High Court Of Calcutta
CIT vs. Himachal Terepene Products (P)Ltd.
Section 40A(3), Rule 6DD(J)
Asst. Year 1985-86
M.H.S. Ansari & Soumitra Pal, JJ.
IT Ref. No. 16 of 1997
8th March, 2004
Counsel Appeared
R.K. Chowdhury, for the Revenue : J.P. Khaitan, for the Assessee
JUDGMENT
By the court :
The instant reference is at the instance of the Revenue under s. 256(1) of the IT Act, 1961, whereby the following question of law arising out of the order dt. 6th Sept., 1993, of the Tribunal in ITA No. 783/Cal/1990 has been referred for the opinion of this Court : “Whether, on the facts and in the circumstances of the case, the Tribunal was justified in deleting the addition of Rs. 2,42,342 made under s. 40A(3) of the IT Act, 1961 ?”
2. The brief facts of the case are that the AO found that the aforesaid sum of Rs. 2,42,342, breakup of which according to the assessee, is as under: Rs. Coal account (freight) 31,860 Sales and forwarding 23,750 Stores purchase 23,374 Raw materials account (freight) 45,547 Miscellaneous 40,866 Freight 76,945 2,42,342 was paid in cash and, therefore, the AO held that the said payments were hit by the provisions of s. 40A(3) of the IT Act, 1961. It was pointed out in his order that the assessee only produced the names of persons and vouchers in certain cases and did not give full particulars and addresses of the persons or any particulars such as sales-tax number, permanent account number, etc., were produced by the assessee. Relying upon the CBDT No. 220, dt. 31st May, 1977, the AO held that the provisions of r. 6DD(j) could not be applied. The AO, therefore, disallowed the aforesaid sum and added the same to the income of the assessee. The assessee being aggrieved by the said order filed an appeal before the CIT(A) who confirmed the action of the AO. Aggrieved thereby an appeal was preferred and the Tribunal allowed the appeal of the assessee. Mr. R.K. Chowdhury, learned counsel for the Revenue, contended that admittedly various payments have been made by the assessee during the assessment year in question (1985-86) in cash in excess of Rs. 2,500. In the light of the evidence produced by the assessee the same do not qualify for allowance under r. 6DD or the Board circular and, therefore, the requirements of the rule and circular having not been met, the Tribunal ought not to have interfered with the orders of the AO as confirmed by the CIT(A). On behalf of the assessee, Mr. J.P. Khaitan, sought to sustain the order of the Tribunal. It was submitted that disallowance made by the AO as confirmed by the CIT(A) is wholly unjustified in the instant case.
It was further urged that there are exceptional circumstances for making the payments in cash. The circumstances enumerated in the CBDT circulars are not exhaustive but only illustrative, it was urged. Heard learned counsel for the respective parties. The Supreme Court in Attar Singh Gurmukh Singh, Etc. vs. ITO (1991) 97 CTR (SC) 251 : (1991) 191 ITR 667 (SC), while upholding the validity of s. 40A(3) of the Act, also held that the s. 40A(3) must not be read in isolation or to the exclusion of r. 6DD. 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. Sec. 40A(3) only empowers the AO to disallow the deduction claimed as expenditure in respect of which payment is not made by crossed cheque or crossed bank draft. 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. With respect to r. 6DD, it was observed that it provides that an assessee can be exempted from the requirement of payment by a crossed cheque in the circumstances specified under the rule. It was further held that payments made in purchasing stock-in-trade or raw materials should also be regarded as expenditure for the purpose of s. 40A(3). The judgment of this High Court in Giridharilal Goenka vs. CIT (1989) 80 CTR (Cal) 140 : (1989) 179 ITR 122 (Cal) is of no assistance to the assessee in the case on hand as that judgment was rendered prior to the judgment of the Supreme Court in Attar Singh Gurmukh Singh’s case (supra), wherein the Supreme Court observed, as already noticed, that genuine and bona fide transactions are not taken out of the sweep of s. 40A(3). The CIT(A) in his order has considered the evidence on record also in the light of r. 6DD and the guidelines laid down by the CBDT in their Circular No. 220, dt. 31st May, 1977.
The AO as also the CIT(A) in his order confirming the order of the AO held that no evidence has been produced to show that there were exceptional or unavoidable circumstances justifying the payments in cash. The Tribunal as a final fact-finding authority has not arrived at any findings of fact to the contra, instead it proceeded on the basis that what is to be seen is whether the claim was excessive or fictitious. It took the view that where the turnover is more than Rs. 1 crore, the expenditure in question does not appear to be excessive or unjustified. We cannot sustain the said view in the light of the provisions contained in r. 6DD or the CBDT circular. Unless the Tribunal had arrived at a finding of fact that exceptional circumstances existed to warrant payments in cash or that the payment by crossed cheque was not practicable or would have caused genuine difficulty to the payee, the order ought not to have been interfered with by the Tribunal. The consideration which weighed with the Tribunal, as noticed supra, does not fall within the exceptional or unavoidable circumstances. Without prejudice to his aforesaid contentions and in the alternative it was contended by Mr. Khaitan that as the Tribunal has not properly appreciated the facts, the matter may be remanded for fresh disposal. Reliance was placed upon several judgments. Mr. Chowdhury, learned counsel for the Revenue, submitted that the judgments relied upon by Mr. Khaitan are distinguishable and the case on hand is not one which warrants remand for fresh disposal by the Tribunal. We are in agreement with the submissions made by Mr. Chowdhury. The instant case is not one where the Tribunal has not properly appreciated the facts as was found in CIT vs. Jessop & Co. Ltd. (1989) 79 CTR (Cal) 246 : (1990) 181 ITR 358 (Cal). It is also not a case where the relevant facts have not been noticed or stated by the Tribunal as in CIT vs. Bengal Potteries Ltd. (1980) 126 ITR 442 (Cal). Unlike the matter in CIT vs. Indian Molasses Co. (P) Ltd. (1970) 78 ITR 474 (SC) the case on hand is not one where the Tribunal gave no finding on the issue raised before it. A distinction has to be drawn between a case of no finding and the one on hand where a wrong conclusion is arrived at without arriving at a finding to the contra based on record before it. It is also not a case, in our view, that the Tribunal did not consider the relevant evidence. As already noticed supra, the finding of the CIT(A) subject-matter of appeal before the Tribunal was to the effect that no evidence has been produced to show that there were exceptional or unavoidable circumstances justifying the payments. The judgment in Jiwanram Sheoduttrai vs. CIT (1994) 121 CTR (Cal) 380 : (1994) 208 ITR 712 (Cal), therefore, is also not applicable. Unlike the case before the Supreme Court in Salem Co-operative Central Bank Ltd. vs. CIT (1993) 111 CTR (SC) 394 : (1993) 201 ITR 697 (SC), the Tribunal has not in the case on hand proceeded on an assumption which was erroneous in law. The case on hand is one where it is the conclusion arrived at by the Tribunal, which is erroneous in law. It is also not a case as in Sarda Plywood Industries Ltd. vs. CIT (2000) 163 CTR (Cal) 45 : (1999) 238 ITR 354 (Cal), where the Tribunal had failed to take into consideration the relevant fact and/or relevant provision of law to warrant the remand of the matter back to the Tribunal. We accordingly decline the said request of learned counsel for the assessee in the facts and circumstances of the case and for the reasons aforestated we answer the question referred for our opinion in the negative and in favour of the Revenue and against the assessee.
15. Reference is accordingly disposed of.
[Citation : 269 ITR 538]
