ITAT DELHI BENCHES ‘A’ : NEW DELHI Basu Distributors Pvt. Ltd. v. ACIT

Sustainability of additions made on account of violation of provisions of section 40A (3) of IT Act, 1961



Merely because the genuineness of the transaction is not in dispute it in itself does not absolve the assessee from the disallowance under sub-section 3 of section 40A in case the assessee fails in establishing the exceptional circumstances laid down in clause(j) of Rule 6DD of IT Rules.



ITAT DELHI BENCHES ‘A’ : NEW DELHI

Basu Distributors Pvt. Ltd.

v.

ACIT

ITA No. 4262 to 4264/Del/2007

August ___,2009

RELEVANT EXTRACTS:

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7. On considering the submissions of both the parties, perusing the record and carefully going through the orders of tax authorities below, we find that in the instant appeals the main thrust of the arguments put forth by the IdAR for the assessee was that in the instant cases the impugned cash payments to the principal had to be made due to compulsion of business necessity because after the impugned payments made to the principles through a crossed cheques drawn on bank having bounced, the assessee would have spoilt its business relation with the principals, had the assessee immediately not made the payment in cash. Hence, the cases of the assessee are covered by the exceptions laid down in clause (j) of Rule 6 DD of I. T. Rules relevant to the Assessment Years under consideration before us. Further, that since, undisputedly, the genuineness of transaction has not been doubted by the tax authorities below, as per the Circular of the Board, these provisions are to be construed liberally and in favour of the assessee and not in a technical and narrow sense.



9. Exceptional circumstances for not making disallowances as provided under sub-section 3 of section 40A of I.T. Act are laid down in Clause (j) of Rule 6 DD of I.T.Rules for relevant A.Ys is reproduced hereunder.

"6 DD :- No disallowance under Sub-Sec.3 of S.40 A shall be made where any payment in a sum exceeding Ten Thousand Rupees is made otherwise than by a crossed cheques drawn on a bank or by a crossed bank draft in the cases and circumstances specified hereunder, namely :

a) Where the payment is made to:

b) .........

c) ......... .

d) ......... ..

e) ......... ….

i) ...

g) …

h) ….

i) ............. .

j) in any other case, where the assessee satisfies the AO that the payment could not be made by a crossed cheques drawn on a bank or by a crossed bank draft:

i) due to exceptional or unavoidable circumstances, or

ii) 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 settlement thereof;

and also furnishes evidence to the satisfaction of the A.O. as to the genuineness of the payment and the identity of the payee."

9.1 From Sub-Clause (j) it appears that at the most, the assesee's case can be considered under Rule 6 DD(j)(i) which provides that in case the payment is made by the assesee in cash otherwise than a cross cheques drawn on bank due to exceptional or unavoidable circumstances no disallowance under sub sec.3 of s.40A shall be made.

10. At this stage we would first like to mention that the argument of the assessee that since the genuineness of the transaction is not in dispute on technical reasons the disallowance should not be made, does not have much force because clause (j) provides that even if the assessee is able to prove the exceptional circumstances laid down in Clause (j) the assessee is still required to prove with evidence to the satisfaction of the AO the genuineness of the payment and the identity of the payee. Hence, merely because the genuineness of the transaction is not in dispute it in itself does not absolve the assessee from the disallowance under sub-sec. 3 of S.40A in case the assessee fails in establishing the exceptional circumstances laid down in Clause (j) of Rule 6DD of I. T. Rules.

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