Shri Shankar Krishna Panaskar, Satara V. ITO, Ward-1, Satara

ITA 376/PUN/2013

• Counselvise Citation: 37624514 RSA 2013
• Duration Of Justice: 1 year(s) 6 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-08-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 07-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S P WALIMBE
• Assessee Lawyers: VIPIN K GUJRATI
• Keywords: Income from undisclosed sources
• Section: 40A(3); 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B , PUNE BEFORE: SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO . 376 / P N/ 20 1 3 ASSESSMENT YEAR : 200 9 - 10 SHRI SHANKAR KRISHNA PANASKAR, MAND AR HAVELI, PATHAN, DISTT. - SATARA VS. ITO, WARD - 1, SATARA (APPELLANT) (RESPONDENT) PAN NO. AHRPP9380Q APPELLANT BY: SHRI VIPIN K. GUJRATI RESPONDENT BY: SHRI S.P. WALIMBE DATE OF HEARING : 23 - 06 - 2014 DATE OF PRONOUNCEMENT : 25 - 0 8 - 2014 ORDER P ER R.S. PADVEKAR , JM : - IN THIS APPEAL, THE ASSESSEE HAS CHALLENGED THE IMPUGNED ORDER OF THE LD. CIT(A) - III, PUNE DATED 31 - 07 - 2012 FOR THE A.Y. 2009 - 10. THE ASSESSEE HAS TAKEN THE FOLLOWING EFFECTIVE GROUNDS IN THE APPEAL: 1. ON THE FACTS AND I N THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HONOURABLE CIT (APPEAL) - III, PUNE ERRED IN CONFIRMING THE DISALLOWANCE OF RS.1,09,12,436/ - AS PER THE PROVISIONS OF SECTION 40A(3) OF INCOME TAX ACT 1961 MADE BY THE LEARNED ASSESSING OFFICE ON THE GROUND THA T THE PAYMENT IS MADE BY WAY OF BEARER CHEQUES TO SUPPLIER AND CREDITORS ON THE GROUND THAT THE SAME ARE MADE OTHERWISE THEN BY AN ACCOUNT PAYEE CHEQUE OR ACCOUNT PAYEE BANK DRAFT, WITHOUT APPRECIATING THE FACTS' OF THE CASE IN THE PROPER PERSPECTIVE. THE APPELLANT PRAYS THAT THE DISALLOWANCE UNDER SECTION 40A(3) MAY PLEASE BE DELETED. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HONOURABLE CIT (APPEAL) - III, PUNE ERRED IN CONFIRMING THE DISALLOWANCE UNDER SECTION 40A(3) WITHOUT APPREC IATING THE FACTS THAT A) THE APPELLANT DID NOT MAKE ANY PAYMENT IN CASH . 2 ITA NO . 376/PN/2013, SHRI SHANKAR KRISHNA PANASKAR, SATARA B) RECIPIENTS OF THE AMOUNT ARE IDENTIFIED BY THE LEARNED ASSESSING OFFICER . C) THE LEARNED AO DID NOT DOUBT THE GENUINENESS OF THE TRANSACTIONS . D) NO LOSS TO THE REVENUE IS CAUSED BY THE PAYMEN TS MADE BY BEARER CHEQUES . E) ALL TRANSACTIONS OF PAYMENT BY THE APPELLANT AND THE RECEIPTS OF THE AMOUNTS BY THE RECIPIENTS ARE ACCOUNTED FOR. THE APPELLANT HEREBY REQUESTS YOUR HONOUR TO KINDLY CONSIDER THE FACTUAL CIRCUMSTANCES UNDER WHICH THE PAYMENTS AR E MADE AND DELETE THE DISALLOWANCE AND OBLIGE. 2. THE FACTS WHICH ARE REVEALED FROM THE RECORD AS UNDER. THE ASSESSEE IS AN INDIVIDUAL AND CARRYING ON THE TRADING IN COUNTRY LIQUOR ON RETAIL BASIS UNDER THE NAME AND STYLE DESHI DARU DUKAN AT MANDA HAV ELI, TAL. - PATAN , DISTT. - SATARA . THE ASSESSEE FILED THE RETURN OF INCOME FOR THE A.Y. 2009 - 10 DECLARING TOTAL INCOME OF RS.3,59,205/ - . THE ASSESSEES CASE WAS SELECTED FOR SCRUTINY AND ASSESSMENT HAS BEEN COMPLETED U/S. 143(3) OF THE INCOME - TAX ACT. 3. IN RESPECT OF THE ISSUE ARISING FROM THE GROUNDS TAKEN BY THE ASSESSEE, THE ASSESSING OFFICER HAS OBSERVED THAT THE ASSESSEE HAS MADE VARIOUS PAYMENTS TO ITS SUPPLIERS AND CREDITORS IN MODE OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUES OR ACCOUNT PAYEE BANK DRAFTS. THE ASSESSING OFFICER ALSO REFERRED TO THE TAX AUDIT REPORT IN WHICH THE AUDITORS HAS OBSERVED THAT THE PAYMENTS IN EXCESS OF RS.20,000/ - COULD NOT BE VERIFIED WHETHER THE SAME IS MADE OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUES OR DRAFTS AS THE RE QUIRED EVIDENCE IS NOT IN POSSESSION OF THE ASSESSEE. THE ASSESSING OFFICER PROCEEDED TO EVOKE THE PROVISIONS OF SEC. 40A(3) OF THE ACT IN RESPECT OF THE 56 PAYMENTS WHICH ARE MAINLY MADE TO THE M/S. MUKESH TRADERS AND M/S. SAGAR AGENCY. THE ASSESSING OF FICER HAS GIVEN THE DETAILS OF THE SAID PAYMENTS WHICH ARE ADMITTEDLY MORE THAN RS.20,000/ - BUT ALL ARE MADE BY THE BEARER CHEQUES. THE TOTAL PAYMENTS AS WORKED OUT BY THE ASSESSING OFFICER IS 3 ITA NO . 376/PN/2013, SHRI SHANKAR KRISHNA PANASKAR, SATARA TO THE EXTENT OF RS.1,09,12,436/ - . THE ASSESSING OFFICER VERI FIED FROM THE ASSESSEES BANKER I.E. KARAD URBAN CO - OP. BANK, MALHARPETH, TAL. - PATAN, DISTT. - SATARA THAT THE SAID PAYMENTS ARE MADE BY THE BEARER CHEQUES . THE ASSESSEE STATED BEFORE THE ASSESSING OFFICER THAT THE ASSESSEES COUNTRY LIQUOR SHOP IS IN PATAN , HOWEVER HIS BANK ACCOUNT IS IN THE KARAD URBAN CO - OP. BANK LTD., BRANCH MALHARPETH AND ALL THE PAYMENTS ARE MADE THROUGH CHEQUES ONLY. HE FURTHER STATED THAT HE DID NOT GET CASH CREDIT OR LOAN FACILITY FROM BANK AND HE ISSUES THE CHEQUES TO THE DEALERS FROM HIS SB ACCOUNT. IT WAS FURTHER EXPLAINED BY THE ASSESSE E THAT THE SUPPLIER D ELIVERS THE GOODS OF ORDER AND GIVES HIS CREDIT INVOICE FOR NEW ORDER AND AT THIS STAGE HE COLLECTS BEARER CHEQUES FROM THE ASSESSEE. HE SUBMITS THAT THE ASSESSEE DEPOSITS T HE CASH IN THE SB ACCOUNT AND FROM THE AVAILABLE BALANCE CHEQUES ARE ISSUED TO THE SUPPLIER. THE ASSESSEE TRIED TO MAKE OUT A CASE THAT THE CHEQUES ISSUED BY THE ASSESSEE ARE IN THE NATURE OF BILLS OF EXCHANGE AND HENCE THE SAID IS COVERED UNDER RULE 6DD OF THE INCOME - TAX RULES, 1962. THE ASSESSING OFFICER REJECTED THE EXPLANATION OF THE ASSESSEE AND MADE THE ENTIRE DISALLOWANCE TO THE EXTENT OF RS.1,09,12,436/ - U/S. 40A(3) OF THE ACT AND MADE THE ADDITION TO THE TOTAL INCOME OF THE ASSESSEE. THE ASSESSE E CARRIED THE ISSUE BEFORE THE LD. CIT(A). 4. THE ASSESSEE PLEADED BEFORE THE LD. CIT(A) THAT THE ASSESSING OFFICER HAS NOT DOUBTED THE GENUINENESS OF THE TRANSACTIONS. THE BOOKS OF ACCOUNT SHOWING PURCHASES, TCS CREDITORS ACCOUNTS, PAYMENTS TO CREDITORS ETC. ARE ALSO VERIFIED WITH PURCHASE BILLS AND ALL ARE ACCEPTED BY THE ASSESSING OFFICER. HE SUBMITTED THAT THE PURPOSE OF SEC. 40A(3) IS AN ANTI - TAX EVASION. HE FURTHER PLEADED BEFORE THE LD. CIT(A) THAT ALL THE PAYMENTS ARE MADE BY THE CHEQUES EVEN TH OUGH THEY ARE NOT ACCOUNT PAYEE CHEQUES AND THIS FACT HAS NOT BEEN DISPUTED BY THE ASSESSING OFFICER. HE ALSO STATED BEFORE THE LD. CIT(A) THAT THE SUPPLIER OF THE GOODS ARE REGULAR TAX PAYERS AND THEY HAVE ACCOUNTED ALL THESE RECEIPTS AND TRANSACTIONS AN D HENCE, THE ENTIRE TRANSACTIONS ARE GENUINE ONE AND 4 ITA NO . 376/PN/2013, SHRI SHANKAR KRISHNA PANASKAR, SATARA THERE IS NO TAX EVASION. THE ASSESSEE ALSO PLEADED BEFORE THE LD. CIT(A) THAT THE ASSESSEE IS 70 YEARS OLD AND NOT CONVERS ANT WITH THE BANKING AND TAX PROCEDURE. THE ASSESSEE ALSO PLACED HIS RELIANCE O N THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF ALTAR SINGH, GURMUKH SINGH VS. ASSESSING OFFICER, 191 ITR 667 (SC). THE LD. CIT(A) WAS NOT CONVINCED WITH THE EXPLANATION OF THE ASSESSEE AND HE CONFIRMED THE ORDER OF THE LD. CIT(A). THE LD. CIT (A) ALSO HELD THAT THE ASSESSEE FAILED TO ESTABLISH THAT THE IMPUGNED PAYMENTS BY BEARER CHEQUES ON REGULAR BASIS WERE MADE UNDER EXCEPTIONAL OR UNAVOIDABLE CIRCUMSTANCE OR OUT OF BUSINESS COMPULSIONS OR THAT THE PAYMENTS ARE COVERED BY ANY OF THE EXCEPTIO NS PROVIDE IN RULE 6DD AND IN HIS OPINION THE PROVISIONS OF SEC. 40A(3) ARE ATTRACTED TO THE PAYMENTS WHICH ARE MORE THAN RS.20,000/ - MADE BY THE BEARER CHEQUES. NOW, THE ASSESSEE IS IN APPEAL BEFORE US. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PA RTIES AND PERUSED THE RECORD. THE LD. COUNSEL SUBMITS THAT THE SUPPLIERS OF THE ASSESSEE ARE NOT READY TO SUPPLY THE GOODS I.E. LIQUOR REQUIRED FOR THE TRADING BUSINESS OF THE ASSESSEE WITHOUT RECEIVING THE PAYMENT. HE ARGUES THAT THE ASSESSEE COLLECT TH E CASH , DEPOSIT SAME INTO THE SB ACCOUNT AND THEREAFTER ISSUE S THE CHEQUES TO THE SUPPLIER. THE ASSESSEE IS HAVING THE SB ACC O UNT WITH THE KARAD URBAN CO - OP. BANK LTD., BRANCH MALHARPETH, TAL. - PATAN WHICH IS THE MORE THAN 10 - 20 KMS. F ROM THE LOCATION OF THE ASSESSEES SHOP. THE LD. COUNSEL REFERRED TO THE PAPER BOOK MORE PARTICULARLY PAGE NO. 5 WHERE THE COPY OF THE LETTER ISSUED BY M/S. SAGAR AGENCY DATED 04 - 01 - 2012 IS PLACED. HE SUBMITTED THAT THE SUPPLIER HAS CONFIRMED THAT NO CREDIT WILL BE GIVEN TO THE ASSESSEE AND WHENEVER THE REPRESENTATIVE OF THE SAID FIRM WILL COME FOR COLLECTI NG THE ORDER TO THE ASSESSEE , AT THAT TIME THE ASSESSEE IS BOUND TO MAKE THE PAYMENTS. THE LD. COUNSEL ALSO REFERRED TO PAGE NO. 7 WHERE THE COPY OF AFFIDAVIT OF THE ASSE SSEE IS PLACED WHICH IS IN MARATHI AND ENGLISH TRANSLATION IS AT PAGE NO. 8. HE SUBMITS THAT THE PAYMENTS THROUGH THE BEARER CHEQUES IS MADE BY THE ASSESSEE AS THERE IS A BUSINESS COMPULSION AS THEY DO NOT 5 ITA NO . 376/PN/2013, SHRI SHANKAR KRISHNA PANASKAR, SATARA SUPPLY THE GOODS TO HIM WITHOUT PAYMENT IN CASH O R BY BEARER CHEQUES. HE SUBMITS THAT THIS EVIDENCE WAS DISCARDED BY THE AUTHORITIES BELOW. HE ARGUES THAT NOT A SINGLE PAYMENT IS IN CASH BUT ALL THE PAYMENTS ARE THROUGH THE BANK CHEQUES ONLY WHICH ARE ADMITTEDLY NOT ACCOUNT PAYEE CHEQUES. HE FURTHER S UBMITTED THAT ALL THE TRANSACTIONS ARE DULLY DISCLOSED BY THE SUPPLIERS TO THE INCOME TAX DEPTT. AND HENCE, THERE IS NO TAX EVASION. HE PLACED HIS RELIANCE ON THE FOLLOWING DECISIONS: (I). R.C. GOEL VS. CIT, 259 CTR (DEL) 15. (II). ANUPAM TELE SERVICES VS . ITO, TAX APPEAL NO. 556 OF 2013 JUDGMENT DATED 22 - 01 - 2014 (HON'BLE HIGH COURT OF GUJARAT). HE PLEADED FOR DELETING THE ADDITION. PER CONTRA, THE LD. DR SUPPORTED THE ORDER OF THE AUTHORITIES BELOW. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTIES AND PERUSED THE RECORD. IN THIS CASE, THERE IS NO DISPUTE ABOUT THE FACT THAT THE PAYMENTS SHOWN BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER ARE FOR THE AMOUNTS MORE THAN RS.20,000/ - AND COVERED UNDER THE PROVISIONS OF SEC. 40A(3) R.W. RULE 6DD. IF WE CONSIDER THE BUSINESS MODEL OF THE ASSESSEE , HE IS NOT GETTING CREDIT FACILITY FROM THE BANK AND THE SUPPLIERS ARE NOT GIVING THE CREDIT ALSO. THE ASSESSEES LIQUOR SHOP IS LOCATED IN THE SMALL VILLAGE TALUKA PATAN AND HIS BANK I.E. KARAD URBAN CO - OP. BANK LTD. IS AT THE DISTANCE OF 10 - 20 KMS. F ROM HIS SHOP. THE PLEA OF THE ASSESSEE IS THAT WITHOUT TAKING THE ADVANCE PAYMENT BY BEARER CHEQUES , THE SUPPLIERS ARE NOT GIVING THE GOODS TO THE ASSESSEE. 7. IN THE CASE OF R.C. GOEL (SUPRA) THE HON'BLE H IGH COURT OF DELHI HAS HELD AS UNDER: 9. IN THE PRESENT CASE, THE PREVIOUSLY NOTED DISCUSSION WOULD REVEAL THAT THE ASSESSEE ENGAGES ITSELF IN EXECUTING CATERING CONTRACTS FOR RAILWAYS IN RESPECT OF TWO TRAINS. IN THOSE TRAINS, ITS PERSONNEL ARE DEPLOYED FOR SALE OF SMALL ARTICLES OF DAILY NECESSITY AND USE TO THE PASSENGERS. PER FORCE, THE PAYMENTS RECEIVED BY THEM ARE NECESSARILY IN CASH. THESE AMOUNTS ARE COLLECTED AND IN TURN HANDED OVER TO THE ASSESSEE. THE ASSESSEE IN TERMS OF ITS CONTRACT IS 6 ITA NO . 376/PN/2013, SHRI SHANKAR KRISHNA PANASKAR, SATARA BOUND TO MAINTAIN CONSTANT SUPPLIES IN THE TRAINS AND ENSURE THAT AT NO POINT IN TIME CAN THE PASSENGERS BE DEPRIVED OF THESE ARTICLES (WHICH ARE FOOD ARTICLES, SOFT DRINKS AND OTHER ITEMS NECESSARY FOR TRAVEL). IN THE COURSE OF SUCH TRANSACTIONS, IT SOURCES THE SE ARTICLES FROM M/S SHRUTI ENTERPRISES. APPARENTLY, THAT CONCERN IS ALSO A SMALL TIME ONE AND INSISTS ON CASH PAYMENTS FOR ENSURING CONTINUITY AND TIMELY SUPPLIES. WHILST, THE COURT IS CONSCIOUS AND DOES NOT IN ANY MANNER WISH TO COMMENT ADVERSELY ON THE LARGER PUBLIC INTEREST ELEMENT EMBEDDED IN SECTION 40A AND THE UNDERLYING PRINCIPLE, AT THE SAME TIME, THE COURT ALSO NOTES THAT THE PROVISO SEEKS TO RELIEVE TO A CERTAIN EXTENT, THE MEASURE OF HARDSHIP WHICH MIGHT BE IMPOSED UPON SMALL BUSINESSES AND PRO FESSIONALS WHO ARE ENGAGED IN ACTIVITIES AND ARE DEPENDENT ENTIRELY ON TIMELY CASH FLOW. IT IS IN SUCH CASES THAT RULE 6DD - WHICH WAS FORMULATED AS A PROVISO TO SECTION 40A (3) - STEPS IN TO AID SUCH ASSESSEES AND CONCERNS. IN THIS CONTEXT, THE STATUTORY MANDATE IN SECTION 6DD (K), AT LEAST IN THE CIRCUMSTANCES OF THE CASE, HAS TO BE SO CONSTRUED AS TO MEAN THAT BUT FOR THE CASH PAYMENT, THE ASSESSEE WOULD HAVE BEEN DEPRIVED THE BENEFIT OF SUPPLIES ITSELF. THIS COURT CLARIFIES THAT THE INTERPRETATION OF TH E EXPRESSION WHO IS REQUIRED TO MAKE PAYMENT IN CASH HAVING REGARD TO THE CIRCUMSTANCES OF THE CASE IS FACT DEPENDENT, AT LEAST IN THE PRESENT CASE. THE CONSEQUENCE OF INSTANCES OF PAYMENT THROUGH ACCOUNT PAYEE CHEQUES IN SMALL BUSINESS WHICH ARE DEPENDE NT ON SUCH SUPPLIES WOULD BE TO COMPLETELY STIFLE, IF NOT STOP, THE BUSINESS ACTIVITIES. IT IS IN THAT SENSE THAT THE EXPRESSION REQUIRED WOULD HAVE TO BE CONSTRUED. 8. IN THE CASE OF ANUPAM TELE SERVICES (SUPRA) INTERPRETING SEC. 40A(3) R.W. RULE 6DD T HEIR LORDSHIPS HAVE HELD AS UNDER: THE APPELLANT - ASSESSEE ACTED AS AN AGENT OF TATA TELESERVICES LIMITED FOR DISTRIBUTING MOBILE CARDS AND RECHARGE VOUCHERS. FOR GETTING SUCH MOBILE CARDS AND RECHARGE VOUCHERS, THE ASSESSEE WOULD MAKE PAYMENT TO TATA TELES ERVICES LIMITED. TILL A POINT OF TIME, IN THE MONTH OF AUGUST 2005, SUCH PAYMENTS WERE MADE BY ACCOUNT PAYEE CHEQUES. THE TATA TELESERVICES LIMITED, HOWEVER, ISSUED A CIRCULAR NOT ONLY TO THE ASSESSEE BUT TO ALL OTHER DISTRIBUTORS IN THE STATE STATING THAT THE DISTRIBUTORS WILL PAY ONLY THROUGH DEMAND DRAFT DRAWN ON NATIONALIZED BANK OR THROUGH BANK DEPOSIT SLIPS AND WHERE THE DISTRIBUTOR HAD A BANK ACCOUNT WITH COOPERATIVE BANK, THE PAYMENT SHOULD BE MADE IN CASH., IN 7 ITA NO . 376/PN/2013, SHRI SHANKAR KRISHNA PANASKAR, SATARA CONSONANCE WITH SUCH CIRCULAR, TATA TE LESERVICES LIMITED WROTE A LETTER TO THE ASSESSEE AND STATED AS UNDER: - 'WE FURTHER INTIMATE YOU THAT YOUR BANK IS 'THE SARASWAT COOPERATIVE BANK LIMITED. WE TREAT D.D/PAY ORDER FROM YOUR BANK AS A CHEQUE AND YOUR INVOICE PROCESSES DONE AFTER CREDIT BALAN CE IN COMPANY'S ACCOUNT. IT WILL TAKE 4/5 DAYS. IT WILL SUFFER OUR BUSINESS. SO PLEASE DEPOSIT CASH AT PUBLIC OFFICE OF COMPANY IN SURAT AND GET IMMEDIATE DELIVERY TO AVOID SUFFERING OF MARKET. WE WILL DEPOSIT YOUR CASH IN OUR BANK ON BEHALF OF YOU. YOU AR E VERY WELL KNOWN THAT WE CANNOT SUFFER OUR BUSINESS AT ANY COST.' IN TERMS OF SUCH CIRCULAR AND LETTER, THE ASSESSEE THEREAFTER MADE CASH PAYMENTS TO TATA TELESERVICES LIMITED. ABOUT THE GENUINENESS OF PAYMENTS MADE, THERE IS NO DISPUTE. THE FULL ACCOUNT OF THE ASSESSEE AS WELL AS TATA TELESERVICES LIMITED WERE PLACED ON RECORD. THE ASSERTION OF THE ASSESSEE THAT SUCH MONIES WERE TO BE DEPOSITED BY TATA TELESERVICES LIMITED IN THEIR BANK ACCOUNT AND WERE EVENTUALLY SO DEPOSITED WERE NOT DISPUTED. IT IS PR ECISELY ON THIS PREMISE THAT THE APPELLATE COMMISSIONER OBSERVED THAT THE FACTUM OF PAYMENT TO TATA TELESERVICES LIMITED IS NOT DISPUTED AND THE TRANSACTIONS WERE GENUINE. THE ASSESSEE HAD IN FACT FILED A COPY OF THE ACCOUNTS WITH TATA TELESERVICES LIMITED INDICATING THAT SUCH PAYMENTS WERE MADE. SECTION 40A (3) OF THE ACT PERTAINS TO EXPENSES OR PAYMENTS NOT DEDUCTIBLE IN CERTAIN CIRCUMSTANCES. THE SAID SECTION, AS PREVALENT AT THE RELEVANT TIME, READ THUS: - '(3)(A) WHERE THE ASSESSEE INCURS ANY EXPENDIT URE IN RESPECT OF WHICH PAYMENT IS MADE IN SUM EXCEEDING TWENTY THOUSAND RUPEES OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE DRAWN ON A BANK OR ACCOUNT PAYEE BANK DRAFT, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF SUCH EXPENDITURE; (B) 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, OTHERWI SE THAN BY AN ACCOUNT PAYEE CHEQUE DRAWN ON A BANK OR ACCOUNT PAYEE BANK DRAFT, THE PAYMENT SO MADE SHALL BE DEEMED TO 8 ITA NO . 376/PN/2013, SHRI SHANKAR KRISHNA PANASKAR, SATARA BE THE PROFITS AND GAINS OF BUSINESS OR .PROFESSION AND ACCORDINGLY CHARGEABLE TO INCOME - TAX AS INCOME OF THE SUBSEQUENT YEAR IF THE AMOU NT OF PAYMENT 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 THIS SUB - SECTION WHERE ANY PAYMENT IN A SUM EXCEEDING TWENTY THOUSAND RUP EES IS MADE OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE DRAWN ON A BANK OR ACCOUNT PAYEE BANK DRAFT, IN SUCH CASES AND UNDER SUCH CIRCUMSTANCES AS MAY BE PRESCRIBED, HAVING REGARD TO THE NATURE AND EXTENT OF BANKING FACILITIES AVAILABLE, CONSIDERATIONS OF BU SINESS EXPEDIENCY AND OTHER RELEVANT FACTORS.' RULE 6DD OF THE INCOME TAX RULES, 1962 PROVIDES FOR SITUATIONS UNDER WHICH DISALLOWANCE UNDER SECTION 40A (3) SHALL NOT BE MADE AND NO PAYMENT SHALL BE DEEMED TO BE THE PROFITS AND GAINS OF BUSINESS OR PROFES SION UNDER THE SAID SECTION. AMONGST THE VARIOUS CLAUSES, CLAUSE (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 STRIKE; IT COULD BE APPRECIATED TH AT SECTION 40A AND IN PARTICULAR SUB - CLAUSE (3) THEREOF AIMS AT CURBING THE POSSIBILITY OF ON - MONEY TRANSACTIONS BY INSISTING THAT ALL PAYMENTS WHERE EXPENDITURE IN EXCESS OF A CERTAIN SUM [IN THE PRESENT CASE TWENTY THOUSAND RUPEES] MUST BE MADE BY WAY OF ACCOUNT PAYEE CHEQUE DRAWN ON A BANK OR ACCOUNT PAYEE BANK DRAFT. AS HELD BY THE APEX COURT IN CASE OF ATTAR SINGH GURMUKH SINGH [SUPRA], '..IN OUR OPINION, THERE IS LITTLE MERIT IN THIS CONTENTION. SECTION 40A(3) MUST NOT BE READ IN ISOLATION OR TO THE EXCLUSION OF RULE 6DD. THE SECTION MUST BE READ ALONG WITH THE RULE. IF READ TOGETHER, IT WILL BE CLEAR THAT THE PROVISIONS ARE NOT INTENDED TO RESTRICT THE BUSINESS ACTIVITIES. 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 CROSSED BANK DRAFT. THE PAYMENT BY CROSSED CHEQUE OR CROSSED BANK DRAFT IS INSISTED ON TO ENABLE THE ASSES SING AUTHORITY TO 9 ITA NO . 376/PN/2013, SHRI SHANKAR KRISHNA PANASKAR, SATARA ASCERTAIN WHETHER THE PAYMENT WAS GENUINE OR WHETHER IT WAS OUT OF THE INCOME FROM UNDISCLOSED SOURCES. THE TERMS OF SECTION 40A(3) ARE ARE NOT ABSOLUTE. CONSIDERATIONS OF BUSINESS EXPEDIENCY AND OTHER RELEVANT FACTORS ARE NOT EXCLUDED. G ENUINE AND BONAFIDE 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 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 PAYMENT BY A CROSSED CH EQUE OR CROSSED BANK DRAFT IN THE CIRCUMSTANCES SPECIFIED UNDER THE RULE. IT WILL BE CLEAR FROM THE PROVISIONS OF SECTION 40A(3) AND RULE 6DD THAT THEY ARE INTENDED TO REGULATE BUSINESS TRANSACTIONS AND TO PREVENT THE USE OF UNACCOUNTED MONEY OR REDUCE THE CHANCES TO USE BLACK MONEY FOR BUSINESS TRANSACTIONS.' IT WAS BECAUSE OF THESE CONSIDERATIONS THAT THIS COURT IN CASE OF HYNOUP FOODS PRIVATE LIMITED [SUPRA] OBSERVED THAT THE GENUINENESS OF THE PAYMENT AND THE IDENTIFY OF THE PAYEE ARE THE FIRST AND FOR EMOST REQUIREMENTS TO INVOKE THE EXCEPTIONS CARVED OUT IN RULE 6DD(J) OF THE INCOME - TAX RULES, 1962. IN THE PRESENT CASE, NEITHER THE GENUINENESS OF THE PAYMENT NOR THE IDENTITY OF THE PAYEE WERE IN ANY CASE DOUBTED. THESE WERE THE CONCLUSIONS ON FACTS DRA WN BY THE APPELLATE COMMISSIONER. THE TRIBUNAL ALSO DID NOT DISTURB SUCH FACTS BUT RELIED SOLELY ON RULE 6DD (J) OF THE RULES TO HOLD THAT SINCE THE CASE OF THE ASSESSEE DID NOT FALL UNDER THE SAID EXCLUSION CLAUSE NOR WAS COVERED UNDER ANY OF THE CLAUSES OF RULE 6DD, CONSEQUENCES ENVISAGED IN SECTION 40A(3) OF THE ACT MUST FOLLOW. IN OUR OPINION, THE TRIBUNAL COMMITTED AN ERROR IN COMING TO SUCH A CONCLUSION. WE WOULD BASE OUR CONCLUSIONS ON THE FOLLOWING REASONS: - [A] THE PARAMOUNT CONSIDERATION OF SECT ION 40A(3) IS TO CURB AND REDUCE THE POSSIBILITIES OF BLACK MONEY TRANSACTIONS. AS HELD BY THE SUPREME COURT IN ATTAR SINGH GURMUKH SINGH [SUPRA], SECTION 40A(3) OF THE ACT DOES NOT ELIMINATE CONSIDERATIONS OF BUSINESS EXPEDIENCIES. 10 ITA NO . 376/PN/2013, SHRI SHANKAR KRISHNA PANASKAR, SATARA [B] IN THE PRESENT CAS E, THE APPELLANT ASSESSEE WAS COMPELLED TO MAKE CASH PAYMENTS ON ACCOUNT OF PECULIAR SITUATION. SUCH SITUATION WAS AS FOLLOW [I] THE PRINCIPAL COMPANY, TO WHICH THE ASSESSEE WAS A DISTRIBUTOR, INSISTED THAT CHEQUE PAYMENT FROM A COOPERATIVE BANK WOULD N OT DO, SINCE THE REALIZATION TAKES A LONGER TIME; [II] THE ASSESSEE WAS, THEREFORE, REQUIRED TO MAKE CASH PAYMENTS ONLY; [III] TATA TELESERVICES LIMITED ASSURED THE ASSESSEE THAT SUCH AMOUNT SHALL BE DEPOSITED IN THEIR BANK ACCOUNT ON BEHALF OF THE ASSES SEE; [IV] IT IS NOT DISPUTED THAT THE TATA TELESERVICES LIMITED 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 OPERATIONS. WE WOULD FIND THAT THE PAYMENTS BETWEEN THE ASSESSEE AND THE TATA TELESERVICES LIMITED WERE GENUINE. THE TATA TELESERVICES LIMITED HAD INSISTED THAT SUCH PAYMENTS BE MADE IN CASH, WHICH TATA TELESERVICES LIMITED IN TURN ASSURED AND DEPOSITED THE AMOUNT IN A BANK ACCOUNT. IN THE FACTS OF THE PRESENT CASE, RIGORS OF SECTION 40A(3) OF THE ACT MUST BE LIFTED. WE NOTICE THAT THE DIVISION BENCH OF THE RAJASTHAN HIGH COURT IN CASE OF SMT. HARSHILA CHORDIA VS. INCOME - TA X OFFICER, REPORTED IN [2008] 298 ITR 349 (RAJ) HAD OBSERVED THAT THE EXCEPTIONS CONTAINED IN RULE 6DD ARE NOT EXHAUSTIVE AND THAT THE SAID RULE MUST BE INTERPRETED LIBERALLY. 9. THE FACTS OF THE ASSESSEE S CASE ARE SOMEWHAT SIMILAR TO THE CASES OF ANU PAM TELE SERVICES (SUPRA) AND R.C. GOEL (SUPRA) AS IN THOSE CASES ALSO THE ASSESSEE WAS REQUIRED TO KEEP HIS CONSTANT SUPPLIER . WE ARE AWARE OF THE FACTS THAT CLAUSE - ( J ) TO RULE 6DD HAS BEEN DELETED BUT IN ABOVE BOTH DECISIONS , THE HON'BLE HIGH COURTS HAV E TAKEN THE LIBERAL VIEW CONSIDERING THE FACTS THAT FOR MAINTAINING THE CONSTANT SUPPLIERS IF 11 ITA NO . 376/PN/2013, SHRI SHANKAR KRISHNA PANASKAR, SATARA THE ASSESSEE IS COMPEL TO MAKE THE PAYMENT IN CASH THEN THE HARSH PROVISIONS LIKE SEC. 40A(3) SHOULD NOT BE EVOKED. IN THE PRESENT CASE , THE ASSESSEE FILED THE C ONFIRMATIONS FROM THE SUPPLIERS THAT WITHOUT GETTING THE ADVANCE PAYMENT THE ORDER IS NOT BOOKED AND HENCE , IN OUR OPINION THE PRINCIPLES LAID DOWN IN THE ABOVE TWO DECISIONS ARE APPLICABLE TO THE ASSESSEES CASE. WE, THEREFORE, ALLOW THE GROUNDS TAKEN BY THE ASSESSEE FOLLOWING THE PRINCIPLES LAID DOWN IN THE ABOVE TWO DECISIONS AND DELETE THE ADDITION. 10. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON 25 - 08 - 2014 SD/ - SD/ - ( G . S . PAN NU ) ( R.S. PADVEKAR ) ACCOUNTANT MEMBER JUDICIAL MEMBER RK /PS PUNE , DATED : 25 TH AUGUST, 2014 COPY TO 1 DEPARTMENT 2 ASSESSEE 3 THE CIT(A) - III, PUNE 4 THE CIT - III, PUNE 5 THE DR, ITAT, B BENCH, PUNE . 6 GUARD FILE. //TRUE COPY// BY ORDER PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL PUNE