High Court Of Chhattisgarh
CIT vs. Vijay Kumar Goel
Section 40A(3), IT RULE 6DD, Negotiable Instruments Act, 1881, ss. 5 & 6
Dhirendra Mishra & Prashant Kumar Mishra, JJ.
IT Appeal No. 24 of 2001
22nd April, 2010
Counsel Appeared :
Rajeev Shrivastav a, for the Appellant : Shashank Dubey with Neelabh Dubey, for the Respondent
Dhirendra Mishra, J. :
This income-tax appeal under s. 260A of the IT Act, 1961 (for short “the Act”) preferred by the Revenue against the order of the Tribunal, Nagpur (for short “the Tribunal”) has been admitted on 13th April, 2009 on the following substantial questions of law :
“Whether on the facts and in the circumstances of the case, the hon’ble Tribunal was justified in law in holding that the banking instruments which do not find place specifically in s. 40A(3) of the IT Act, 1961 being credible, cannot be denied with reference to the provisions of s. 40A1(3) of the Act ? Whether the Tribunal has ignored the true nature of transaction which was initially between the supplier and the intermediaries and thereafter between the intermediaries and the assessee ?”
The facts, as projected in the memo of appeal, are that the assessee in the relevant assessment year derived income from trading of steel and HDPE bags. The steel was mostly obtained from the Steel Authority of India Ltd., Bhilai through certain intermediate parties. The assessee filed return declaring total income of Rs. 1,93,950. The AO completed the assessment under s. 143(3) of the Act by making addition of Rs. 61,51,028 under s. 40A(3) of the Act, as during the assessment proceedings, it was noticed that the assessee had claimed to have made purchases through pay orders, banker’s cheques and call deposit receipts to the extent of Rs. 61,51,028. The AO disallowed the payments on the ground that the payments were made by the assessee for stock otherwise than by crossed cheque drawn on a bank or crossed demand draft and added the aforesaid payment to the total income of the assessee.
The CIT(A) allowing the appeal of the assessee on this count held that the AO has made addition by taking a very narrow interpretation of the provisions of s. 40A(3), restricting the interpretation only to payments by crossed cheques or DDs. The payments through pay orders, banker’s cheques or CDRs are also through the accounts of the concerned parties and such pay orders, banker’s cheques or CDRs are issued by the bank at the request of the account holders. As these payments are through regular banking channels, the transactions are fully accounted for. The AO was, therefore, not correct in disallowing the payments made by the assessee and accordingly, the aforesaid addition was deleted. The Tribunal agreeing with the decision of the CIT(A) dismissed the appeal preferred by the Revenue. Shri Rajeev Shrivastava, learned counsel for the appellant/Revenue vehemently argued that sub-s. (3) of s. 40A clearly stipulates that any payment of more than Rs. 10,000 made in the relevant year towards expenditure incurred by the assessee to a person otherwise than by an account payee cheque drawn on a bank or account payee bank draft, is not deductible. It was not sufficient for the assessee merely to show that the purchases were genuine and payees were identifiable. He was also required to further prove that there exists some exceptional and unavoidable circumstances in which payments were made other than by crossed cheque drawn on a bank or crossed bank draft as per r. 6DD. Since the assessee could not bring his action within the parameters of exceptions given under r. 6DD, the payments made in contravention of s. 40A(3) by the assessee has been rightly disallowed and added in the income of the assessee and the reasoning assigned by the CIT(A) and affirmed by the Tribunal for deleting addition that the AO has taken a very narrow interpretation of the provisions under s. 40A(3) is illegal.
On the other hand, Shri Shashank Dubey, learned senior advocate with Shri Neelabh Dubey, advocate for the respondent/assessee argued that the proviso to s. 40A(3) provides that no disallowance under this section shall be made in such cases and under such circumstances as may be prescribed. Sub-r. (d) cl. (iv) of r. 6DD of the IT Rules, 1962 (for short “the Rules, 1962”) provides that where the payment is made by a bill of exchange payable only to a bank, deduction under sub-s. (3) of s. 40A is permissible. The purpose of s. 40A(3) is to ensure that the payments are made through banking channels and the menace of unaccounted transactions is curbed. In the instant case, the payments have been made through normal banking channels and the instruments are issued by the banks in favour of the Steel Authority of India Ltd. Therefore, merely on the ground that the instruments are not specified in s. 40A(3), its credibility cannot be taken away. The Tribunal has also held that the genuineness of the payment has not been doubted by the AO. The aforesaid finding of the Tribunal has attained finality. The submission that the presumption under s. 40A(3) is absolute is incorrect and the same is to be r/w r. 6DD which mitigates the rigours of s. 40A(3). The banker’s cheques and pay orders are cheques issued by the bank on itself and the same are not payable in cash to bearer but credited to the bank account of the payee. All payments through banker’s cheques/ pay orders were by crossed cheques. The CDRs are issued by the banks in favour of Government undertakings. All call deposit receipts were issued by banks in favour of Steel Authority of India, Bhilai, which is a public sector undertaking and the payments against call deposit receipts are made by banks by book adjustment crediting the account of the person in whose favour it is made if he holds account with the bank or crediting the account of the banker who presents it for collection. Sec. 5 of the Negotiable Instruments Act, 1881 (for short “the Act, 1881”) defines bill of exchange and s. 6 defines cheque and from the definition of bill of exchange and cheque under the Act, 1881, it is evident that banker’s cheques/pay orders/CDRs are bill of exchange are mentioned in sub-cl. (iv) of cl. (d) of r. 6DD as amended vide the IT (Amendment) Rules, 1969.
We have heard learned counsel for the parties. We have perused the impugned order as well as relevant provisions of law. Indisputably, the AO has disallowed the payments made by the assessee to the Steel Authority of India to the tune of Rs. 61,51,028 on the ground that the same were made otherwise than through account payee cheque or account payee draft in contravention of s. 40A(3) of the Act. The assessee has made payments through banker’s cheque/pay order/call deposit receipt issued by the bank in favour of the Steel Authority of India Ltd. It is also not in dispute that the Tribunal after going through the material available in the paper book has held that the AO has not doubted the genuineness of the transactions. Sec. 40A deals with expenses or payments not deductible in certain circumstances.
9. Sub-s. (3) as amended by the Finance Act, 2008, w.e.f. 1st April, 2009 reads as under : “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 account 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.”
10. At the relevant time the limit was Rs. 10,000 in place of Rs. 20,000. The proviso to s. 40A(3) reads as under : “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-s. (3) and this sub-section 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 such cases and under such circumstances as may be prescribed, having regard to the nature and extent of banking facilities available, consideration of business expediency and other relevant factors.”
11. The CBDT in exercise of powers conferred by s. 295 of the Act amended the IT Rules, 1962 and r. 6DD after r. 6D was inserted describing the cases and circumstances in which payment in a sum exceeding two thousand five hundred rupees may be made otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft. Sub-cl. (iv) of cl. (d) of the amended r. 6DD provides that “no disallowance shall be made where the payment is made by a bill of exchange made payable only to a bank.” From a reading of the definition of bill of exchange under s. 5 and cheque under s. 6 of the Act of 1881, it is clear that the banker’s cheques/pay orders/call deposit receipts are instruments which fall within the definition of bill of exchange.
In the matter of Attar Singh Gurmukh Singh vs. ITO (1991) 97 CTR (SC) 251 : (1991) 191 ITR 667 (SC), the Supreme Court considering sub-r. (j) of r. 6DD observed that where the assessee furnishes evidence to the satisfaction of the AO as to the genuineness of the payments and the identity of the payee, such payments cannot be disallowed.
In the matter of CIT vs. Achal Alloys (P) Ltd. (1996) 130 CTR (MP) 22 : (1996) 218 ITR 46 (MP), it has been held that no question of law arises where the genuineness of the payment has not been doubted.
As already observed in the foregoing paras, the Tribunal has categorically held that the AO has not doubted the genuineness of the transactions. Even otherwise, the payments have been made through banker’s cheques/pay orders/call deposit receipts issued in favour of the Steel Authority of India Lited, a Government of India undertaking.
In view of the aforesaid facts and keeping in view sub-cl. (iv) of cl. (d) of r. 6DD, we are of the opinion that the finding of the CIT(A) and subsequent order of the Tribunal affirming the finding of the CIT(A) is strictly in accordance with the provisions of the Act and the rules framed thereunder and no question of law much less any substantial question of law arises for adjudication of this appeal.
The appeal is accordingly dismissed.
[Citation : 324 ITR 376]