Income Tax Appellate Tribunal - Patna
Arun Kumar Srivastava vs Income-Tax Officer on 12 June, 1997
Equivalent citations: [1997]63ITD49(PAT), [1999]238ITR1(PAT)
ORDER
Shri Abdul Razack, Judicial Member
1. The assessee in this appeal has two grievances one regarding confirmation of addition of Rs. 10,000 in labour payment account and the other in respect of confirmation of an amount of Rs. 1,22,077 added under section 40A(3) of the Act representing cash payments made to M/s. STP Ltd. Dhanbad in respect of supplies made under various bills. The assessee's case in respect of second grievance was that M/s STP Ltd. with its Head Office at Calcutta and Union Office at Dhanbad did not have any bank account at Dhanbad and, therefore, the assessee made payments in cash for immediate business purposes and payment by bank demand draft or by cheque would have delayed the business transaction resulting in losses to the assessee. According to the assessee M/s. STP Ltd. was an income-tax assessee and payments to that concern were not doubted. Moreover on account of unavoidable and unexceptional circumstances, cash payments exceeded Rs. 2500 were made and the assessee came within the benevolence of Rule 6DD(j) and the Board's Circular No. 220 dated 31st May, 1997. The Assessing Officer added the said sum of Rs. 1,22,077. The addition of Rs. 10,000 was made by the Assessing Officer because from out of total labour payments of Rs. 2,04,078 most of the payments were not verifiable with supporting vouchers. He, therefore, made an addition of Rs. 10,000. The assessee was unsuccessful before the A/C who confirmed both additions.
2. The assessee has filed written submissions which have been placed on record along with some connected papers and copies of the Judgments of various Courts rendered on the addition under section 40A(3) of the Act.
3. We have given due consideration to the written submissions in respect of both the grievances and the various case laws, citations of which are given therein. We have also heard the DR who relied upon the orders of both the lower authorities.
4. We shall deal with the second grievance first. Admittedly the Assessing Officer has not doubted the genuineness of the payments made to M/s. STP Ltd. which is assessed to income-tax as is evident from the certificate of the said company placed at page 24 of the paper book. The Gujarat High Court in the case of Hasanand Pinjomal v. CIT [1978] 112 ITR 134 have held that section 40A(3) was intended to serve the objective of checking tax evasion and ensure that cash payment was genuine and was made out of income from disclosed sources. It was further held that while interpreting the provisions or rules, the very object of Legislature should not be frustrated. The Calcutta High Court in the case of Girdharilal Goenka v. CIT [1989] 179 ITR 122 have held that object of section 40A(3) is to check evasion of tax and not to disallow legitimate expenditure where the amount was paid in cash or received in cash, the Assessing Officer has to find out whether the transaction is genuine or not and if he finds that the transaction is genuine, he should allow the deduction. Similarly the Punjab & Haryana High Court in the case of Avtar Singh & Sons v. CIT [1991] 100 ITR 35 have laid down that in the case of the Appellant the identity of the party to whom payments were made in cash has not been questioned and nor is there any doubt with regard to the genuineness of the payments and as such no disallowance should have been made under section 40A(3).
Furthermore, we find that the assessee can take the aid of benevolence of Rule 6DD(j) read with the CBDT Circular No. 220 dated 31st May, 1977 and we can say that the assessee made cash payment exceeding Rs. 2,500 on account of unavoidable and exceptional circumstances. In view of the Board's Circular and the various decisions of the various High Courts, we have to hold that the A/C went wrong in confirming the addition made by the Assessing Officer under section 40A(3) of the Act. In respect of the payment made to M/s STP Ltd., we reverse the impugned order in this regard and direct deletion of the same.
5. We now come to the first grievance which is confirmation of addition of Rs. 10,000 in labour payment account. From the reasons given by both the lower authorities it is clear that the entire labour payment is not fully vouched and hence unverifiable to the fullest extent. In such circumstances the disallowance of some ad hoc amount on estimate basis has to resorted. However, considering the peculiar circumstances of the case and in order to meet the ends of justice we deem it fit and proper to restrict the addition in a sum of Rs. 75,000 in labour payment account as against Rs. 10,000 made by the Assessing Officer and confirmed by the A/C.
6. In the result, the appeal is partly allowed.
ITA No. 348 (Pat.)/1992 A.Y. 1990-91
1. I have read carefully the order proposed by my ld. brother. I agree with his decision regarding upholding of an addition of Rs. 7,500 as against Rs. 10,000 upheld by the CIT(A) in Labour Payment Account. However, with respect, I am unable to come to the same conclusion as my learned brother with regard to a disallowance of Rs. 1,22,077 made by the Assessing Officer under section 40A(3) of the Act, and upheld by the CIT(A).
2. In para 4 of the proposed order my ld. Brother has given weight to the assessee's contention on the ground that the Assessing Officer has not doubted the genuineness of the payments made to M/s. STP Limited. However, the ld. counsel for the assessee, in his second written submissions before the Tribunal, has referred to the decision of the Supreme Court in case of Attar Singh Gurmukh Singh v. ITO [1991] 191 ITR 667 and had given an extract also where it has been observed by the Hon'ble Supreme Court that "genuine and bona fide transactions are not taken out of the sweep of the section." These observations appear at pages 673 of the judgment. In view of this, I hold that genuineness of the transactions does not come to the aid of the assessee as far as section 40A(3) is concerned.
3. My ld. Brother has also given weight, in para 4 of the proposed order, to the assessee's claim that M/s. STP Ltd. is assessed to income-tax as is evident from the certificate of the said company, placed at page 24 of the paper book. A perusal of the certificate shows that it is dated 7-2-1995. The assessment order is dated 4-7-1991 and the order of the CIT(A) is dated 22-1-1992. It is, therefore, very obvious that the certificate has been obtained after the order of the CIT(A) and was not available either before him or before the Assessing Officer. In other words, it constitutes additional evidence before the Tribunal. According to Rule 29 of the Appellate Tribunal Rules, 1963, additional evidence can be admitted by the Tribunal in exceptional circumstances if the Income-tax authorities have decided the case without giving sufficient opportunity to the assessee to adduce evidence either on points specified by them or not specified by them. Even in such circumstances, the Tribunal has to record the reasons for admitting the additional evidence. The above conditions are not satisfied and, therefore, this additional evidence is not admissible as evidence before the Tribunal. If it is excluded, there is nothing on record to show that M/s. STP Ltd. were assessed to income-tax.
4. My ld. Brother has also given a finding that the assessee can take the aid of benevolence of Rule 6DD(j) read with CBDT Circular No. 220 dated 31st May, 1977 and we can say that the assessee made cash payments on account of unavoidable or exceptional circumstances. The facts have not been discussed but it is necessary to examine them. Moreover, the limit for invoking section 40A(3) for the year under consideration was Rs. 10,000 and not Rs. 2,500, and the Assessing Officer has only disallowed those payments in cash where the individual amounts exceeded Rs. 10,000.
5. According to the assessment order, the assessee made the following cash purchases exceeding Rs. 10,000 from M/s. STP Ltd., Dhanbad :
"Bill No. Date of cash payment Amount
DN/CB/90/0077 8-12-1989 10,982.60
DN/CB/90/0086 3-1-1990 17,135.92
DN/CB/90/0087 4-1-1990 23,124.96
DN/CB/90/0104 28-2-1990 12,245.05
DN/CB/90/0120 16-3-1990 16,941.71
DN/CB/90/0131 31-3-1990 41,647.18
-------------
1,22,077.42"
-------------
6. The assessee was asked to explain the reasons for making the above payments other than by crossed cheque or crossed demand draft and a written reply was given by the assessee, giving a copy of letter from M/s. STP Ltd. to the assessee regarding supply of material. The following extract has been reproduced in the assessment order :
"Further to our discussion in connection with the above is to inform you that our terms of payment is full value of the material in the form of Demand Draft in favour of STP Ltd. on Calcutta or in Cash. We will not accept any cheque against our product sale"
7. The Assessing Officer observed that it was clear that the terms of payment were not only in cash but M/s. STP Ltd. were accepting the demand draft also, and the assessee should have made payment by demand draft as provided under section 40A(3). He, therefore, disallowed the payments under section 40A(3). The CIT(A) confirmed the disallowance relying on the same reasons, saying that M/s. STP Ltd. were ready to receive the payments through demand drafts.
8. In the Grounds of appeal before us it is stated that M/s. STP Ltd. did not have a Bank Account at Dhanbad and the assessee did not have a bank account there either and, therefore, the case was covered under Rule 6DD(j). It is also stated that an amount of Rs. 17,136 was paid on 3-1-1990 which was a bank holiday on account of Guru Govind Singh's Birthday and a sum of Rs. 41,647 was paid on 31-3-1990 on which date no bank draft is issued from the bank and these two payments were separately covered under Rule 6DD(j). In the written submissions, CBDT Circular No. 220 dated 31-5-1977 has also been invoked for the same reasons.
9. Rule 6DD(j) provides that no disallowance under section 40A(3) shall be made where the assessee satisfies the Assessing Officer that the payment could not be made by way of a crossed cheque drawn on a bank or by a crossed bank draft -
(a) due to exceptional or unavoidable circumstances; or
(b) 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 Income-tax Officer as to the genuineness of the payment and the identity of the payee.
10. The CBDT has, in its Circular No. 220 dated 31-5-1977, laid down certain guidelines to the Assessing Officers, after saying that all the circumstances, in which the conditions are satisfied, cannot be spelt out. Some of them, which meet the requirements, have been listed out from (a) to (f) as below :
"(a) the purchaser is new to the seller; or
(b) the transactions are made at a place where either the purchaser or the seller does not have a bank account, or
(c) the transactions and payments are made on a bank holiday; or
(d) the seller is refusing to accept the payment by way of crossed cheque/draft and the purchaser's business interest would suffer due to non-availability of goods otherwise than from the particular seller; or
(e) the seller, acting as a commission agent, is required to pay cash in turn to persons from whom he has purchased the goods; or
(f) specific discount is given by the seller for payment to be made by way of cash.
(g) It can be said that it would, generally, satisfy the requirements of rule 6DD(j), if a letter to the above effect is produced in respect of each transaction falling within the categories listed above from the seller giving full particulars of his address, sales tax numbers/permanent account number, if any, for the purposes of proper identification to enable the Income-tax Officer to satisfy himself about the genuineness of the transaction. The Income-tax Officer will, however, record his satisfaction before allowing the benefit of rule 6DD(j)."
11. A copy of the Certificate dated 25-7-1991 has also been placed in the paper book, according to which, M/s. STP Ltd. did not have a bank account at Dhanbad. The CIT(A) has mentioned that a certificate from STP Ltd. has been filed before him but there is nothing to show that he admitted this additional evidence, since it has not been discussed and no reasons have been recorded by the CIT(A) for admitting it as referred to by Rule 46A(2) of the Income-tax Rule, 1962. Further, Board's Circular No. 220 deals with the case where payment by crossed cheque or crossed draft was not possible and, therefore, payment was made in cash. Here is the situation different. Payment by crossed draft was acceptable to M/s. STP Ltd. The circumstances are totally different. Board's Circular No. 220, therefore, does not apply to this case.
12. We do not find any exceptional or unavoidable circumstances either and it is not a case where payment in the prescribed manner 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. In any case, as per certificate dated 25-7-1991 of STP Ltd., the amounts were sent to the Calcutta office of STP Ltd. by STP Limited through demand draft. We do not see why the assessee could not have done the same.
13. In the peculiar facts and circumstance, I do not find merit in the further contention of the assessee that 3-1-1990 was bank holiday when Rs. 17,136 was paid and 31-3-1990 was a bank yearly closing day when a sum of Rs. 41,647 was paid. Even if this was so, the crossed drafts could have been prepared on the next day. There is nothing on record to show that the assessee insisted for payments on these very days.
14. For the above reasons, I hold that the sum of Rs. 1,22,077 has been rightly disallowed under section 40A(3) of the Act and the assessee's grounds of appeal relating to it, are rejected. Consequently, the assessee's appeal is partly allowed.
STATEMENT U/S 255(4) OF IT ACT'1961 A difference of opinion, having emerged between the Judicial Member and the Accountant Member, who originally heard the appeal, we hereby state the points on which we differ and refer the matter to the Hon'ble President of the Income-tax Appellate Tribunal for further appropriate action :
"Whether in the facts and circumstances of the case, a disallowance of Rs. 1,22,077 made by the Assessing Officer under section 40A(3) of the Income-tax Act, 1961, and upheld by the CIT(A), should be confirmed or deleted in full or in part ?"
THIRD MEMBER ORDER
1. This is an appeal by the assessee for the assessment year 1990-91. The assessee is a registered firm situated at Dhanbad. The assessment year is 1990-91, for which the previous year ended by 31-3-1990. The assessee derives income from contract work.
2. The total contractual receipts obtained by the assessee-company in the accounting year in question were Rs. 8,03,373. The income shown from out of those receipts was Rs. 1,05,671 which works out to more than 13 per cent. M/s. STP Ltd. is a public limited company having its headquarters at Calcutta and its Branch at Dhanbad. Admittedly, the assessee purchased material from the Branch Office of M/s. STP Ltd. at Dhanbad for the purpose of using the said material in its construction work. It made cash payments of more than Rs. 10,000 each time on the following dates and under the following bills obtained from M/s. STP Ltd. :
Bill No. Date of cash payment Amount
Rs.
DN/CB/90/0077 8-12-1989 10,982.60
DN/CB/90/0086 3-1-1990 17,135.92
DN/CB/90/0087 4-1-1990 23,124.96
DN/CB/90/0104 28-2-1990 12,245.05
DN/CB/90/0120 16-3-1990 16,941.71
DN/CB/90/0131 31-3-1990 41,647.18
-------------------
1,22,077.42"
-------------------
Under section 40A(3), where the assessee incurs any expenditure in respect of which payment is made, after such date (not being later than the 31st day of March, 1969) as may be specified in this behalf by the Central Government by notification in the Official Gazette, in a sum exceeding ten thousand rupees otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft, such expenditure shall not be allowed as a deduction. The ITO felt that the payment contravened the provisions of section 40A(3). Therefore, he called upon the assessee to explain the reasons for payment of the bill amounts in cash other than crossed cheques or crossed demand drafts. The assessee, in reply, produced the letter dated 9-11-1989 of M/s. STP Ltd. addressed to the assessee regarding the terms under which it was prepared to supply materials. Copy of the letter is now provided at page 5 of the paper compilation. The body of the letter is as follows :
"Sub : Supply of Materials.
Further to our discussion in connection with the above this is to inform you that our terms of payment is full value of material in the form of Demand Draft in favour of STP Limited on Calcutta or in cash. We will not accept any cheque against our product sale."
Since the letter says that M/s. STP Ltd. was accepting demand drafts, the ITO felt that the assessee should have made the payment by demand draft as provided under section 40A(3). Further, he got also the matter enquired into by the Inspector of Income-tax from M/s. STP Ltd. He also, in his report, stated that M/s. STP Ltd. was accepting drafts/cheques and cash from the customers and there is no separate agreement with the present assessee. Therefore, the ITO held that the assessee's contentions regarding terms of payment are totally wrong. Since the payment had been made in cash each time exceeding Rs. 10,000, the case called for disallowance under section 40A(3) and hence he added a sum of Rs. 1,22,077 to the total income of the assessee. Thus, as against the returned income of Rs. 50,230, he completed the assessment on an income of Rs. 1,50,168 after deduction of firm's tax.
3. Inter alia, aggrieved by the addition of Rs. 1,22,077, the assessee went in appeal before the CIT(A) but to no avail. The learned CIT(A), by his impugned order dated 22-1-1992, dismissed the appeal saying that the ITO proved beyond doubt that M/s. STP Ltd. was ready to receive the payments through demand drafts.
4. Against the CIT(A)'s order, the assessee went in second appeal before the Tribunal. The learned Judicial Member deleted the addition in his proposed order for the reasons stated below.
Admittedly, the Assessing Officer has not doubted the genuineness of the payments made to M/s. STP Ltd. which is assessed to income-tax. He followed the Gujarat High Court decision in Hasanand Pinjomal's case (supra) and held that section 40A(3) was intended to serve the objective of checking tax evasion and ensure that cash payment was genuine and was made out of income from undisclosed sources. He also found out to be one of the ratios of the said decision that while interpreting the provisions or rules, the very object of Legislature should not be frustrated. Similarly, he relied upon the Calcutta High Court decision in Girdharilal Goenka's case (supra) and found that the object of section 40A(3) is to check evasion of tax and not to disallow legitimate expenditure where the amount was paid in cash or received in cash. The Assessing Officer has to find out whether the transaction is genuine or not, and if he finds that the transaction is genuine, he should allow the deduction. He also followed the Punjab & Haryana High Court decision in Avtar Singh & Son's case (supra) where it was laid down that when the identity of the party to whom payments were made in cash has not been questioned, nor is there any doubt with regard to the genuineness of the payments, no disallowance should have been made under section 40A(3). The learned Judicial Member also felt that the assessee is entitled to the benevolent provisions of Rule 6DD(j) as per CBDT Circular No. 220 dated 31-5-1977. He held that the assessee made cash payments exceeding Rs. 2,500 on account of unavoidable and exceptional circumstances. Therefore, he reversed the order passed by the CIT(A) and deleted the addition of Rs. 1,22,077.
5. The learned Accountant Member differed with this conclusion of the ld. Judicial Member. His reasons briefly stated are as follows :
M/s. STP is stated to be an income-tax assessee. The certificate evidencing the same is provided at page 24 of the paper book which is dated 7-2-1995, whereas the assessment order is dated 4-7-1991 and the order of the CIT(A) is dated 22-1-1992. Therefore, it shows that the certificate has been obtained after the order of the CIT(A) and was not available either before him or before the Assessing Officer. It constitutes additional evidence. According to Rule 29 of the Tribunal Rules, only in exceptional circumstances, where the Tribunal is satisfied that the lower authorities have decided the case without giving sufficient opportunity to adduce evidence either on points specified by them or not specified by them as additional evidence can be admitted by the Tribunal. Even while submitting the additional evidence, the Tribunal has to record reasons for admitting such evidence. The above conditions are not satisfied and the additional evidence is not admissible, and if it is excluded, there is nothing on record to show that M/s. STP Ltd. is an income-tax assessee. The ld. Accountant Member stated that facts are to be thrashed out and fully discussed before coming to the conclusion whether the assessee is entitled to benevolent provisions of Rule 6DD(j). Afterwards, he had surveyed the reasons given by the Assessing Officer in his assessment order and the reasons given by the CIT(A) in his impugned order. Thereafter, the learned Accountant Member stated that in the grounds before the Tribunal it is stated that M/s. STP Ltd. did not have bank account at Dhanbad so also the assessee and hence the case is covered under Rule 6DD(j). It is stated that on 3-1-1990, which was a holiday on account of Guru Govind Singh's Birthday, and on 31-3-1990 also, no bank draft is issued from the Bank and the sum of Rs. 41,647 paid on 31-3-1990 and the sum of Rs. 17,136 paid on 3-1-1990 were thus covered under Rule 6DD(j). The learned Accountant Member stated that the Board's Circular No. 220 deals with the case where payment by crossed cheque or crossed demand was not possible and, therefore, the payment was made in cash. He distinguished the facts of this case stating that here the situation is different. Payment by crossed demand draft was acceptable to M/s. STP Ltd. and, therefore, Circular No. 220 does not apply to the case. As per the certificate dated 25-7-1991 of M/s. STP Ltd., the amount was sent to the Calcutta Office of M/s. STP Ltd. by STP Ltd., Dhanbad, through demand draft. If that is so, there is no reason why the assessee could not have done the same, wonders the ld. Accountant Member. He did not even prepare to excuse the payment in cash on 3-1-1990 being a bank holiday and on 31-3-1990 being yearly closing day. According to the ld. Accountant Member, the crossed demand draft could have been prepared on the next day. Thus, even conceding that 3-1-1990 and 31-3-1990 were closed holidays for the Bank, the ld. Accountant Member was not prepared to excuse the assessee for payment of cash on those days of Rs. 17,136 and Rs. 41,647 respectively. Thus, ultimately, he held that the lower authorities were fully justified in disallowing Rs. 1,22,077 under section 40A(3) and, therefore, he confirmed the disallowance. Since there is cleavage of opinion between the differing Members on the question of allowability or of the claim under section 40A(3), the reference is made to the Third Member and thus the matter stands now for my consideration.
6. I went through the orders of both the Members and I am of the opinion that the order of the ld. Judicial Member is to be upheld. My reasons are as follows. STP Ltd. is a public limited company having its headquarters at Calcutta and Branch Office at Dhanbad. It is significant to note that purchases were made from M/s. STP Ltd., Dhanbad. Neither M/s. STP Ltd. nor the assessee have any bank account in Dhanbad, the place where the transaction took place. As already stated, the assessee is a contractor and specializes in undertaking the work of arranging roof materials and they have purchased roof materials from M/s. STP Ltd. at Dhanbad. The office of the assessee registered firm was at Sindri. The work place was at Dhanbad. The distance between these two places is 30 to 40 kms. It is explained that for the assessee to make purchases at Dhanbad, if they have to come back to Sindri, make a draft and present it to M/s. STP Ltd., is most inconvenient and not practicable at all. Further, the actual purchase price would be known only after the purchases are made and not before hand. Therefore, it is not possible for the assessee to go with a crossed demand draft in its hands towards purchases it is going to make at Dhanbad. As far as the assessee is concerned, it has no bank account either at Dhanbad or at Calcutta where M/s. STP Ltd. has got its registered office. M/s. STP Ltd. is assessed to sales-tax as well as income-tax. The assessee is new to M/s. STP Ltd. inasmuch as it has no running account with M/s. STP Ltd. The certificate of M/s. STP Ltd. dated 25-7-1991, a copy of which is furnished at page 10 of the paper book, is as follows :
TO WHOM IT MAY CONCERN "This is to certify that we have received the cash payment against the following bills from M/s. Arun Kumar Shrivastava, Balkrishna Bhawan, Manohartand, Sindri.
Our Bill No. Date Amount *D/D No. Date
DHN/CB/90/0077 8-12-1989 10,982.60 MOL/A/2-822359 9-12-1989
DHN/CB/90/0086 3-1-1990 17,135.92 MOL/A/2-822391 4-1-1990
DHN/CB/90/0087 4-1-1990 23,124.96 MOL/A/2-822395 6-1-1990
DHN/CB/90/0089 19-1-1990 9,720.66 MOL/A/2-010194 8-2-1990
DHN/CB/90/0095 6-2-1990 3,468.74
DHN/CB/90/0104 20-2-1990 12,245.05 MOL/A/2-822564 7-3-1990
DHN/CB/90/0120 16-3-1990 16,941.71 MOL/A/2-822579 20-3-1990
& MOL/A/2-822580
DHN/CB/90/0131 31-3-1990 41,647.18 MOL/A/2-822593
& MOL/A/Z-822594 4-4-1990
*Further it is to be noticed that the money realised against the aforesaid bills were sent to our Calcutta Office through Demand Drafts, as per details mentioned above, since we have no Bank Account at Dhanbad.
For STP Limited sd/-
Sr. Unit Incharge."
"A perusal of the certificate would show that it was not possible immediately to send the amounts covered under each of the bills to M/s. STP Ltd. at Calcutta but it had taken one or two days or even week or 10 days also to send the amounts through D.Ds. after realising them in cash under each of the bills. It is made clear in the certificate that M/s. STP Ltd. has no bank account at Dhanbad. The ld. Accountant Member states that the certificate is a new material which was never there before the lower authorities and, therefore, he is not prepared to admit the same as additional evidence. I disagree with this conclusion. Under Rule 29 of the ITAT Rules, since the said certificate is a crucial document which would prove the justification for making cash payments at Dhanbad, in all fairness and with a view to meet the ends of justice, it should be held to be admissible in evidence. According to me, the reasons given for shunning it from evidence are unsupportable in law.
Further, I am of the view that under Rule 6DD(j), the circumstances under which the payment in cash was held justifiable were enumerated under Circular No. 22 dated 31-5-1977 published in (1977) 108 ITR 8. No doubt, it is stated that all the circumstances in which the conditions laid down in Rule 6DD(j) would be applicable cannot be spelt out. However, some of them which would seem to meet the requirements of the said Rule are enumerated. Out of the six enumerated instances, 1, 2 & 3 instances are the following :
1. The purchaser is new to the seller;
2. The transactions are made at a place where either the purchaser or the seller does not have a bank account;
3. The transactions and payments are made on a bank holiday.
The ld. Accountant Member did not controvert the fact that 3-1-1990 or 31-3-1990 were not bank holidays. In fact, 3-1-1990 was a bank holiday due to Guru Govind Singh's Birthday and 31-3-1990 was the yearly closing day of the Bank. On those two days, the sums of Rs. 17,136 and Rs. 41,647 were purported to have been paid in cash. The ld. Accountant Member stated that they could have been paid on the next day when the bank was working. According to me, this is not at all relevant. The payment was made on the day of transaction. The question would be whether on the day of the transaction, there was justification for cash payment or not. Further, at page 11 of the paper book, the balance-sheet of the assessee-firm was provided only to show that the assessee had no bank account at Dhanbad. If it had any bank account, it would have been certainly disclosed in the said balance-sheet. The very fact that no such account was mentioned in the balance-sheet would show that the assessee had no bank account at Dhanbad where the transaction took place. Further, if one critically examines the letter of STP Ltd. dated 9-1-1989, from which I have already extracted in the paragraphs of this order, one thing is very clear. M/s. STP Ltd. agrees to admit demand draft for the purchase value of the material sold, only when D.D. is drawn on any Calcutta Branch, otherwise it always insisted cash from its purchasers. M/s. STP Ltd. has its Head Office at Calcutta and Branch Office at Dhanbad. It carries on business both at Calcutta as well as at Dhanbad. It never said in the letter dated 9-11-1989 that it would accept demand draft even for the business conducted by it at places other than Calcutta.
Therefore, in a way, the letter dated 9-11-1989 can as well be construed in favour of the assessee. Suffice for me to cite the Punjab & Haryana Court judgment rendered in CIT v. Brij Mohan Singh & Co. [1994] 209 ITR 753. At page 754 of the head-note, it had stated the facts as well as its judgment thereon. It is significant that the decision was rendered on the basis of the ratio in the case of Avtar Singh Gurmukh Singh v. ITO [1991] 191 ITR 667 (SC). The facts of the Punjab & Haryana High Court as well as the decision thereon found extracted at pages 754 & 755 of the head note are as follows :
"Section 40A(3) of the Act must not be read in isolation or to the exclusion of rule 6DD of the Income-tax Rules, 1962. The section must be read along with the rule. The terms of section 40A(3) are not absolute. Considerations of business expediency and other relevant factors are not excluded. Genuine and bona fide transactions are 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 payment in the manner prescribed in section 40A(3) was not practicable or would have caused genuine difficulties to the payee. Guidelines were issued by the Central Board of Direct Taxes on the subject by way of Circular No. 220, dated May 31, 1977. Paragraph 4 of this circular letter provides as under :
4. All the circumstances in which the conditions laid down in rule 6DD(j) would be applicable cannot be spelt out. However, some of them which would seem to meet the requirements of the said rule are : (i) the purchaser is new to the seller; or (ii) the transactions are at a place where either the purchaser or the seller does not have a bank account; or (iii) the transactions and payments are made on a bank holiday; or (iv) the seller is refusing to accept the payment by way of crossed cheque/draft and the purchaser's business interest would suffer due to non-availability of goods otherwise than from this particular seller; or (v) the seller, acting as a commission agent, is required to pay cash in turn to persons from whom he has purchased the goods; or (vi) specific discount is given by the seller for payment to be made by way of cash. In paragraph 6, it was further observed that the above circumstances were not exhaustive but were illustrative and there could be cases other than those falling within the above categories, which would also meet the requirements of rule 6DD(j).
Held, on the facts, that the Tribunal found that the assessee did not have any bank account at the place where the purchases were made. A similar finding was recorded with respect to the seller. One of the conditions of the circular dated May 31, 1977, thus, stood complied with to enable the assessee to claim deduction of the expenditure. Further, the contention of the assessee that the actual amount for which purchases of liquor under the permits granted by the Excise and Taxation Department were to be made, would be known only at the time of actual purchase was accepted. Thus, it was not possible to obtain bank drafts in advance to make the purchases. Furthermore, the identity of the payee had been successfully established, i.e., the liquor to be purchased by the assessee, a liquor contractor from the distillery could only be made on issuing of permits, identifying the distillery. The Tribunal was, therefore, justified in deleting the disallowance made under section 40A(3). No question of law arose from its order".
Therefore, for the foregoing reasons, I agree with the learned Judicial Member's order fully and completely and I hold that the sum of Rs. 1,22,077 cannot be added in the hands of the assessee under section 40A(3) and the addition in this regard should be deleted fully.
7. The matter should now go back to the Division Bench who should decide the issue according to the majority decision.