ITO, Ward, Palampur V. Sh. Kailash Sharma, Palampur

ITA 817/CHANDI/2018

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 6738 (ITAT-CHANDIGARH)
• Duration Of Justice: 3 year(s) 2 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-08-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 16-08-2021
• Assessment Year: 2014-2015
• Appeal Filed On: 31-05-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 40A(3); 191; 192; 13; 56

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH A , CHANDIGARH , ! ' # $ , %& BEFORE: SHRI SANJAY GARG, JUDICIAL MEMBER AND SMT.ANNAPURNA GUPTA, ACCOUNTANT MEMBER ./ ITA NO. 817/CHD/2018 / ASSESSMENT YEAR : 2014-15 / REVENUE BY : SMT. MEENAKSHI VOHRA, ADDL.CIT / ASSESSEE BY : SHRI TEJ MOHAN SINGH, ADVOCATE / DATE OF HEARING : 16.08.2021 ! / DATE OF PRONOUNCEMENT : 23.08.2021 VIRTUAL HEARING ' / ORDER PER SANJAY GARG, JUDICIAL MEMBER : THE PRESENT APPEAL HAS BEEN PREFERRED BY THE DEPART MENT- REVENUE AGAINST THE ORDER DATED 26.03.2018 PASSED B Y LD. COMMISSIONER OF INCOME TAX ( APPEALS), PALAMPUR (HE REINAFTER REFERRED TO AS CIT(A) PERTAINING TO 2014-15 ASSESS MENT YEAR. THE ITO, WARD PALAMPUR, PALAMPUR. # $ SHRI KAILASH SHARMA, C/O M/S VERKA MILK AGENCY, RAM CHOWK, GHUGGAR TANDA, PALAMPUR (HP). % ./PAN NO: AXYPS4749R ITA 817/CHD/2018 A.Y. 2014-15 PAGE 2 OF 15 2. THE REVENUE HAS TAKEN THE FOLLOWING GROUNDS IN THIS APPEAL : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 1,72,80,862/- MADE BY THE AO ON ACCOUNT OF DISALLOWANCE IN CONTRAVENTION, OF SECTION 40A(3) OF THE IT. ACT FOR MAKING CASH PAYMENTS. 2. THE FACTS AND CIRCUMSTANCES IN THE CASE OF M/S DHUR I WINES IS NOT IDENTICAL TO THE INSTANT CASE AND AO HAS RIGHTLY FOLLOWED THE DECISI ON IN THE CASE OF SMT. CHANCHAL DOGRA ITO (2012) 247 CTR (HP) 616. 3. THERE WAS NO BUSINESS EXPEDIENCY IN THE CASE OF ASS ESSEE AS DISCUSSED IN THE ASSESSMENT ORDER. 4. IT IS PRAYED THAT THE ORDER OF THE LD. CIT(A) BE SE T-ASIDE AND THAT OF THE AO MAY BE RESTORED. 5. THE APPELLANT CRAVES LEAVE TO ADD ANY OTHER GROUNDS OF APPEAL WHICH MAY ARISE AT THE TIME OF HEARING. 3. THE BRIEF FACTS RELATING TO THE ISSUE ARE THAT T HE ASSESSEE IS A DEALER OF VERKA MILK AGENCY, DEALS IN SALE PUR CHASE OF MILK AND ITS PRODUCTS. DURING THE ASSESSMENT PROCEE DINGS, THE ASSESSING OFFICER (HEREIN AFTER REFERRED TO AS AO) NOTED THAT FROM ONE LEDGER ACCOUNT OF M/S HOSHIARPU R DISTT. CO-OPERATIVE MILK PRODUCER LTD, HOSHIARPUR, FROM WHERE THE ASSESSEE PURCHASED MILK AND ITS PRODUCTS, REVEALED TOTAL PURCHASES AT RS. 4,60,65,851/-, OUT OF WHICH PURCHASES OF RS. 2,18,59,500/- HAD BEEN MADE THROUGH BANK DRAFTS/ CHEQUE AND RS.69,25,489/- ON SUNDAYS/BANK HOLIDAYS WHICH WERE COVERED UNDER RULE ITA 817/CHD/2018 A.Y. 2014-15 PAGE 3 OF 15 6DD WHEREAS REST OF PURCHASES OF RS. 1,72,80,862/- HAD BEEN MADE IN CASH IN CONTRAVENTION OF SECTION 40A(3 ) OF THE ACT. THE ASSESSEE WAS ASKED BY THE AO TO JUSTIF Y IF ITS CASE FELL WITHIN THE EXCEPTIONS PROVIDED UNDER RULE 6DD. THE REPLY SUBMITTED TO THE AO WAS AS UNDER : ....... THAT MOST PAYMENTS TO M/S VERKA MILK AGENCY HAD BEE N MADE THROUGH RTGS WHILE SOME WERE MADE IN CASH AGAINST P URCHASES ON DAILY BASIS. THE REASONS BEHIND THE SAID PRACTICE E MANATED FROM THE MODE OF OPERATIONS AND THE REQUIREMENT OF DAILY PUR CHASE OF PERISHABLE ITEMS AND FMCG NATURE OF STOCK. IT WAS E XPLAINED THAT PURCHASES HAVE TO BE MADE ON A DAILY BASIS AND THE PURCHASED STOCK HAS TO BE SOLD ON DAILY BASIS. THE REQUIREMENT OF B USINESS MAKES IT NECESSARY TO PURCHASE MILK FROM M/S VERKA MILK AGEN CY (ONLY SUPPLIER) ON DAILY BASIS AND PICK THE STOCKS FROM T HEIR SUPPLY POINTS, I.E., HOSHIARPUR EVERY DAY EARLY MORNING. AFTER THA T PURCHASED STOCK IS DISTRIBUTED TO RETAILERS AS PER THEIR REQUIREMEN TS ALREADY CONFIRMED ON THE PREVIOUS EVENING. SINCE THE SUPPLY HAVE TO BE MADE TO A NUMBER OF RETAILERS AND THAT TOO AT EARLIEST I T IS NOT POSSIBLE FOR THE DELIVERY TEAM TO COLLECT THE SALE PROCEEDS AT T HE TIME OF SALE. RESULTANTLY, THE COLLECTION FROM THE RETAILERS ARE RAISED ONCE THE MILK GETS SUPPLIED TO THE ENTIRE RETAILERS ON A DAILY BA SIS. CONSEQUENTLY, WHOLE OF THE COLLECTION IS DEPOSITED INTO THE BANK ACCOUNT AND THEN TRANSFERRED THROUGH RTGS TO M/S VERKA MILK AGENCY. HOWEVER, ALL THE RETAILERS ARE NOT ABLE TO MAKE THE WHOLE OR PAR T OF THE PAYMENT AT THE TIME OF FIRST VISIT FOR COLLECTION. THEREFORE, THE RETAILERS ARE AGAIN APPROACHED IN THE EVENING FOR ASKING THEIR REQUIREM ENT OF MILK FOR THE NEXT MORNING AND SIMULTANEOUSLY THE PENDING COL LECTIONS ARE ALSO MADE. BY THE TIME THESE COLLECTIONS ARE MADE, THE W ORKING HOURS OF THE BANKS GET PASSED AND GENERALLY IT IS NOT POSSIB LE FOR US TO DEPOSITS THE PROCEEDS INTO THE BANK. RESULTANTLY WE HAVE NO OPTION LEFT BUT 1 P A Y THIS CAS H COLLECTION TO M/S VERKA MILK AGENCY AT THE TIME OF PURCHASE OF MILK IN THE NEXT MORNING AS THE SUPP LY AGENCY, I.E., M/S VERKA MILK AGENCY DOES NOT ALLOW CREDIT SALES A ND THE PURCHASES ARE RELEASED ONLY UPON THE FULL PAYMENT OF THE RECEIPT. AS HAS BEEN BRIEFED IN THE ABOVE PARA IT IS NOT POSSIBLE FOR US TO AVOID THE CASH PAYMENTS TO M/S VERKA MILK AGENCY. AS DETAILED ABOV E, THE SUPPLIER, M/S VERKA MILK AGENCY, NEITHER ALL CREDIT SALE NOR ACCEPTS ACCOUNT PAYEE CHEQUE AND WE ARE LEFT NO ANY OPTION BUT TO M AKE THE POST PAYMENT IN CASH AS ALL OF THE RETAILERS (TO WHOM WE SUPPLY) DO NOT MAKE THE PAYMENT DURING THE BANKING HOURS WHICH RES ULT INTO OUR INABILITY TO MAKE THE PAYMENT THROUGH RTGS. ITA 817/CHD/2018 A.Y. 2014-15 PAGE 4 OF 15 IT IS ALSO SUBMITTED THAT PART PAYMENT HAVE BEEN MA DE IN CASH OUT OF BUSINESS EXIGENCY OTHERWISE THE BUSINESS COULD NOT HAVE BEEN RUN. MOREOVER, ALL THE PAYMENTS ARE GENERAL AND CAN BE C ROSSED CHECK FROM THE BOOKS OF M/S VERKA MILK AGENCY. AS FOR AS CONTRAVENTION OF SECTION 40A(3) IS REGARDED IT IS RESPECTFULLY SUBMI TTED THAT OUR CASE FALLS WITHIN THE PREVIEW OF EXCEPTION ENUMERATED IN RULE 6DD OF THE I. T. RULE WHERE THE PAYMENTS IS MADE FOR THE PURCH ASE OF: I. AGRICULTURAL FOREST PRODUCE. II. THE PRODUCE OF ANIMAL HUSBANDRY (INCLUDING LIV E STOCKS, MEAT, HIDES AND SKIN) OR DAIRY OR POULTRY FARMING O R III. FISH OF FISH PRODUCTS OR IV. THE PRODUCTS OF HORTICULTURE, APICULTURE, TO THE CULTIVATOR, GROWER OR PRODUCER OF SUCH ARTIC LES, PRODUCE OR PRODUCTS EVEN OTHERWISE, OUR CASE IS JUSTIFIED ON T HE BASIS OF BUSINESS EXPEDIENCY AND OTHER RELEVANT FACTORS INVOLVED AS H AVE BEEN ENUMERATED ABOVE. SECTION 40A(3) AND RULE 6DD ARE I NTENDED TO REGULATE THE BUSINESS TRANSACTIONS AND TO PREVENT T HE USE OF UNACCOUNTED MONEY. AS DETAILED IN ABOVE PARA THE CA SH PAYMENT HAVE BEEN MADE OUT OF BUSINESS EXPEDIENCY AS WELL A S OUT OF ACCOUNTED / DISCLOSED MONEY THROUGH GENUINE TRANSAC TIONS. VARIOUS JUDICIAL PRONOUNCEMENT ARE BEING RELIED UPO N WHERE IN THE HON'BLE COURT HAVE ELABORATED THE ACTUAL LEGISLATIV E INTENTION BEHIND THE INTRODUCTION OF SECTION 40A(3) AND RELAXATION I N THE FORM OF RULE 6DD AS WELL AS THE EXPECTED RATIONAL APPROACH WHILE INTERPRETING THE PROVISION OF SECTION 40A(3) SO THAT THE BUSINESS EX PEDIENCY, PRACTICALITY OF THE SITUATION AND GENUINE HARDSHIPS ARE TAKEN AS A BASIS FOR APPLICABILITY OF PROVISION OF SECTION 40A (3) AND SOME OF THE JUDGEMENTS AND MAIN FINDINGS OF COURT HAS BEEN RELI ED UPON AS UNDER : I)ATTAR SINGH GURMAKTH SINGH VS ITO CIVIL APPEAL NO . 2/1981(1991) SCR (3405). II) IN PAUL BROTHERS VS CIT (1990) 186ITR 356 (GUHA TI). III) HOSAN AND PINJOMAL VS CIT (1978) 112ITR 134 (G UJRAT). IV) GIRDHARI LAI GOENKA VS CIT 179ITR 122 (CAL.) 4. HOWEVER, THE LD. AO DID NOT ACCEPT THE ABOVE EXP LANATION OF THE ASSESSEE AND HELD THAT THE ASSESSEE'S CASE D ID NOT COME WITHIN THE PURVIEW OF ANY OF THE EXCEPTIONAL CLAUSE S OF RULE ITA 817/CHD/2018 A.Y. 2014-15 PAGE 5 OF 15 6DD OF THE INCOME TAX RULES. HE OBSERVED THAT THE ASSESSEE HAD MADE PAYMENTS TO THE M/S HOSHIARPUR DISTT. CO- OPERATIVE MILK PRODUCER UNION LTD. WHICH WAS PURCHA SER OF MILK FROM THE PRODUCERS/FARMERS AND THAT MILK WAS N OT PRODUCED BY THE SAID UNION. HE OBSERVED THAT THE C LAUSE E OF RULE 6DD OF INCOME TAX RULES WAS NOT APPLICA BLE AS M/S HOSHIARPUR DISTT. CO-OPERATIVE MILK PRODUCER UN ION LTD. WAS NOT THE PRODUCER OF THE MILK. HE FURTHER HELD THAT THE PLEA OF THE ASSESSEE THAT THE PAYMENTS WER E MADE IN EXCEPTIONAL CIRCUMSTANCES WOULD NOT BE OF ANY HE LP TO THE ASSESSEE. HE IN THIS RESPECT RELIED UPON THE D ECISION OF THE HIMACHAL PRADESH HIGH COURT IN THE CASE OF S MT. CHANCHAL DOGRA VS ITO ITO (2012)247 CTR (HP) 616 WHEREIN IT WAS HELD THAT M/S HOSHIARPUR DISTT. CO- OPERATIVE MILK PRODUCER UNION LTD. COULD NOT BE CONSIDERED TO BE PRODUCE OF MILK AND THEREFORE, PAY MENTS MADE BY THE ASSESSEE TO THE SAID UNION WOULD NOT CO ME UNDER RULE 6DD(E) OF THE IT RULES. THE LD. AO, THU S, HELD THAT THE ASSESSEE HAD MADE PAYMENTS IN CONTRAVENTIO N OF SECTION 40A(3) OF THE INCOME TAX ACT. HE, ACCORDIN GLY, MADE DISALLOWANCE OF RS. 1,72,80,862/- AND ADDED TH E SAID AMOUNT INTO THE INCOME OF THE ASSESSEE. ITA 817/CHD/2018 A.Y. 2014-15 PAGE 6 OF 15 5. BEING AGGRIEVED BY THE ORDER OF THE AO, THE ASSE SSEE PREFERRED APPEAL BEFORE THE LD. CIT(A) AND RELIED U PON VARIOUS CASE LAWS INCLUDING THE DECISION OF THE HON'BLE SUP REME COURT IN THE CASE OF ATTAR SINGH GURMUKH SINGH VS ITO (19 91) 191 ITR 667 (S.C.) THE LD. CIT(A) AFTER CONSIDERING TH E SUBMISSIONS OF THE ASSESSEE, DELETED THE DISALLOWAN CE MADE BY THE AO HOLDING AS UNDER : 7. I HAVE CONSIDERED THE FACTS OF THE CASE AND WR ITTEN SUBMISSIONS OF THE APPELLANT. DURING ASSESSMENT PROCEEDINGS, THE APPEL LANT CLAIMED THAT NO DISALLOWANCE U/S 40A(3) WAS WARRANTED IN ITS CASE O N TWO GROUNDS, THAT OF BUSINESS EXIGENCY AND BEING COVERED IN THE EXCEPTIO N PROVIDED IN CLAUSE (E) OF RULE 6DD OF THE I.T. RULES. LD. A.O. HELD THAT THE APPELLANT COULD NOT BE HELD TO FALL IN THE AMBIT OF RULE 6DD(E) FOLLOWING THE D ECISION OF HON'BLE H.P. HIGH COURT IN THE CASE OF SMT. CHANCHAL DOGRA VS IT O [2012] 247 CTR (HP) 616. HOWEVER, THE OTHER PLEA OF THE APPELLANT OF BU SINESS EXPEDIENCY WAS REJECTED WITHOUT ANY DISCUSSION. IN THIS CASE, THE CASH PAYMENTS IN SUMS EXCEEDING R S. 20,000/- IN THE COURSE OF A SINGLE DAY HAVE BEEN MADE TO THE HOSHIARPUR DISTT . CO-OP. MILK PRODUCER UNION LTD. LD. AO HAS NOT DOUBTED THE GENUINENESS O F PURCHASES OR THE GENUINENESS OF THE PAYMENTS SO MADE. DURING ASSESSM ENT PROCEEDINGS, THE APPELLANT FURNISHED DETAILED REASONS FOR MAKING THE CASH PAYMENTS. IT WAS STATED BY THE APPELLANT THAT MILK BEING A PERISHABL E ITEM AND A FMCG (FAST MOVING CONSUMER GOOD), IT HAD TO BE PICKED UP DAILY FROM THE SUPPLY POINT IN THE EARLY MORNING HOURS. THE APPELLANT WAS BOUND T O MAKE PAYMENTS ON DAILY BASIS SINCE NO CREDIT SALES WERE ALLOWED BY THE SOLE SUPPLYING AGENCY, I.E., M/S VERKA MILK AGENCY OF THE HOSHIARPUR DISTT. CO-O P. MILK PRODUCERS UNION LTD. THE PURCHASES WERE RELEASED ONLY UPON MA KING THE FULL PAYMENT FOR THE PURCHASES. LD. AO HAS ALSO NOT DISBELIEVED THE ABOVE REASON GIVEN BY THE APPELLANT FOR MAKING CASH PAYMENTS. DURING APPE AL, THE APPELLANT HAS PRODUCED A CERTIFICATE FROM GENERAL MANAGER. VERKA, HOSHIAPUR, STATING THAT THE APPELLANT IS A CASH AND CARRY DEALER FOR S UPPLYING VERKA MILK AND FRESH MILK PRODUCTS IN PALAMPUR AND ITS ADJOINING A REAS SINCE 1995. THIS CLEARLY MAKES OUT A CASE OF BUSINESS EXPEDIENCY. HE NCE THE FACTS OF THE APPELLANT'S CASE ARE COVERED BY THE DECISION OF THE JURISDICTIONAL HON'BLE ITAT, CHANDIGARH IN THE CASE OF M/S DHURI WINE VS D CIT (ITA 1155/CHD./2013), THE RELEVANT PART OF WHICH HAS BEE N REPRODUCED ABOVE. RESPECTFULLY FOLLOWING THE DECISION OF THE JURISDIC TIONAL HON'BLE ITAT, CHANDIGARH, IT IS HELD THAT LD. AO WAS NOT JUSTIFIE D TO MAKE DISALLOWANCE ITA 817/CHD/2018 A.Y. 2014-15 PAGE 7 OF 15 U/S 40A(3) IN THE FACTS AND CIRCUMSTANCES OF THE CA SE OF THE APPELLANT . THE DISALLOWANCE OF RS. 1,72,80,862/- IS, ACCORDINGLY, DELETED. GROUND OF APPEAL-1 IS ALLOWED. 6. BEING AGGRIEVED BY THE SAID ORDER OF THE LD. CIT (A), THE REVENUE HAS COME UP IN APPEAL BEFORE US. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE RECORD. TO PROPERTY APPRECIATE THE FACTS AND CIRCU MSTANCES OF THE CASE, WE DEEM IT FIT TO FIRST REPRODUCE THE REL EVANT PROVISIONS OF SECTION 40A(3) OF THE INCOME TAX ACT AND RULE 6DD OF THE IT RULES : SECTION 40A(3): [(3) WHERE THE ASSESSEE INCURS ANY EXPENDITURE IN R ESPECT OF WHICH 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 PAY EE BANK DRAFT, EXCEEDS TWENTY THOUSAND RUPEES, NO DEDUCTION SHALL BE ALLOW ED IN RESPECT OF SUCH EXPENDITURE. 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 AGGREGA TE 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 THOUSAN D RUPEES, IN SUCH CASES AND UNDER SUCH CIRCUMSTANCES AS MAY BE PRESCRIBED, HAVING REGARD TO THE NATURE AND EXTENT OF BANKING FACILITIES AVAILABLE, CONSIDERATIONS OF BUSINESS EXPEDIENCY AND OTHER RELEVANT FACTORS. RULE 6DD OF THE IT RULES 6DD. NO DISALLOWANCE UNDER SUB-SECTION (3) OF SECTION 4 0A SHALL BE MADE AND NO PAYMENT SHALL BE DEEMED TO BE THE PROFITS AN D GAINS OF BUSINESS OR PROFESSION UNDER SUB-SECTION (3A) OF SECTION 40A WH ERE 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 2 [ ACCOUNT PAYEE BANK DRAFT OR USE OF ELECTRONIC CLEARING SYSTEM THROUGH A BANK ACCOUNT OR THROUGH SUCH OTHER ELECTRONIC MODE AS PRESCRIBED UNDER RULE 6ABBA, EXCEEDS TEN THOUSAND RUPEES] IN THE CASES AND CIRCUMSTANCES SPE CIFIED HEREUNDER, NAMELY :- ITA 817/CHD/2018 A.Y. 2014-15 PAGE 8 OF 15 (A) WHERE THE PAYMENT IS MADE TO (I) THE RESERVE BANK OF INDIA OR ANY BANKING COMPANY AS DEFINED IN CLAUSE (C) OF SECTION 5 OF THE BANKING REGULATIO N ACT, 1949 (10 OF 1949); (II) THE STATE BANK OF INDIA OR ANY SUBSIDIARY BANK AS D EFINED IN SECTION 2 OF THE STATE BANK OF INDIA (SUBSIDIARY BA NKS) ACT, 1959 (38 OF 1959); (III) ANY CO - OPERATIVE BANK OR LAND MORTGAGE BANK; (IV) ANY PRIMARY AGRICULTURAL CREDIT SOCIETY OR ANY PRIM ARY CREDIT SOCIETY AS DEFINED UNDER SECTION 56 OF THE BANKING REGULATION ACT, 1949 (10 OF 1949); (V) THE LIFE INSURANCE CORPORATION OF INDIA ESTABLISHED UNDER SECTION 3 OF THE LIFE INSURANCE CORPORATION ACT, 19 56 (31 OF 1956); (B) WHERE THE PAYMENT IS MADE TO THE GOVERNMENT AND, UN DER THE RULES FRAMED BY IT, SUCH PAYMENT IS REQUIRED TO BE MADE IN LEGAL TENDER; (C) WHERE THE PAYMENT IS MADE BY (I) ANY LETTER OF CREDIT ARRANGEMENTS THROUGH A BANK; (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) TO (VII) 3 [ *** ] EXPLANATION.FOR THE PURPOSES OF THIS CLAUSE AND CL AUSE (G), THE TERM BANK MEANS ANY BANK, BANKING COMPANY OR SOCIETY REFERRED TO IN SUB-CLAUSES (I) TO (IV) OF CLAUSE (A ) AND INCLUDES ANY BANK [NOT BEING A BANKING COMPANY AS DEFINED IN CLAUSE (C) OF SECTION 5 OF THE BANKING REGULATION ACT, 1949 (1 0 OF 1949)], WHETHER INCORPORATED OR NOT, WHICH IS ESTABLISHED O UTSIDE INDIA; (D) WHERE THE PAYMENT IS MADE BY WAY OF ADJUSTMENT AGAI NST THE AMOUNT OF ANY LIABILITY INCURRED BY THE PAYEE FOR A NY GOODS SUPPLIED OR SERVICES RENDERED BY THE ASSESSEE TO SU CH PAYEE; (E) WHERE THE PAYMENT IS MADE FOR THE PURCHASE OF (I) AGRICULTURAL OR FOREST PRODUCE; OR (II) THE PRODUCE OF ANIMAL HUSBANDRY (INCLUDING LIVESTOC K, MEAT, HIDES AND SKINS) OR DAIRY OR POULTRY FARMING; OR (III) FISH OR FISH PRODUCTS; OR ITA 817/CHD/2018 A.Y. 2014-15 PAGE 9 OF 15 (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 THE P RODUCTS MANUFACTURED OR PROCESSED WITHOUT THE AID OF POWER IN A COTTAGE INDUSTRY, TO THE PRODUCER OF SUCH PRODUCTS; (G) WHERE THE PAYMENT IS MADE IN A VILLAGE OR TOWN, WHI CH ON THE DATE OF SUCH PAYMENT IS NOT SERVED BY ANY BANK, TO ANY PERSON WHO ORDINARILY RESIDES, OR IS CARRYING ON ANY BUSIN ESS, PROFESSION OR VOCATION, IN ANY SUCH VILLAGE OR TOWN ; (H) WHERE ANY PAYMENT IS MADE TO AN EMPLOYEE OF THE ASS ESSEE OR THE HEIR OF ANY SUCH EMPLOYEE, ON OR IN CONNECTION WITH THE RETIREMENT, RETRENCHMENT, RESIGNATION, DISCHARGE OR DEATH OF SUCH EMPLOYEE, ON ACCOUNT OF GRATUITY, RETRENCHMENT COMPENSATION OR SIMILAR TERMINAL BENEFIT AND THE AG GREGATE 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-TAX FROM SA LARY IN ACCORDANCE WITH THE PROVISIONS OF SECTION 192 OF TH E ACT, AND WHEN SUCH EMPLOYEE (I) 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 (II) DOES NOT MAINTAIN ANY ACCOUNT IN ANY BANK AT SUCH P LACE OR SHIP; (J) 4 [ *** ] (K) WHERE THE PAYMENT IS MADE BY ANY PERSON TO HIS AGEN T WHO IS REQUIRED TO MAKE PAYMENT IN CASH FOR GOODS OR SE RVICES ON BEHALF OF SUCH PERSON; (L) WHERE THE PAYMENT IS MADE BY AN AUTHORISED DEALER O R 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 O R A MONEY CHANGER TO DEAL IN FOREIGN CURRENCY OR FOREIG N EXCHANGE UNDER ANY LAW FOR THE TIME BEING IN FORCE. ] 8. A PERUSAL OF THE ABOVE PROVISIONS OF SECTION 40A (3) OF THE ACT READ WITH RULE 6DD OF THE IT RULES WOULD SHOW T HAT AS PER THE PROVISIONS OF SECTION 40A(3), ANY PAYMENT MORE THAN THE ITA 817/CHD/2018 A.Y. 2014-15 PAGE 10 OF 15 PRESCRIBED LIMIT MADE TO A PARTY OTHER THAN BY AN A CCOUNT PAYEE CHEQUE/BANKING CHANNEL WOULD NOT BE ALLOWED A S A DEDUCTION OF EXPENDITURE. HOWEVER, PROVISO TO THE SAID SECTION 40A(3) OF THE ACT PROVIDES THAT IN SUCH CASES AND U NDER SUCH CIRCUMSTANCES, AS MAY BE PRESCRIBED HAVING REGARD T O THE NATURE AND EXTENT OF BANKING FACILITIES AVAILABLE, CONSIDERATIONS OF BUSINESS EXPEDIENCIES AND OTHER R ELEVANT FACTORS, THE DISALLOWANCE UNDER THE PROVISIONS OF S ECTION 40A(3) WILL NOT BE MADE. A HOLISTIC VIEW OF THE PR OVISIONS OF SECTION 40A(3) WOULD GIVE A VIEW THAT EFFORT HAS BE EN MADE TO DISCOURAGE THE BUSINESS PAYMENTS THROUGH CASH TRANS ACTIONS EXCEPT UNDER SUCH CASES AND SUCH CIRCUMSTANCES WHER E EITHER DUE TO SOME DIFFICULTY OR OTHER CONSIDERATION OF BU SINESS EXPEDIENCY AND OTHER RELEVANT FACTORS, TRANSACTION HAD TO BE DONE THROUGH CASH PAYMENTS. SUCH CASES AND CIRCUMS TANCES HAD BEEN PRESCRIBED UNDER RULE 6DD OF THE IT RULES AS REPRODUCED ABOVE. A PERUSAL OF RULE 6DD SHOWS THAT A LIST OF CERTAIN CASES HAS BEEN GIVEN THEREIN WHEREIN THE TR ANSACTIONS THROUGH CASH PAYMENTS HAS BEEN JUSTIFIED CONSIDERIN G THE DIFFICULTIES DUE TO NON-AVAILABILITY OF BANKING FAC ILITIES AND ALSO CONSIDERING CERTAIN NATURE OF BUSINESS WHERE GENERA LLY THE TRANSACTION HAS TO BE CARRIED OUT THROUGH CASH PAYM ENTS ONLY, E.G. TRANSACTION DONE WITH LOW INCOME GROUP WHO EIT HER DO NOT ITA 817/CHD/2018 A.Y. 2014-15 PAGE 11 OF 15 HAVE BANK ACCOUNT OR OTHERWISE NEED IMMEDIATE CASH TO MAKE THEIR BOTH ENDS MEET. BESIDES THAT THE PAYMENTS MA DE TO RESERVE BANK OF INDIA OR A BANKING COMPANY, THE CO- OPERATIVE BANK, ANY PRIMARY AGRICULTURAL CREDIT SOCIETY, LIFE INSURANCE OF INDIA AND ANY PAYMENT MADE TO GOVERNMENT, IF SO REQUIRED TO BE MADE IN LEGAL TENDER HAVE ALSO BEEN INCLUDED IN THE LIST BESIDES OTHER PARTIES/CASES AS MENTIONED ABOVE. 8.1 THE PERUSAL OF PROVISION OF SECTION 40A(3) OF T HE INCOME TAX ACT READ WITH RULE 6DD OF THE IT RULES REVEAL T HAT THE PURPOSE OF ENACTMENT OF THE ABOVE PROVISIONS IS TO MAKE IT DIFFICULT FOR THE CONCERNED RECIPIENT TO EVADE TAXA TION OF THEIR INCOME. IF THE PAYMENT WOULD BE MADE TO THEM THROU GH BANKING CHANNEL AS PROVIDED UNDER THE PROVISIONS OF SECTION 40A(3) OF THE ACT, IT WOULD BE DIFFICULT FOR THEM T O LEAVE IT UNACCOUNTED OR IN OTHER TERMS THAT SUCH PAYMENTS WI LL BE SUBJECT TO SCRUTINY AND VERIFICATION AS THE DATA OF DEPOSITS OF SUCH PAYMENTS IN THE BANK ACCOUNTS OF SUCH RECIPIEN TS WOULD BE AVAILABLE TO THE ASSESSING OFFICER. HOWEVER, TH E PAYMENT MADE TO GOVERNMENT, BANKS, LIFE INSURANCE COMPANIES ETC. HAS BEEN PUT IN EXCLUSION CLAUSE BECAUSE THERE IS NO LI KELIHOOD OF KEEPING SUCH RECEIPTS UNACCOUNTED. HOWEVER, CONSID ERING THE BUSINESS EXPEDIENCY, DIFFICULTIES FACED AND OTHER R ELEVANT FACTORS, PAYMENT IN CERTAIN CASES AND CIRCUMSTANCES FOR THE ITA 817/CHD/2018 A.Y. 2014-15 PAGE 12 OF 15 PAYMENTS MADE IN CASH AND UNDER THOSE CASES AND CIRCUMSTANCES, NO DISALLOWANCE IS ATTRACTED U/S 40A (3) OF THE ACT. THE LIST PROVIDED UNDER RULE 6DD, IN OUR VIEW , IS NOT EXHAUSTIVE, RATHER IT GIVES A PICTURE AS TO UNDER W HAT CASES AND CIRCUMSTANCES, SUCH PAYMENTS WOULD BE OUT OF NE CESSITY, BUSINESS EXPEDIENCY OR SUCH OTHER FACTORS NECESSITA TING SUCH PAYMENTS TO BE MADE IN CASH. THERE MAY BE A NUMERO US FACTORS AND CIRCUMSTANCES UNDER WHICH DUE TO SOME D IFFICULTY OR BUSINESS EXPEDIENCY, AN ASSESSEE HAS TO MAKE THE TRANSACTION/PAYMENT IN CASH, HOWEVER, IN OUR VIEW, ALL SUCH CASES, CIRCUMSTANCES, EXAMPLES OF BUSINESS EXPEDIEN CY, DIFFICULTIES AND OTHER ALL SUCH FACTORS, IN OUR VIE W, CANNOT BE SUMMED UP IN A LIST. SUCH TYPE OF FACTORS AND CIRC UMSTANCES MAY DIFFER FROM CASE TO CASE AND ALL THE CASES CANN OT BE LOOKED INTO BY STRAIGHT AWAY FINDING THEIR MENTION UNDER T HE LIST PROVIDED UNDER RULE 6DD. THE LIST PROVIDED UNDER R ULE 6DD, IN OUR VIEW GIVES AN EXAMPLE OF EXCEPTIONAL CIRCUMS TANCES WHICH MAY BE CONSIDERED AS EXCEPTION TO THE APPLICA BILITY TO THE PROVISIONS OF SECTION 40A(3) OF THE ACT AND THE REFORE, THE LIST IS A GUIDING TOOL BUT IS NOT EXHAUSTIVE. THE PROVISO TO SECTION 40A(3) OF THE INCOME TAX ACT HAS TAKEN CARE OF THE CONDITIONS UNDER WHICH THE PAYMENT MADE BY OTHER TH AN BANKING CHANNEL HAVE BEEN KEPT OUTSIDE THE PURVIEW OF SECTION ITA 817/CHD/2018 A.Y. 2014-15 PAGE 13 OF 15 40A(3) SO THAT THE NORMAL BUSINESS ACTIVITY SHOULD NOT BE AFFECTED. HON'BLE SUPREME COURT IN THE CASE OF ATT AR SINGH GURMUKH SINGH V ITO (SUPRA) HAS HELD AS UNDER : SECTION 40-A(3) MUST NOT BE READ IN ISOLATION OR T O THE EXCLUSION OF RULE 6-DD. THE SECTION MUST BE READ AL ONG WITH THE RULE. IF READ TOGETHER, IT WILL BE CLEAR THAT T HE PROVISIONS ARE NOT INTENDED TO RESTRICT THE BUSINESS ACTIVITIE S. THERE IS NO RESTRICTION ON THE ASSESSEE IN HIS TRADING ACTIVITI ES. SECTION 40- A (3) ONLY EMPOWERS THE ASSESSING OFFICER TO DISALL OW THE DEDUCTION CLAIMED AS EXPENDITURE IN RESPECT OF WHIC H 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 ASSESSING AUTHORITY TO ASCERTAIN WHET HER THE PAYMENT WAS GENUINE OR WHETHER IT WAS OUT OF THE IN COME FROM DISCLOSED SOURCES. THE TERMS OF SECTION 40-A(3) ARE NOT ABSOLUTE. CONSIDERATION OF BUSINESS EXPEDIENCY 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 TO THE ASSESSEE TO FURNISH TO THE SATISFACTION OF THE ASSESSING OFFICER THE CIRCUMSTANCES UNDER WHICH THE PAYMENT IN THE MANNER PRESCRIBED IN SECTION 40-A(3) WAS NOT PR ACTICABLE OR WOULD HAVE CAUSED GENUINE DIFFICULTY TO THE PAYE E. IT IS ALSO OPEN TO THE ASSESSEE TO IDENTIFY THE PERSON WHO HAS RECEIVED THE CASH PAYMENT. RULE 6-DD PROVIDES THAT AN ASSESSEE C AN BE EXEMPTED FROM THE REQUIREMENT OF PAYMENT BY A CROSSED CHEQUE OR CROSSED BANK DRAFT IN THE CIRCUMSTANCES SPECIFIE D UNDER THE RULE. IT WILL BE CLEAR FROM THE PROVISIONS OF SECTI ON 40-A(3) AND RULE 6-DD THAT THEY ARE INTENDED TO REGULATE THE BUSINESS TRANSACTIONS AND TO PREVENT THE USE OF UNACCOUNTE D MONEY OR REDUCE THE CHANCES TO USE BLACK MONEY FOR BUSINESS TRANSACTIONS. 9. IN OUR HUMBLE VIEW, THE ABOVE OBSERVATIONS OF TH E HON'BLE SUPREME COURT STILL HOLD GOOD DESPITE THE FACT THAT THE LIST UNDER RULE 6DD HAS BEEN AMENDED IN THE YEAR 2008. 10. AS OBSERVED BY US THAT THE SAID LIST CANNOT BE EXHAUSTIVE TO LIST ALL THE CASES IN VARIOUS FACTS AND CIRCUMST ANCES OF PRACTICABILITY, NECESSITY AND BUSINESS EXPEDIENCY. AS OBSERVED ITA 817/CHD/2018 A.Y. 2014-15 PAGE 14 OF 15 BY THE LD. CIT(A), THE ASSESSEE IN THIS CASE HAS EX PLAINED ABOUT THE PRACTICAL DIFFICULTY AND BUSINESS EXPEDIENCY F OR MAKING CERTAIN PAYMENTS IN CASH STATING THAT THE MILK BEIN G A PERISHABLE ITEM AND THE FAST MOVING CONSUMER GOOD, IT HAD TO BE PICKED UP EARLY FROM THE SUPPLY POINT IN THE EAR LY MORNING HOURS. THE ASSESSEE WAS BOUND TO MAKE PAYMENTS ON DAILY BASIS SINCE NO CREDIT SALES WERE ALLOWED BY THE SOL E SUPPLY AGENCY M/S VERKA MILK AGENCY OF THE M/S HOSHIARPUR DISTT. CO-OPERATIVE MILK PRODUCER UNION LTD. THE PRODUCT WAS RELEASED ONLY UPON MAKING FULL PAYMENT FOR THE PURC HASE. THE AO HAS NOT DISBELIEVED THE BUSINESS EXPEDIENCY, PRACTICAL DIFFICULTY IN MAKING PAYMENT IN CASH TO T HE SAID MILK AGENCY. A CERTIFICATE HAS ALSO BEEN PRODUCED FROM THE GENERAL MANAGER, VERKA, HOSHIARPUR THAT THE ASS ESSEE WAS A CASH CARRY DEALER FOR SUPPLYING VERKA MILK AN D FRESH MILK PRODUCTS IN PALAMPUR AND ADJOINING AREAS. THE ASSESSEE HAS ALSO EXPLAINED THAT THE MILK WAS TO BE LIFTED DAILY AND THE PAYMENTS WERE TO BE COLLECTED IN THE EVENING WHICH WERE TO BE MADE TO THE VERKA AGENCY IN THE MO RNING ITSELF AND FURTHER THE VERKA MILK AGENCY DID NOT PR OVIDE MILK ON CREDIT BASIS AND FURTHER THE PAYMENT WAS MA DE TO THE UNION OF PRODUCERS OF MILK. CONSIDERING THE ABO VE PRACTICAL ASPECTS, FACTORS AND CIRCUMSTANCES AND BU SINESS ITA 817/CHD/2018 A.Y. 2014-15 PAGE 15 OF 15 EXPEDIENCY, IN OUR VIEW, THE LD. CIT(A) WAS JUSTIFI ED IN DELETING THE DISALLOWANCE MADE BY THE AO. WE DO NO T FIND ANY MERIT IN THE APPEAL OF THE REVENUE AND THE SAME IS, ACCORDINGLY, DISMISSED. 11. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. ORDER PRONOUNCED ON 15 TH AUGUST, 2021. SD/- SD/- ( ! ' # $ ) ( ) (ANNAPURNA GUPTA) (SANJAY GARG) %& / ACCOUNTANT MEMBER ' / JUDICIAL MEMBER POONAM ' & '( )( / COPY OF THE ORDER FORWARDED TO : 1. %* / THE APPELLANT 2. &+%* / THE RESPONDENT 3. , / CIT 4. , ( )/ THE CIT(A) 5. (-. & / , / , 012.3 / DR, ITAT, CHANDIGARH 6. .2 4 / GUARD FILE