Natesan Krishnamurthy , CHENNAI V. ITO Non Corporate Ward 9(2) , CHENNAI

ITA 1672/CHNY/2017

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 5030 (ITAT-CHENNAI)
• Duration Of Justice: 11 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-06-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 06-07-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MRS RU GEORGE IRS
• Assessee Lawyers: M KARUNAKARAN
• Keywords: Revised return
• Section: 40A(3); 56

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : CHENNAI . . . , !' . #$#% , & '' ( [BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER ] ./I.T.A. NO. 1672/CHNY/2017 / ASSESSMENT YEAR : 2013-2014. NATESAN KRISHNAMURTHY, 24/60, MOOKATHAL STREET, PURASAWALKAM, CHENNAI 600 007. [PAN ANCPK 2634B] VS. THE INCOME TAX OFFICER, NON CORPORATE WARD 9(2) CHENNAI 600 034. ( )* / APPELLANT) ( +,)* /RESPONDENT) / APPELLANT BY : SHRI. M. KARUNAKARAN, ADV /RESPONDENT BY : MRS. RUBY GEORGE, IRS, CIT. /DATE OF HEARING : 19-06-2018 ! /DATE OF PRONOUNCEMENT : 20-06-2018 / O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER ASSESSEE IN THIS APPEAL FILED AGAINST AN ORDER D ATED 23.05.2017 OF LD. COMMISSIONER OF INCOME TAX (APPEA LS)-10, CHENNAI, IS AGGRIEVED ON A DISALLOWANCE OF C34,68,15,452/- M ADE U/S.40A(3) OF ITA NO. 1672/CHNY/2017 :- 2 -: THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) WH ICH WAS CONFIRMED BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS). 2. FACTS APROPOS ARE THAT ASSESSEE CLAIMING TO BE A COMMISSION AGENT HAD FILED HIS RETURN FOR THE IMPUG NED ASSESSMENT YEAR DECLARING INCOME OF C9,23,600/-. ASSESSEE WAS ONE OF THE BIDDERS WHO PARTICIPATED IN AUCTIONS OF UNREDEEMED OLD GOLD ORNAMENTS, CONDUCTED BY ONE M/S. MANAPPURAM FINANCE LIMITED. THOUGH IN HIS ORIGINAL RETURN, SALES/GROSS RECEIPTS SHOWN IN THE PROFIT AND LOSS ACCOUNT WAS ONLY C6,66,134/- IN A REVISED RETURN F ILED SALES/GROSS RECEIPTS OF C34,74,81,586/- WAS SHOWN. CORRESPONDIN G PURCHASES WERE FOR C34,68,15,452/-. ASSESSEE WAS REQUIRED TO EXPL AIN HOW PURCHASES OF SUCH HUGE VOLUME COULD BE MADE WHEN HIS CAPITAL IN THE BUSINESS WAS ONLY C22,67,797/-. THEREUPON ASSESSEE SUBMITTED THAT A GROUP OF PERSONS WHO WANTED TO PARTICIPATE IN THE AUCTIONS H ELD BY M/S. MANAPPURAM FINANCE LTD FORMED A SYNDICATE. AS PER THE ASSESSEE, HE WAS PARTICIPATING IN THE AUCTION FOR SUCH SYNDICATE . CONTENTION OF THE ASSESSEE WAS THAT IF THE BID MADE BY HIM WAS SUCCES SFUL, HE COLLECTED THE MONEY FROM PROSPECTIVE PURCHASERS WHO WERE THE MEMBERS OF THE SYNDICATE, AND REMITTED IT TO M/S. MANAPPURAM FINAN CE LTD. AS PER THE ASSESSEE, M/S. MANAPPURAM FINANCE LTD COLLECTED 1% TAX AT SOURCE FROM SUCH PAYMENTS MADE BY HIM FOR THE OLD GOLD OR NAMENTS. IN ITA NO. 1672/CHNY/2017 :- 3 -: OTHER WORDS, EXPLANATION OF THE ASSESSEE WAS THAT M ONEY COLLECTED FROM PROSPECTIVE PURCHASERS WERE USED BY HIM FOR EF FECTING PAYMENTS IN ACCORDANCE WITH BID AND OLD GOLD ORNAMENTS RECEI VED FROM M/S. MANAPPURAM FINANCE LTD WAS DISTRIBUTED AMONG SUCH S YNDICATE MEMBERS. 3. LD. ASSESSING OFFICER PUT THE ASSESSEE ON NOTICE A S TO WHY SECTION 40A(3) OF THE ACT SHOULD NOT BE APPLIED SIN CE THE PAYMENTS MADE TO M/S. MANAPPURAM FINANCE LTD EXCEEDED C20,00 0/- IN CASH. REPLY OF THE ASSESSEE TO THE NOTICE READ AS UNDER:- '' .. I AM DEALING IN GOLD JEWELLERY AND I HAD MADE SUCCESSIVE BIDDING OF GOLD AUCTION CONDUCTED BY M/S MANAPPURAM FINANCE LIMITED, A NON BANKING COMPANY RECOGNISED BY RESERVE BANK OF INDIA AND DEALING ONLY IN BANKING BUSINESS OF ACCEPTING DEPOS IT AND LENDING OF FINANCE AGAINST SECURITY DURING FY 2012-13. THE MEANING OF BANKING COMPANY AS PER SECTION 5( C) IN BANKING REGULATION ACT, 1949. (C) 'BANKING COMPANY' MEANS ANY COMPANY WHICH TRANSACTS THE BUSINESS OF BANKING [IN INDIA}. EXPLA NATION - ANY COMPANY WHICH IS ENGAGED IN THE MANUFACTURE OF GOODS OR CARRIES ON ANY TRADE AND WHICH ACCEPTS DEPOSITS OF MONEY FROM THE PUBLIC MERELY FOR THE PURPOSE OF FINANCING ITS BUSINESS AS SUCH MANUFACTU RER OR TRADER SHALL NOT BE DEEMED TO TRANSACT THE BUSIN ESS OF BANKING WITHIN THE MEANING OF THIS CLAUSE; DURING THE PROCESS OF AUCTION THE COMPANY'S POLICY WAS TO SETTLE THE DEAL WITH SUCCESSIVE BIDDER IN THE EV ENING OTTER NEGOTIATION OF PRICES AND ACCEPT CASH FROM ITA NO. 1672/CHNY/2017 :- 4 -: OUTSIDE BIDDERS LIKE ME OR BY CH/RTGS IF IT WAS BID SUCCESSFULLY BY MANAPPURAM GROUP. THE USUAL PROCEDURE WILL BE TO FORM A SYNDICATE BIDDERS RANGI NG FROM 10 TO 25 PERSONS TO A VOID INCREASE IN THE, COST OF AUCTION GOLD AND' AFTER SUCCESSIVE BIDDING BY ME, I WILL COLLECT CASH FROM EACH OF THE MEMBERS OF THE SYNDTCETE AND WIJ/DISTRIBUTE THE GOLD ACCORDING TO THE PAYMEN TS COLLECTED FROM THEM AND WILL BE TAKEN AS SALES IN M Y ACCOUNT AS MANAPPURAM FINANCE HAD RAISED INVOICE IN MY NAME AND ACCORDINGLY TDS WAS DEDUCTED AND. WHICH WAS SHOWN AS PURCHASE IN MY ACCOUNT. SINCE THE PURCHASE WAS IN AUCTION FROM MLS MANAPPURAM FINANCE LTD AND I WAS NEW CUSTOMER TO THE COMPANY IN BUYING AUCTIONED GOL D FROM THEM, IT WAS -INSISTED THAT ONLY CASH DEALING WAS PERMITTED TO ME THIS WAS ONE OF POINTS TAKEN FOR CONSIDERATION .OT BUSINESS EXPEDIENCY. IN THE CASE OF MLS KANISHK GOLD PVT LTD VS DEPT OF INCOME TAX, ITAT CHENNAI HAS MADE THE CONTENTION TH AT THE PARTY HAD ACCEPTED OLD GOLD ORNAMENTS AND IN EXCHANGE SOLD THE FRESH GOLD JEWELLERY IN EXCHANGE AND COLLECTED / REFUNDED THE DIFFERENTIAL AMOUNT WHICH WILL NOT ATTRACT SEC 40(A)(3) AND THE PURCHASERS WAS DELETED FROM ADDITION OF INCOME. IN MY CASE AS MENTIONED ABOVE WOULD LIKE TO CLARIFY THAT 1. I HAD MADE CASH PAYMENT AS I WAS A NEW CUSTOMER TO M/S MANAPPURAM FINANCE LIMITED. 2. THE COMPANY IS A NDFC COMPANY RECOGNISED BY RBI AND ARE INTO ACCEPTANCE OF DEPOSIT AND LENDING FINA NCE ON SECURITY AND ARE NOT INTO ANY MANUFACTURING OR T RADING COMPANY. 3. ALREADY I AM OVER BURDENED WITH FINANCIAL CRISES DU E TO HIGHLY VOLATILE MARKET CONDITIONS AND MY PRIOR COMMITMENTS ARE HUGE AND LED TO SEVERAL CASES OF CHEQUE BOUNCE AGAINST ME. 4. THE BUSINESS OF GOLD IS DONE ON A MINIMUM MARGINS WITH HUGE FINANCIAL DEALING AND THE ADDITION U/S 40 (A)(3) FOR THE PURCHASERS WILL BE A VERY BIG FINANCIAL BUR DEN WITH ITA NO. 1672/CHNY/2017 :- 5 -: SUCH A LITTLE MARGIN AND 1 WILL NOT BE ABLE TO MEET THE DEMAND THROUGH OUT MY LIFE AND WILL MADE MY LIF E MISERABLE AND LEAD TOUNWARRANTED ACTION WHICH WILL NOT ONLY SPOIL ME AND PUT MY ENTIRE FAMILY'S FUTURE AT STAKE. 5, HENCE I PRAY NOT TO INVOKE THE SECTION AND MATTER BE DROPPED. ASSESSEE ALSO RELIED ON RULE 6DD OF THE INCOME TAX RULES, 1962 (IN SHORT THE RULES) FOR JUSTIFYING THE PAYMENTS MA DE IN CASH. 4. HOWEVER, LD. ASSESSING OFFICER WAS NOT IMPRESSED BY THE ABOVE REPLY. ACCORDING TO HIM, ASSESSEES PAYMENTS WERE NOT COVERED BY ANY OF THE CLAUSES IN RULE 6DD OF THE RULES. HE HELD THAT SECTION 40A(3) OF THE ACT WAS SQUARELY APPLICABLE ON THE CA SH PURCHASES MADE BY THE ASSESSEE. A DISALLOWANCE OF C34,68,15,4 52/- WAS MADE AND ASSESSMENT COMPLETED ACCORDINGLY. 5. AGGRIEVED, ASSESSEE MOVED IN APPEAL BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEALS). CONTENTION O F THE ASSESSEE WAS THAT HE HAD PARTICIPATED IN THE AUCTION CONDUCT ED BY M/S. MANAPPURAM FINANCE LTD FOR PURCHASING UNREDEEMED OL D GOLD JEWELERS ON BEHALF OF A NUMBER OF PURCHASERS. AS PER THE AS SESSEE, TERMS OF THE AUCTION REQUIRED THE HIGHEST BIDDER TO DEPOSIT PART OF THE AUCTIONED AMOUNT WITH M/S. MANAPPURAM FINANCE LTD A ND THERE WAS NO WAY HE COULD KNOW WHAT AMOUNT WOULD BE REQUIRED FOR THE SAID ITA NO. 1672/CHNY/2017 :- 6 -: PURPOSE. AS PER THE ASSESSEE, AUCTION AMOUNT WOULD BE KNOWN ONLY WHEN AUCTION WAS COMPLETE. ACCORDING TO THE ASSESS EE, MONEY WAS RECEIVED FROM THE ULTIMATE BUYERS OF THE GOLD JEWEL LERY FORMING THE SYNDICATE. CONTENTION OF THE ASSESSEE WAS THAT HE W AS UNDER THE COMPULSION TO COLLECT CASH FROM SYNDICATE MEMBERS AND MAKE PAYMENTS FOR THE BID. AS PER THE ASSESSEE, IDENTIT Y OF THE PERSON TO WHOM HE HAD MADE THE PAYMENTS WERE ESTABLISHED AND GENUINENESS OF THE PURCHASES WERE NOT DOUBTED. SUBMISSION OF T HE ASSESSEE WAS THAT THERE WERE COMPELLING CIRCUMSTANCES TO MAKE CA SH PAYMENTS AND UNLESS PAYMENTS WERE MADE IMMEDIATELY, THE JEWELLE RY PURCHASED THROUGH AUCTION WOULD BE LOST. RELYING ON THE JUDGM ENT OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF GIRIDHARLAL GOEN KA VS. CIT, 179 ITR 122, IT WAS SUBMITTED BY THE ASSESSEE THAT A TRANSA CTION ONCE FOUND TO BE GENUINE, SECTION 40A(3) OF THE ACT, ENACTED TO CHECK EVASION OF TAXES, HAD NO APPLICATION. RELIANCE WAS ALSO PLACED ON THE JUDGMENT OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. CHROME LEATHER CO. PVT. LTD, 235 ITR 708, THAT OF HONBLE RAJASTH AN HIGH COURT IN THE CASE OF SMT. HARSHILA CHORDIA VS. CIT VS. 298 ITR 3 49, THAT OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. RHYDBURG PH ARMACEUTICALS LTD, 269 ITR 561 AND RAMADITYA INVESTMENTS VS. CIT, 262 ITR 491, THAT OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF GOENK A AGENCIES VS. CIT, 263 ITR 145, THAT OF HONBLE PUNJAB AND HARYANA HIG H COURT IN THE ITA NO. 1672/CHNY/2017 :- 7 -: CASE OF CIT VS. NIKKO AUTO LTD, 256 ITR 476 AND AG GARWAL STEEL TRADERS VS. CIT, 250 ITR 738, THAT OF HONBLE KERAL A HIGH COURT IN THE CASE OF CIT VS. EASTERN CONDIMENTS PVT LTD, 261 ITR 76, THAT OF HONBLE GAUHATI HIGH COURT IN THE CASE OF SHRI.MAHA BIR INDUSTRIES VS. CIT, 220 ITR 459, THAT OF ALLAHABAD HIGH COURT IN T HE CASE OF CIT VS. SURESH KUMAR AGARWAL, 249 ITR 113, THAT OF HONBLE MADHYA PRADESH HIGH COURT IN THE CASE OF CIT VS. RAJENDRA RICE MIL L, 232 ITR 217 AND CIT VS. MAHAVIR STORES, 232 ITR 300 AND THAT OF HON BLE APEX COURT IN THE CASE OF ATTAR SINGH GURMUKH SINGH VS. ITO, 191 ITR 667 . 6. LD. COMMISSIONER OF INCOME TAX (APPEALS) WAS NOT IMPRESSED BY ANY OF THE ABOVE ARGUMENTS MADE BY THE ASSESSEE. LD. COMMISSIONER OF INCOME TAX (APPEALS) NOTED THAT ASS ESSEE COULD NOT JUSTIFY THE EXPENDITURE IN CASH BY DEMONSTRATING HO W HE FELL WITHIN ANY OF THE LIMBS OF RULE 6DD. ACCORDING TO HIM, SECTIO N 40A(3) OF THE ACT STOOD ATTRACTED EVEN WHEN THE PAYMENTS WERE GENUINE AND THIS WAS CLEAR FROM THE JUDGMENT OF HONBLE APEX COURT IN TH E CASE OF ATTAR SINGH GURMUKH SINGH (SUPRA) . AS PER THE LD. COMMISSIONER OF INCOME TAX (APPEALS) GENUINENESS OF THE PAYMENTS WAS NOT A FACTOR WHICH WAS TO BE CONSIDERED FOR APPLICATION OF SECTION 40 A(3) OF THE ACT. ACCORDING TO HIM, ASSESSEE HAVING NOT ESTABLISHED H OW HE STOOD EXEMPT FROM THE APPLICATION OF SECTION 40A(3) OF TH E ACT, THE ITA NO. 1672/CHNY/2017 :- 8 -: DISALLOWANCE MADE BY THE LD. ASSESSING OFFICER WAS JUSTIFIED. HE CONFIRMED THE DISALLOWANCE. 7. NOW BEFORE US, THE LD. AR STRONGLY ASSAILING THE O RDERS OF THE LOWER AUTHORITIES SUBMITTED THAT THE TERMS OF T HE AUCTION CLEARLY REQUIRED THE HIGHEST BIDDER TO DEPOSIT A PART OF TH E BID AMOUNT IMMEDIATELY ON ANNOUNCEMENT OF THE SUCCESSFUL BID. ACCORDING TO HIM, ASSESSEE WAS THEREFORE COMPELLED TO MAKE THE P AYMENT IN CASH. CONTENTION OF THE LD. AUTHORISED REPRESENTATIVE WAS THAT ASSESSEE COLLECTED MONEY FROM MEMBERS OF THE SYNDICATE AND PAID IT TO M/S. MANAPPURAM FINANCE LTD AND THESE WERE ALL DULY ACCO UNTED AND NEVER DOUBTED BY THE REVENUE. AS PER THE LD. AUTHORISED REPRESENTATIVE, VARIOUS CONTINGENCIES MENTIONED IN RULE 6DD WERE NO T EXHAUSTIVE BUT ONLY ILLUSTRATIVE. ACCORDING TO HIM, IF ASSESSEE W AS ABLE TO ESTABLISH THAT THERE EXISTED CIRCUMSTANCES TO SHOW REQUIREMEN TS OF PAYING IN CASH, SECTION 40A(3) OF THE ACT COULD NOT BE APPLIE D. RELIANCE WAS PLACED ON THE DECISION OF JAIPUR BENCH OF THE TRIBU NAL IN THE CASE OF M/S. A DAGA ROYAL ARTS VS. ITO (ITA NO1065/JP/2016, DATED 15.05.2018) THAT OF DELHI BENCH OF THIS TRIBUNAL IN THE CASE OF VIVEK GUPTA VS. ITO (ITA NO.5727/DEL/2011, DATED 14.08.20 13) AND THAT OF CHENNAI BENCH OF THE TRIBUNAL IN THE CASE OF MAYUR MARKETING VS. ITO (376/MDS/2012, DATED 11.09.2012). ITA NO. 1672/CHNY/2017 :- 9 -: 8. PER CONTRA, LD. DEPARTMENTAL REPRESENTATIVE STRONG LY SUPPORTING THE ORDERS OF THE LOWER AUTHORITIES SUB MITTED THAT NO EXCEPTIONAL CIRCUMSTANCE WAS DEMONSTRATED BY THE AS SESSEE WARRANTING AN EXCLUSION FROM APPLICATION OF SECTI ON 40A(3) OF THE ACT. 9. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE AUTHORITIES BELOW. IT IS NOT DISPUTED THAT ASSESSEE HAD MADE PAYMENTS IN CASH FOR THE BID AMOUNTS TO M/S. MANAPPURAM FINANCE LTD. AS PER THE ASSESSEE, CASH WAS COLLECTE D FROM VARIOUS SYNDICATE MEMBERS WHO WANTED OLD GOLD JEWELLERY AND ASSESSEE WAS REPRESENTING SUCH SYNDICATE. IN OTHER WORDS, AS PE R THE ASSESSEE, HE WAS ACTING AS CONDUIT FOR THE PURCHASES OF THE OLD GOLD JEWELLERY AND BIDDING ON BEHALF OF THE SYNDICATE MEMBERS WHO WANT ED TO PURCHASE OLD GOLD JEWELLERY FROM M/S. MANAPPURAM FINANCE LTD .. HOWEVER, LD. ASSESSING OFFICER HAS CLEARLY NOTED THAT ASSESSEE I N HIS REVISED RETURN HAD ADMITTED PURCHASE OF GOLD FROM M/S. MANAPPURAM FINANCE LTD FOR C34,68,15,452/- AND SALE THEREOF FOR C34,74,81,586/ -. IT IS NOT DISPUTED BY THE ASSESSEE THAT THE AMOUNTS PAID TO M/S. MANAPPURAM FINANCE LTD WERE IN CASH AND EXCEEDED THRESHOLD LI MIT OF C20,000/- IN EACH CASE. CONTENTION OF THE ASSESSEE IS THAT THER E WERE UNAVOIDABLE CIRCUMSTANCE WHICH REQUIRED HIM TO PAY THE BID AMOU NT IN CASH AND ITA NO. 1672/CHNY/2017 :- 10 -: THIS WAS A RELEVANT FACTOR WHICH NEEDED TO BE CONS IDERED WHILE DECIDING WHETHER SECTION 40A(3) OF THE ACT WAS TO B E APPLIED OR NOT. SECTION 40A(3) OF THE ACT, WHICH IS APPOSITE IS R EPRODUCED HEREUNDER:- (3) WHERE THE ASSESSEE INCURS ANY EXPENDITURE IN RESPECT OF WHICH A PAYMENT OR AGGREGATE OF PAYMENTS MADE TO A PERSON IN A DAY, OTHERWISE THAN BY AN ACC OUNT PAYEE CHEQUE DRAWN ON A BANK OR ACCOUNT 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 ASSESSMENT FOR ANY YEAR IN RESPECT OF ANY LIABILITY INCURRED BY THE ASSESSEE FOR 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 PAYEE BANK DRAFT, THE PAYMENT SO MADE SHALL BE DEEM ED TO BE THE PROFITS AND GAINS OF BUSINESS OR PROFESSI ON AND ACCORDINGLY CHARGEABLE TO INCOME-TAX AS INCOME OF T HE SUBSEQUENT YEAR IF THE PAYMENT OR AGGREGATE OF PAYMENTS 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 PROFESSION UNDER SUB-SECTION (3) AND TH IS SUB-SECTION WHERE A PAYMENT OR AGGREGATE OF PAYMENT S MADE TO A PERSON IN A DAY, OTHERWISE THAN BY AN ACC OUNT PAYEE CHEQUE DRAWN ON A BANK OR ACCOUNT PAYEE BANK DRAFT, EXCEEDS TWENTY THOUSAND RUPEES, IN SUCH CASE S AND UNDER SUCH CIRCUMSTANCES AS MAY BE PRESCRIBED, HAVING REGARD TO THE NATURE AND EXTENT OF BANKING FACILITIES AVAILABLE, CONSIDERATIONS OF BUSINESS EX PEDIENCY AND OTHER RELEVANT FACTORS. PROVIDED FURTHER THAT IN THE CASE OF PAYMENT MADE F OR PLYING, HIRING OR LEASING GOODS CARRIAGES, THE PROV ISIONS OF SUB-SECTIONS (3) AND (3A) SHALL HAVE EFFECT AS I F FOR ITA NO. 1672/CHNY/2017 :- 11 -: THE WORDS TWENTY THOUSAND RUPEES, THE WORDS THIR TY- FIVE THOUSAND RUPEES HAD BEEN SUBSTITUTED. RULE 6DD SET OUT THE CIRCUMSTANCES WHERE PAYMENTS C OULD EXCEED THE THRESHOLD LIMIT MENTIONED IN SECTION 40A(3) OF THE ACT. SAID RULE 6DD IS REPRODUCED HEREUNDER:- NO DISALLOWANCE UNDER SUB-SECTION (3) OF SECTION 40A SHALL BE MADE AND NO PAYMENT SHALL BE DEEMED TO BE THE PROFITS AND GAINS OF BUSINESS OR PROFESSION UNDER S UB- SECTION (3A) OF SECTION 40A 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 THE CASES AND CIRCUMSTANCES SPEC IFIED HEREUNDER, NAMELY :- (A) WHERE THE PAYMENT IS MADE TO- (I) THE RESERVE BANK OF INDIA OR ANY BANKING COMPAN Y AS DEFINED IN CLAUSE (C) OF SECTION 5 OF THE BANKING R EGULATION ACT, 1949 (10 OF 1949) ; (II) THE STATE BANK OF INDIA OR ANY SUBSIDIARY BANK AS DEFINED IN SECTION 2 OF THE STATE BANK OF INDIA (SU BSIDIARY BANKS) ACT, 1959 (38 OF 1959) ; (III) ANY CO-OPERATIVE BANK OR LAND MORTGAGE BANK ; (IV) ANY PRIMARY AGRICULTURAL CREDIT SOCIETY OR ANY PRIMARY CREDIT SOCIETY AS DEFINED UNDER SECTION 56 OF THE B ANKING REGULATION ACT, 1949 (10 OF 1949) ; (V) THE LIFE INSURANCE CORPORATION OF INDIA ESTABLI SHED UNDER SECTION 3 OF THE LIFE INSURANCE CORPORATION A CT, 1956 (31 OF 1956) ; (B) WHERE THE PAYMENT IS MADE TO THE GOVERNMENT AND , UNDER THE RULES FRAMED BY IT, SUCH PAYMENT IS REQUI RED TO BE MADE IN LEGAL TENDER ; (C) WHERE THE PAYMENT IS MADE BY- ITA NO. 1672/CHNY/2017 :- 12 -: (I) ANY LETTER OF CREDIT ARRANGEMENTS THROUGH A BAN K, (II) A MAIL OR TELEGRAPHIC TRANSFER THROUGH A BANK ; (III) A BOOK ADJUSTMENT FROM ANY ACCOUNT IN A BANK TO ANY OTHER ACCOUNT IN THAT OR ANY OTHER BANK ; (IV) A BILL OF EXCHANGE MADE PAYABLE ONLY TO A BANK ; (V) THE USE OF ELECTRONIC CLEARING SYSTEM THROUGH A BANK ACCOUNT ; (VI) A CREDIT CARD ; (VII) A DEBIT CARD. EXPLANATION.-- FOR THE PURPOSES OF THIS CLAUSE AND CLAUSE (G), THE TERM 'BANK' MEANS ANY BANK, BANKING COMPAN Y OR SOCIETY REFERRED TO IN SUB-CLAUSES (I) TO (IV) OF C LAUSE (A) AND INCLUDES ANY BANK [NOT BEING A BANKING COMPANY AS DEFINED IN CLAUSE (C) OF SECTION 5 OF THE BANKING R EGULATION ACT, 1949 (10 OF 1949)], WHETHER INCORPORATED OR NO T, WHICH IS ESTABLISHED OUTSIDE INDIA ; (D) WHERE THE PAYMENT IS MADE BY WAY OF ADJUSTMENT AGAINST THE AMOUNT OF ANY LIABILITY INCURRED BY THE PAYEE FOR ANY GOODS SUPPLIED OR SERVICES RENDERED BY THE ASSE SSEE TO SUCH PAYEE ; (E) WHERE THE PAYMENT IS MADE FOR THE PURCHASE OF- (I) AGRICULTURAL OR FOREST PRODUCE ; OR (II) THE PRODUCE OF ANIMAL HUSBANDRY (INCLUDING LIV ESTOCK, MEAT, HIDES AND SKINS) OR DAIRY OR POULTRY FARMING ; OR (III) FISH OR FISH PRODUCTS ; OR (IV) THE PRODUCTS OF HORTICULTURE OR APICULTURE, TO THE CULTIVATOR, GROWER OR PRODUCER OF SUCH ARTIC LES, PRODUCE OR PRODUCTS ; (F) WHERE THE PAYMENT IS MADE FOR THE PURCHASE OF T HE PRODUCTS MANUFACTURED OR PROCESSED WITHOUT THE AID OF POWER IN A COTTAGE INDUSTRY, TO THE PRODUCER OF SUC H PRODUCTS ; ITA NO. 1672/CHNY/2017 :- 13 -: (G) WHERE THE PAYMENT IS MADE IN A VILLAGE OR TOWN, WHICH ON THE DATE OF SUCH PAYMENT IS NOT SERVED BY ANY BA NK, TO ANY PERSON WHO ORDINARILY RESIDES, OR IS CARRYING O N ANY BUSINESS/PROFESSION OR VOCATION, IN ANY SUCH VILLAG E OR TOWN ; (H) WHERE ANY PAYMENT IS MADE TO AN EMPLOYEE OF THE ASSESSEE OR THE HEIR OF ANY SUCH EMPLOYEE, ON OR IN CONNECTION WITH THE RETIREMENT, RETRENCHMENT, RESIG NATION, DISCHARGE OR DEATH OF SUCH EMPLOYEE, ON ACCOUNT OF GRATUITY, RETRENCHMENT COMPENSATION OR SIMILAR TERMINAL BENEF IT AND THE AGGREGATE OF SUCH SUMS PAYABLE TO THE EMPLOYEE OR HIS HEIR DOES NOT EXCEED FIFTY THOUSAND RUPEES ; (I) WHERE THE PAYMENT IS MADE BY AN ASSESSEE BY WAY OF SALARY TO HIS EMPLOYEE AFTER DEDUCTING THE INCOME-T AX FROM SALARY IN ACCORDANCE WITH THE PROVISIONS OF SECTION 192 OF THE ACT AND WHEN SUCH EMPLOYEE- (I) IS TEMPORARILY POSTED FOR A CONTINUOUS PERIOD O F FIFTEEN DAYS OR MORE IN A PLACE OTHER THAN HIS NORMAL PLACE OF DUTY OR ON A SHIP ; AND (II) DOES NOT MAINTAIN ANY ACCOUNT IN ANY BANK AT S UCH PLACE OR SHIP ; (J) 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 ; (K) WHERE THE PAYMENT IS MADE BY ANY PERSON TO HIS AGENT WHO IS REQUIRED TO MAKE PAYMENT IN CASH FOR GOODS O R SERVICES ON BEHALF OF SUCH PERSON ; (L) WHERE THE PAYMENT IS MADE BY AN AUTHORISED DEAL ER OR A MONEY CHANGER AGAINST PURCHASE OF FOREIGN CURRENCY OR TRAVELLERS CHEQUES IN THE NORMAL COURSE OF HIS BUSI NESS. EXPLANATION.-- FOR THE PURPOSES OF THIS CLAUSE, THE EXPRESSIONS 'AUTHORISED DEALER' OR 'MONEY CHANGER' MEANS A PERSON AUTHORISED AS AN AUTHORISED DEALER OR A MONE Y CHANGER TO DEAL IN FOREIGN CURRENCY OR FOREIGN EXCH ANGE UNDER ANY LAW FOR THE TIME BEING IN FORCE. ITA NO. 1672/CHNY/2017 :- 14 -: PAYMENTS MADE BY THE ASSESSEE TO M/S. MANAPPURAM FI NANCE LTD FOR PURCHASING OLD GOLD ORNAMENTS DID NOT FALL WITHIN A NY LIMBS OF RULE 6DD. 10. ONE OF THE CONTETNIONS OF THE ASSESSEE IS THAT THOU GH THE PAYMENTS MADE BY HIM IN CASH DID NOT FALL WITHIN AN Y OF THE SUB- CLAUSES OF RULE 6DD, STILL SECTION 40A(3) OF THE AC T COULD NOT BE APPLIED, SINCE BUSINESS EXPEDIENCY AND OTHER RELE VANT FACTORS NECESSITATED SUCH PAYMENTS. TO A SPECIFIC QUESTIO N RAISED BY THE BENCH, IT WAS STATED BY THE LD. COUNSEL FOR THE AS SESSEE THAT ADVERTISEMENTS PLACED BY M/S. MANAPPURAM FINANCE LT D FOR SELLING ITS OLD GOLD ORNAMENTS BY AUCTION, DID NOT HAVE ANY C ONDITION AS TO PAYMENTS TO BE IN CASH MODE ONLY. HOWEVER, ACCORDI NG TO HIM, ASSESSEE HAD TO COLLECT MONEY FROM THE SYNDICATE ME MBERS AND BUSINESS EXPEDIENCY REQUIRED HIM TO COLLECT SUCH MO NEY THEN AND THERE, AND PAY IT TO M/S. MANAPPURAM FINANCE LTD. IN OUR OPONION, ASSESSEE FAILED TO DEMONSTRATE THAT CONDITIONS OF T HE BID REQUIRED IT TO EFFECT PAYMENTS IN CASH, THEN AND THERE, AND PAYMEN TS COULD NOT HAVE BEEN MADE BY CHEQUE OR DEMAND DRAFT OR ANY OTHER MO DE. IT MAY BE TRUE THAT ASSESSEE HAD TO COLLECT MONEY FROM THE SY NDICATE MEMBERS WHOM HE WAS REPRESENTING. HOWEVER, THERE IS NO E XPLANATION AS TO WHAT STOPPED THE ASSESSEE FROM EFFECTING PAYMENTS T HROUGH BANKING ITA NO. 1672/CHNY/2017 :- 15 -: CHANNELS. AGREEMENT WITH SYNDICATE MEMBERS IF ANY, WAS NOT PRODUCED BY THE ASSESSEE BEFORE ANY OF THE LOWER A UTHORITIES, OR IN OTHER WORDS, ASSESSEE COULD NOT DEMONSTRATE THAT I T WAS REPRESENTING ANY SYNDICATE NOR COULD IT DEMONSTRATE THAT IT WAS COLLECTING CASH FROM SUCH SYNDICATE MEMBERS FOR MAKING PAYMENTS TO M/S. MANAPPURAM FINANCE LTD. AS TO THE DECISION OF CO-ORDINATE BEN CH IN THE CASE OF MAYUR MARKETING (SUPRA ) THERE THE PAYMENTS WERE MADE IN CASH, SINCE SUPPLIER HAD INSISTED FOR CASH PAYMENTS AFTER BAN KING HOURS. IN THE CASE OF A. DAGA ROYAL ARTS (SUPRA ) DECIDED BY JAIPUR BENCH OF THE TRIBUNAL, THERE WERE BOTH PAYMENTS BY CHEQUE AND CA SH ON SAME DAYS AND THERE WAS A CLEAR FINDING THAT PAYMENTS IN CAS H WERE MADE WHEN IT WAS SO INSISTED BY THE SELLER. IN THE CASE OF VIVEK GUPTA (SUPRA ) DECIDED BY DELHI BENCH OF THE TRIBUNAL, TRANSACTION S DONE BY THE ASSESSEE WERE BETWEEN TWO PROPRIETORSHIP CONCERN AN D HENCE THERE WAS NO OUTSIDE PAYMENTS IN CASH. FACTS IN ALL THESE CASES, AS WELL AS IN THE CASES CITED BY THE ASSESSEE BEFORE THE LD. CO MMISSIONER OF INCOME TAX (APPEALS) WERE ENTIRELY DIFFERENT FROM W HAT IS AVAILABLE BEFORE US IN THE CASE OF THE ASSESSEE. NO DOUBT IF AN ASSESSEE IS ABLE TO DEMONSTRATE A SITUATION WHICH COMPELLED IT TO MA KE PAYMENTS IN CASH, THEN APPLICATION OF SECTION 40A(3) OF THE ACT MIGHT BE EXCUSED. HOWEVER AS MENTIONED BY US, ASSESSEE BEFORE US HA S BEEN UNABLE TO DEMONSTRATE ANY SUCH SITUATION, WHICH COULD CONVINC E US TO EXEMPT ITA NO. 1672/CHNY/2017 :- 16 -: HIM FROM APPLICATION OF RIGOURS OF SECTION 40A(3) OF THE ACT. WE THEREFORE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDERS OF THE LOWER AUTHORITIES. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS D ISMISSED. ORDER PRONOUNCED ON WEDNESDAY, THE 20TH DAY OF JUN E, 2018, AT CHENNAI. SD/- SD/- ( . . . ) (N.R.S. GANESAN) / JUDICIAL MEMBER ( !' . #$#% ) (ABRAHAM P. GEORGE) & / ACCOUNTANT MEMBER '# / CHENNAI $% / DATED: 20TH JUNE, 2018 KV %& '()( / COPY TO: 1 . / APPELLANT 3. *+, / CIT(A) 5. (-. / / DR 2. / RESPONDENT 4. * / CIT 6. .01 / GF