Andhra HC (Pre-Telangana)
Commissioner Of Income-Tax vs Intraven Pharmaceuticals (P.) Ltd. on 7 February, 1995
Equivalent citations: [1996]219ITR225(AP)
Author: T.N.C. Rangarajan
Bench: S.S. Mohammed Quadri, T.N.C. Rangarajan
JUDGMENT T.N.C. Rangarajan, J.
1. The short facts leading to this reference are that the assessee had borrowed some money on hundis and repaid the same during the previous year ended March 31, 1978, corresponding to the assessment year 1978-79, through demand drafts. The Income-tax Officer noted that section 69D provides for disallowance of any amount repaid otherwise than through an account payee cheque drawn on a bank. He was of the opinion that repayment by demand draft did not satisfy the condition and added back the sum of Rs. 11,600 with interest thereon totalling Rs. 1,744 in computing the total income of the assessee. The assessee appealed and contended that there can be no distinction between an account payee cheque and a demand draft, but the Commissioner of Income-tax (Appeals) confirmed the disallowance. On further appeal, the Appellate Tribunal considered the various decisions cited before it regarding the nature of a cheque and a draft, and came to the conclusion that so far as the payment to the drawer of the hundi is concerned, the effect of the account payee cheque as well as the demand draft, would be the same and, therefore, the provisions of section 69D should be taken to have been fulfilled. On these facts, the following questions have been referred :
"(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is justified in holding that the assessee had fulfilled the requirements of section 69D by making repayment through demand drafts ?
(2) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in deleting the addition of Rs. 11,600 from the total income of the assessee ?"
2. Learned counsel for the petitioner submitted that the expression "account payee cheque drawn on the bank" indicated that the identity of the parties would be verifiable, and such verification cannot be possible in the case of a demand draft which can be purchased with cash. It was also submitted that in other sections such as section 40A(3), the words "or by a crossed bank draft" has been used as an alternative, and since that has been omitted in the present section, it must be taken that Parliament deliberately intended that only in the case of hundis, which gave scope to havala transactions, payment through a bank account was essential. It was submitted that in these circumstances it cannot be held that for the purpose of disallowance under section 69D, a bank draft cannot be equated to an account payee cheque.
3. The respondent, though served, has not appeared either in person or by counsel.
4. We have perused the provisions of section 69D as well as the objects and the reasons for the introduction of this section. The reference there is only to the Wanchoo Committee report which had made reference to unearthing black money and preventing its proliferation. In other words, the object was only to see that the transactions of borrowal by hundi will be made visible by making the transaction go through a bank. From this purposive approach, it would be apparent that the object of identifying the payee is achieved whether it is sent by a crossed account payee cheque or crossed demand draft. Learned counsel for the petitioner laid stress on the fact that section 69D does not refer to a bank draft while other sections refer to that alternative mode of payment. We notice that payment by either an account payee cheque or account payee bank draft, was considered to be necessary under section 40A(3), which was introduced with from April 1, 1968, as well as section 269T, which was introduced with effect from July 11, 1981, and section 269SS which came into effect from April 1, 1984. The provisions of section 69D came into effect in between, on April 1, 1977. A perusal of the analogous sections shows that they were also concerned with the transparency of transactions because section 40A(3) refers to expenditure incurred in the course of business above Rs. 10,000; section 269T with reference to repayment of deposits; and section 269SS with reference to deposit of receipts exceeding Rs. 10,000. Section 69D refers to both the receipt and payment of amounts borrowed on hundis. The nature of these transactions is the same and we are unable to see any particular reason why an account payee cheque of a bank account would serve the purpose of transparency of transactions more than an account payee demand draft. It appears to us that the omission to refer to an account payee demand draft in section 69D is probably inadvertent. The various decisions referred to in the order of the Tribunal about the nature of the cheque and a demand draft were rendered in the background of the provisions of the Negotiable Instruments Act and those considerations are not germane to the purpose behind section 69D. In our opinion, the object of making disallowance under section 69D is only in the event of the transaction being unverifiable. When it is seen that the repayment by an account payee demand draft is equally efficacious in verifying the identity of the payee, we share the view of the Tribunal that an account payee demand draft also should be treated as an account payee cheque drawn on a bank for the purpose of the provisions of section 69D. We, therefore, answer the questions in the affirmative and the against the Revenue.