S. 40A(3) WAS NOT PRACTICABLE OR WOULD HAVE CAUSED GENUINE DIFFICULTY TO THE PAYEE. IT IS ALSO OPEN TO THE ASSESSEE TO IDENTIFY THE PERSON WHO HAS RECEIVED THE CASH PAYMENT. RULE 6DD PROVIDES THAT AN ASSESSEE CAN BE EXEMPTED FROM THE REQUIREMENT OF PA YMENT BY A CROSSED CHEQUE OR CROSSED BANK DRAFT IN THE CIRCUMSTANCES S PECIFIED UNDER THE RULE. IT WILL BE CLEAR FROM THE PROVISIONS OF S. 40A(3) AND R. 6DD THAT THEY ARE INTENDED TO REGULATE BUSINESS TRANSACTIONS AND TO PREVENT TH E USE OF UNACCOUNTED MONEY OR REDUCE THE CHANCES TO USE BLACK MONEY FOR BUSINESS TRANSACTIONS: 20. IT WAS BECAUSE OF THESE CONSIDERATIONS THAT THI S COURT IN CASE OF HYNOUP FOODS (P.) LTD. (SUPRA) OBSERVED THAT THE GE NUINENESS OF THE PAYMENT AND THE IDENTIFY OF THE PAYEE ARE THE FIRST AND FOREMOST REQUIREMENTS TO INVOKE THE EXCEPTIONS CARVED OUT IN R. 6DD(J) OF THE IT RULES,1962. 21. IN THE PRESENT CASE, NEITHER THE GENUINENESS OF THE PAYMENT NOR THE IDENTITY OF THE PAYEE WERE IN ANY CASE DOUBTED. THE SE WERE THE CONCLUSIONS ON FACTS DRAWN BY THE CIT(A). THE TRIBUNAL ALSO DID NOT DISTURB SUCH FACTS BUT RELIED SOLELY ON R. 6DD(J) OF THE RULES TO HOLD THA T SINCE THE CASE OF THE ASSESSEE DID NOT FALL UNDER THE SAID EXCLUSION CLAU SE NOR WAS COVERED UNDER ANY OF THE CLAUSES OF R. 6DD, CONSEQUENCES ENVISAGE D IN S. 40A(3) OF THE ACT MUST FOLLOW. 22. IN OUR OPINION, THE TRIBUNAL COMMITTED AN ERROR IN COMING TO SUCH A CONCLUSION. WE WOULD BASE OUR CONCLUSIONS ON THE FO LLOWING REASONS: (A) THE PARAMOUNT CONSIDERATION OF SECTION 40A(3) IS TO CURB AND REDUCE THE POSSIBILITIES OF BLACK MONEY TRANSACTIONS. AS H ELD BY THE SUPREME COURT IN ATTAR SINGH GURMUKH SINGH (SUPRA), SECTION 40A(3 ) OF THE ACT DOES NOT ELIMINATE CONSIDERATIONS OF BUSINESS EXPEDIENCIES. ITA NO. 1065/JP/2016 M/S A DAGA ROYAL ARTS, JAIPUR VS ITO, JAIPUR 32 (B) IN THE PRESENT CASE, THE APPELLANT ASSESSEE W AS COMPELLED TO MAKE CASH PAYMENTS ON ACCOUNT OF PECULIAR SITUATION. SUC H SITUATION WAS AS FOLLOW- (I) THE PRINCIPAL COMPANY, TO WHICH THE ASSESSEE WAS A DISTRIBUTOR, INSISTED THAT CHEQUE PAYMENT FROM A CO-OPERATIVE BANK WOULD NOT DO, SINCE THE REALIZATION TAKES A LONGER TIME; (II) THE ASSESSEE WAS, THEREFORE, REQUIRED TO MAKE CASH PAYMENTS ONLY; (III) TATA TELE SERVICES LTD. ASSURED THE ASSESSEE THAT SUCH AMOUNT SHALL BE DEPOSITED IN THEIR BANK ACCOUNT ON BEHALF OF THE ASSESSEE; (IV) IT IS NOT DISPUTED THAT THE TATA TELE SERVICES LTD. DID NOT ACT ON SUCH PROMISE; (V) IF THE ASSESSEE HAD NOT MADE CASH PAYMENT AND RELIED ON CHEQUE PAYMENTS ALONE, IT WOULD HAVE RECEIVED THE RECHARGE VOUCHERS DELAYED BY 4/5 DAYS AND THEREBY SEVERELY AFFECTING ITS BUSINESS OP ERATIONS. WE WOULD FIND THAT THE PAYMENTS BETWEEN THE ASSESSE E AND THE TATA TELE SERVICES LTD. WERE GENUINE. THE TATA TELE SERVICES LTD. HAD INSISTED THAT SUCH PAYMENTS BE MADE IN CASH, WHICH TATA TELE SERV ICES LTD. IN TURN ASSURED AND DEPOSITED THE AMOUNT IN A BANK ACCOUNT. IN THE FACTS OF THE PRESENT CASE, RIGORS OF S. 40A(3) OF THE ACT MUST B E LIFTED. 23. WE NOTICE THAT THE DIVISION BENCH OF THE RAJAS THAN HIGH COURT IN CASE OF SMT. HARSHILA CHORDIA VS. ITO (2007) 208 CTR (RA J) HAD OBSERVED THAT THE EXCEPTIONS CONTAINED IN R. 6DD ARE NOT EXHAUSTIVE A ND THAT THE SAID RULE MUST BE INTERPRETED LIBERALLY. 34. IN CASE OF M/S AJMER FOOD PRODUCTS PVT. LTD., AJMER VS. JCIT (SUPRA), A SIMILAR ISSUE HAS COME UP BEFORE THE CO- ORDINATE BENCH AND SPEAKING THROUGH ONE OF US, IT WAS HELD AS UNDER: ITA NO. 1065/JP/2016 M/S A DAGA ROYAL ARTS, JAIPUR VS ITO, JAIPUR 33 4.5 THE GENUINENESS OF THE TRANSACTION AS WELL AS THE IDENTITY OF THE PAYEE ARE NOT DISPUTED. FURTHER, THE APPELLANT HAS EXPLAI NED THE BUSINESS EXPEDIENCY OF MAKING THE CASH PAYMENTS TO BOTH THE PARTIES WHI CH HAS NOT BEEN CONTROVERTED BY THE REVENUE. FOLLOWING THE DECISION OF GUJARAT HIGH COURT IN CASE OF ANUPAM TELE SERVICES (SUPRA) AND RAJASTHAN HIGH COURT IN CASE OF HARSHILA CHORDIA (SUPRA), THE ADDITION OF RS. 45,73 8/- UNDER SECTION 40A(3) IS DELETED. 35. IN CASE OF GURDAS GARG VS. CIT(A), BATHINDA (SUPRA), THE MATTER WHICH CAME UP FOR CONSIDERATION BEFORE THE HONBLE PUNJAB & HARYANA HIGH COURT , THE FACTS OF THE CASE ARE PARI MATERIA TO THE INSTANT CASE AND THE RATIO OF THE SAID DECISION CLEARLY APPLIES IN THE I NSTANT CASE. IN THAT CASE, THE FACTS OF THE CASE WERE THAT THE ASSESSEE WAS ENGAGE D IN TRADING IN PROPERTIES AND DURING THE COURSE OF ASSESSMENT PROCEEDINGS, TH E AO OBSERVED THAT THERE ARE TRANSACTIONS WHERE THE PAYMENTS HAVE BEEN MADE IN EXCESS OF RS. 20,000/- IN CASH WHICH WERE DISALLOWED U/S 40A(3) O F THE ACT. THE HONBLE HIGH COURT HELD THAT RULE 6DD(J) IS NOT EXHAUSTIVE OF THE CIRCUMSTANCES IN WHICH THE PROVISO TO SECTION 40A(3) IS APPLICABLE A ND IT ONLY ILLUSTRATIVE. THE HONBLE HIGH COURT REFERS TO THE DECISION OF THE HO NBLE RAJASTHAN HIGH COURT IN CASE OF SMT. HARSHILA CHORDIA V. ITO (SUPRA) AND THE DECISION OF HONBLE SUPREME COURT IN CASE OF ATTAR SINGH GURMUKH SINGH V. ITO (SUPRA). THE HIGH COURT FURTHER OBSERVED THAT THE LD. CIT(A) HAS GIVE N A FINDING THAT THE IDENTITY OF THE PAYEE I.E. VENDORS IN RESPECT OF LAND PURCHA SE BY THE APPELLANT WAS ESTABLISHED, THE SALE DEEDS WERE PRODUCED, THE GENU INENESS THEREOF WAS ACCEPTED AND THE AMOUNT PAID IN RESPECT OF EACH OF THESE AGREEMENT WAS SATISFIED BEFORE THE STAMP REGISTRATION AUTHORITY A ND THE TRANSACTIONS WERE HELD TO BE GENUINE AND THE BAR AGAINST THE GRANT OF DEDUCTIONS U/S 40A(3) OF THE ACT WAS NOT ATTRACTED. THE HONBLE HIGH COURT F URTHER OBSERVED THAT THE TRIBUNAL DID NOT UPSET THESE FINDINGS INCLUDING AS TO THE GENUINENESS AND THE ITA NO. 1065/JP/2016 M/S A DAGA ROYAL ARTS, JAIPUR VS ITO, JAIPUR 34 CORRECTNESS OF THE TRANSACTIONS AND IT IS ALSO IMPO RTANT TO NOTE THAT THE TRIBUNAL NOTED THE CONTENTION ON BEHALF OF THE APPE LLANT THAT THERE WAS A BOOM IN THE REAL ESTATE MARKET AND THEREFORE IT WAS NECESSARY, THEREFORE, TO CONCLUDE THE TRANSACTIONS AT THE EARLIEST AND NOT T O POSTPONE THEM; THAT THE APPELLANT DID NOT KNOW THE VENDORS AND OBVIOUSLY TH EREFORE, INSISTED FOR PAYMENT IN CASH AND THAT AS A RESULT THEREOF, PAYME NTS HAD TO BE MADE IMMEDIATELY TO SETTLE THE DEALS. THE TRIBUNAL DID N OT DOUBT THIS CASE. THE TRIBUNAL, HOWEVER, HELD THAT THE CLAIM FOR DEDUCTIO N WAS NOT SUSTAINABLE. IN VIEW OF SECTION 40A(3) AS THE PAYMENTS WHICH WERE O VER RS. 20,000/- WERE MADE IN CASH. THE HONBLE HIGH COURT ACCORDINGLY OB SERVED THAT THE TRIBUNAL HAS NOT DISBELIEVED THE TRANSACTIONS OR THE GENUINE NESS THEREOF NOR HAS IT DISBELIEVED THE FACT THAT PAYMENTS HAVING BEEN MADE . MORE IMPORTANTLY, THE REASONS FURNISHED BY THE APPELLANT FOR HAVING MADE THE CASH PAYMENTS, WHICH WE HAVE ALREADY ADVERTED TO, HAVE NOT BEEN DISBELIE VED. IN OUR VIEW, ASSUMING THESE REASONS TO BE CORRECT, THEY CLEARLY MAKE OUT A CASE OF BUSINESS EXPEDIENCY. 36. THE CO-ORDINATE BENCH IN CASE OF M/S DHURI WINE VS DCIT (ITA NO. 1155/CHD/2013 & OTHERS DATED 09.10.2015) HAS HELD THAT THE PROPOSITION SO LAID DOWN BY THE HONBLE HIGH COURT IN CASE OF GURD AS GARG (SUPRA) IS QUITE UNAMBIGUOUS TO THE EFFECT THAT EVEN IF THE CASE OF THE ASSESSEE DOES NOT FALL IN ANY OF THE CLAUSES OF RULE 6DD OF THE INCOME TAX RU LES, INVOKING THE PROVISIONS OF SECTION 40A(3) OF THE ACT CAN BE DISP ENSED WITH IF THE ASSESSEE IS ABLE TO PROVE THE BUSINESS EXPEDIENCY BECAUSE OF WH ICH IT HAS TO MAKE THE CASH PAYMENTS, THE GENUINENESS OF THE TRANSACTIONS HAVE ALSO TO BE VERIFIED. 37. THE CO-ORDINATE BENCH IN CASE OF RAKESH KUMAR VS. ACIT (ITA NO. 102(ASR)/2014 DATED 09.03.2016) RELYING ON THE DECISION OF HONBLE PUNJAB AND HARYANA HIGH COURT IN CASE OF GURDAS GARG (SUPR A) HAS HELD THAT THE GENUINENESS OF THE PAYMENT HAS NOT BEEN DOUBTED AS THE ASSESSING OFFICER ITA NO. 1065/JP/2016 M/S A DAGA ROYAL ARTS, JAIPUR VS ITO, JAIPUR 35 HIMSELF HAS HELD THAT SALE DEEDS OF PROPERTIES WERE REGISTERED WITH THE REVENUE DEPARTMENT OF THE GOVERNMENT. THEREFORE, FO LLOWING THE DECISION OF HONBLE PUNJAB AND HARYANA HIGH COURT, THE PAYMENT FOR PURCHASE OF LAND WAS ALLOWED. 38. WE FURTHER NOTE THAT IN CASE OF M/S ACE INDIA ABODES LIMITED (DB APPEAL NO. 45/2012 DATED 11.09.2017) , A SIMILAR ISSUE HAS COME UP BEFORE THE HONBLE RAJASTHAN HIGH COURT REGARDING PAYMENT FOR PURCHASE OF LAND FROM VARIOUS AGRICULTURIST FOR WHICH THE ASSESSEE H AS PAID CONSIDERATION IN CASH AND SHOWN THE LAND AS ITS STOCK-IN-TRADE. THE HONB LE RAJASTHAN HIGH COURT REFERRING TO THE INTENT BEHIND INTRODUCTION OF SECT ION 40A(3) AND CATENA OF DECISIONS RIGHT FROM ATTAR SINGH GURMUKH SINGH, SMT . HARSHILA CHORDIA, GURDAS GARG, ANUPAM TELE SERVICES REFERRED SUPRA HAS DECID ED THE ISSUE IN FAVOUR OF THE ASSESSEE AND AGAINST THE DEPARTMENT. 39. THE ISSUE WHICH IS BEING DISPUTED BEFORE US HAS TO BE CONSIDERED AND DECIDED IN LIGHT OF FACTS ON RECORD AND THE LEGAL P OSITION WHICH EMERGES FROM THE ABOVE REFERRED DECISIONS. THE FACTS OF THE CAS E ARE THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE FIRM HAS PURCHASE D 26 PIECES OF PLOT OF LAND IN THE MONTH OF APRIL AND MAY, 2012 FROM VARIOUS PE RSONS FOR A TOTAL CONSIDERATION OF RS. 2,46,28,425/-, OUT OF WHICH PA YMENT AMOUNTING TO RS. 1,71,67,000/- WERE MADE IN CASH TO VARIOUS PERSONS, PAYMENT AMOUNTING TO RS. 59,48,920/- WERE MADE IN CHEQUE TO VARIOUS PERS ONS, AND RS. 8,15,700/- AND RS. 6,84,296/- WERE PAID IN CASH TOWARDS STAMP DUTY AND COURT FEE RESPECTIVELY. DURING THE COURSE OF ASSESSMENT PROCE EDINGS, THE ASSESSEE SUBMITTED COPIES OF THE SALE DEED, THE PARTICULARS OF WHICH FIND MENTION ON PAGE 7 AND 8 OF THE ASSESSMENT ORDER. ON PERUSAL O F THE SAID DETAILS, IT IS OBSERVED THAT THE SAID DETAILS CONTAINS THE NAME OF THE SELLER, DATE OF SALE DEED, PLOT NO., PURCHASE VALUE, STAMP DUTY, COURT F EE AND MODE OF PAYMENT CASH/CHEQUE. THEREFORE, AS FAR AS THE IDENTITY OF THE PERSONS FROM WHOM THE ITA NO. 1065/JP/2016 M/S A DAGA ROYAL ARTS, JAIPUR VS ITO, JAIPUR 36 PURCHASES HAVE BEEN MADE AND GENUINENESS OF THE TRA NSACTIONS OF PURCHASE OF VARIOUS PLOTS OF LAND AND PAYMENT IN CASH IS CON CERNED, THE SAME IS EVIDENCED BY THE REGISTERED SALE DEEDS AND THERE IS NO DISPUTE WHICH HAS BEEN RAISED BY THE REVENUE EITHER DURING THE ASSESSMENT PROCEEDINGS OR BEFORE US. THE IDENTITY OF THE SELLERS AND GENUINENESS OF THE TRANSACTIONS IS THEREFORE FULLY ESTABLISHED IN THE INSTANT CASE. 40. FROM PERUSAL OF THE ASSESSMENT ORDER, IT IS FUR THER NOTED THAT THE AO, ON PERUSAL OF THE DETAILS OF THE PROPERTIES PURCHASED, AS PER COPIES OF THE SALE DEED FURNISHED, HELD THAT THE ASSESSEE HAD MADE CAS H PAYMENTS REGULARLY AND NO SPECIFIC CIRCUMSTANCES HAVE BEEN BROUGHT TO HIS KNOWLEDGE THAT THE CASH PAYMENTS WERE MADE DUE TO SOME UNAVOIDABLE CIRCUMST ANCES. IT WAS HELD BY THE AO THAT MAXIMUM CASH PAYMENTS WERE MADE TO PERS ONS RESIDING IN JAIPUR CITY AND IN SINGLE FAMILY, REPEATED CASH PAYMENTS W ERE MADE WHICH ITSELF SHOWS THAT THERE WERE NO UNAVOIDABLE CIRCUMSTANCES TO MAKE CASH PAYMENTS TO THE SELLERS. WHAT IS THEREFORE RELEVANT TO NOTE THAT THE AO HAS APPRECIATED THE NECESSITY OF DETERMINING THE UNAVOIDABLE CIRCUM STANCES WHICH COULD HAVE LED THE ASSESSEE TO MAKE CASH PAYMENTS. DURING THE COURSE OF ASSESSEMENT PROCEEDINGS, IT WAS SUBMITTED BY THE ASSESSEE THAT THE PAYMENT FOR PURCHASE OF LAND HAS BEEN MADE IN CASH BECAUSE THE SELLERS W ERE NEW TO THE ASSESSEE AND REFUSED TO ACCEPT THE CASH. IT WAS SUBMITTED TH AT THE DELAY IN MAKING THE CASH PAYMENT, IT COULD HAVE LOST THE LAND DEALS. IN THIS REGARD, THE LD AR SUBMITTED BEFORE US THAT THE ASSESSEE HAD PURCHASED THE LANDS BOTH THROUGH CASH AND CHEQUES. BASED ON THE REQUIREMENT OF THE S ELLER, ASSESSEE HAD SELECTED THE MODE OF PAYMENT. FOR THE SELLERS, WHO HAD INSISTED THE PAYMENTS IN CASH, ASSESSEE HAD WITHDRAWN THE CASH FROM BANK ON THE SAME DATE OF REGISTRY AND MADE THE PAYMENTS TO SELLER ACCORDINGL Y. THE WITHDRAWALS FROM BANK AND PAYMENTS TO SELLER HAVE BEEN TABULATED BEL OW AS PER DATES BELOW:- DATE BANK GRAND TOTAL CUMULATIVE BALANCE UTILIZATION NET BALANCE ICICI BANK YES BANK DATE AMOUNT 18,00,000 ITA NO. 1065/JP/2016 M/S A DAGA ROYAL ARTS, JAIPUR VS ITO, JAIPUR 37 5-APR-12 14,50,000 3,50,00 18,00,000 18,00,000 5, 07,00 9-APR-12 - 9,00,000 9,00,000 27,00,000 9-APR-12 21, 93,000 3,34,000 11-APR-12 - 2,00,000 2,00,000 29,00,000 11-APR-12 3 ,73,000 3,34,000 12-APR-12 - - - 29,00,000 - - 3,34,000 13-APR-12 - - - 29,00,000 - - 11,97,100 19-APR-12 - 30,00,000 30,00,000 59,00,000 23-APR-12 21,36,900 11,57,000 24-APR-12 30,00,000 25,00,000 55,00,000 1,14,00,000 24-APR-12 55,40,100 11,57,000 25-APR-12 - - - 1,14,00,000 - - 11,57,000 30-APR-12 - - - 1,14,00,000 - - 11,57,000 4-MAY-12 - - - 1,14,00,000 - - 11,57,000 7-MAY-12 - - - 1,14,00,000 - - 11,57,000 8-MAY-12 19,00,000 23,00,000 42,00,000 1,56,00,000 8-MAY-12 38,55,000 15,02,000 12-MAY-12 - - - 1,56,00,000 - - 15,02,000 14-MAY-12 - - - 1,56,00,000 - - 15,02,000 15-MAY-12 - - - 1,56,00,000 - - 15,02,000 16-MAY-12 - 15,00,000 15,00,000 1,71,00,000 - - 30, 02,000 17-MAY-12 - 15,00,000 15,00,000 1,86,00,000 17-MAY- 12 30,69,000 14,33,000 TOTAL 63,50,000 1,42,50,000 1,86,00,000 1,71,67,0 00 41. IT WAS SUBMITTED BY THE LD AR THAT IN ORDER TO SECURE THE DEAL, ASSESSEE HAD NO OTHER OPTION BUT TO MAKE THE PAYMENT IN CASH . CASH PAYMENTS WERE MADE FROM THE DISCLOSED SOURCES BEING THE AMOUNT WI THDRAWN FROM BANK. IT WAS FOR SHEER INSISTENCE OF THE SELLER THAT THE PAY MENTS WERE MADE IN CASH. HAD THE ASSESSEE DENIED THE CASH PAYMENT LOOKING TO THE PROVISIONS OF SECTIONS 40A(3), THE DEAL COULD NOT HAVE BEEN FINAL IZED. IN SUCH CIRCUMSTANCES, IN THE BUSINESS INTEREST AND TO COMPLETE THE DEAL, THE ASSESSEE HAD CHOSEN TO MAKE THE PAYMENTS IN CASH FORTIFIED THROUGH REGISTE RED SALE DEED. THE PAYMENT HAS BEEN MADE OUT OF THE EXPLAINED SOURCES, THROUGH THE REGISTERED DOCUMENT AND AS A DISCLOSED TRANSACTION. 42. WE FIND FORCE IN THE CONTENTIONS SO RAISED BY T HE LD AR. THE TRANSACTIONS HAVE BEEN EXECUTED BY THE ASSESSEE WITHIN A SPAN OF ONE AND HALF MONTH AND THERE ARE TRANSACTIONS WHERE THE PAYMENT HAS BEEN M ADE THROUGH CHEQUE AND THERE ARE TRANSACTIONS WHERE THE PAYMENT HAS BEEN M ADE THROUGH CASH. THE SAID CONTENTIONS ARE SUPPORTED BY THE FACT THAT ON THE SAME DAY, THERE ARE CASH AND CHEQUE PAYMENTS AS EVIDENCED FROM THE DETA ILS OF THE TRANSACTIONS ITA NO. 1065/JP/2016 M/S A DAGA ROYAL ARTS, JAIPUR VS ITO, JAIPUR 38 APPEARING AT PAGE 7 AND 8 OF THE ASSESSMENT ORDER. IT IS THEREFORE CLEAR THAT THE ASSESSEE WAS HAVING SUFFICIENT BANK BALANCE AND ONLY AT THE INSISTENCE OF THE SPECIFIC SELLERS, THE ASSESSEE HAS WITHDRAWN CA SH AND MADE PAYMENT TO THEM AND WHEREVER, THE SELLER HAS INSISTED ON CHEQU E PAYMENTS, THE PAYMENT HAS BEEN MADE BY CHEQUE. THIS MAKES OUT A CASE THA T THE ASSESSEE HAS BUSINESS EXPEDIENCY UNDER WHICH IT HAS TO MAKE PAYM ENT IN CASH AND IN ABSENCE OF WHICH, THE TRANSACTIONS COULD NOT BE COM PLETED. THE SECOND PROVISO TO SECTION 40A(3) REFERS TO THE NATURE AND EXTENT OF BANKING FACILITY, CONSIDERATION OF BUSINESS EXPEDIENCY AND OTHER RELE VANT FACTORS WHICH MEANS THAT THE OBJECT OF THE LEGISLATURE IS NOT TO MAKE D ISALLOWANCE OF CASH PAYMENTS WHICH HAVE TO BE COMPULSORY MADE BY THE ASSESSEE ON ACCOUNT OF BUSINESS EXPEDIENCY. FURTHER, THE SOURCE OF CASH PAYMENTS I S CLEARLY IDENTIFIABLE IN FORM OF THE WITHDRAWALS FROM THE ASSESSEES BANK AC COUNTS AND THE SAID DETAILS WERE SUBMITTED BEFORE THE LOWER AUTHORITIES AND HAVE NOT BEEN DISPUTED BY THEM. IT IS NOT THE CASE OF THE REVENUE EITHER THAT UNACCOUNTED OR UNDISCLOSED INCOME OF THE ASSESSEE HAS BEEN UTILISE D IN MAKING THE CASH PAYMENTS. 43. IN THE ENTIRETY OF FACTS AND CIRCUMSTANCES OF T HE CASE AND RESPECTFULLY FOLLOWING THE LEGAL PROPOSITION LAID DOWN BY THE VA RIOUS COURTS AND COORDINATE BENCHES REFERRED SUPRA, WE ARE OF THE VIEW THAT THE IDENTITY OF THE PERSONS FROM WHOM THE VARIOUS PLOTS OF LAND HAVE BEEN PURCH ASED AND SOURCE OF CASH PAYMENTS AS WITHDRAWALS FROM THE ASSESSEES BANK AC COUNT HAS BEEN ESTABLISHED. THE GENUINENESS OF THE TRANSACTION HAS BEEN ESTABLISHED AS EVIDENCED BY THE REGISTERED SALE DEEDS AND LASTLY, THE TEST OF BUSINESS EXPEDIENCY HAS BEEN MET IN THE INSTANT CASE. FURTHE R, AS HELD BY THE HONBLE RAJASTHAN HIGH COURT IN CASE OF HARSHILA CHORDIA (S UPRA), THE CONSEQUENCES, WHICH WERE TO BEFALL ON ACCOUNT OF NON-OBSERVATION OF SUB-SECTION (3) OF SECTION 40A MUST HAVE NEXUS TO THE FAILURE OF SUCH OBJECT. THEREFORE THE GENUINENESS OF THE TRANSACTIONS AND IT BEING FREE F ROM VICE OF ANY DEVICE OF EVASION OF TAX IS RELEVANT CONSIDERATION. THE INTEN T AND THE PURPOSE FOR WHICH ITA NO. 1065/JP/2016 M/S A DAGA ROYAL ARTS, JAIPUR VS ITO, JAIPUR 39 SECTION 40A(3) HAS BEEN BROUGHT ON THE STATUTE BOOK S HAS BEEN CLEARLY SATISFIED IN THE INSTANT CASE. THEREFORE, BEING A C ASE OF GENUINE BUSINESS TRANSACTION, NO DISALLOWANCE IS CALLED FOR BY INVOK ING THE PROVISIONS OF SECTION 40A(3) OF THE ACT. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 15/05/2018. SD/- SD/- FOT; IKY JKO FOE FLAG ;KNO (VIJAY PAL RAO) (VIKRAM SINGH YADAV) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER JAIPUR DATED:- 15/05/2018 *GANESH KR 1- VKNS'K DH IZFRFYFI VXZSF'KR @ COPY OF THE ORDER FORWARDED TO: 2. VIHYKFKHZ@ THE APPELLANT - M/S A DAGA ROYAL ARTS, JAIPUR 3. IZR;FKHZ@ THE RESPONDENT - ITO, WARD-2(2), JAIPUR 4. VK;DJ VK;QDR@ CIT 5. VK;DJ VK;QDRVIHY@ THE CIT(A) 6. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR 7. XKMZ QKBZY@ GUARD FILE (ITA NO. 1065/JP/2016) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT REGISTRAR.