Income Tax Appellate Tribunal - Delhi
Ito, New Delhi vs M/S Suresh Kumar, New Delhi on 9 December, 2020
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'A', NEW DELHI
Before Sh. Amit Shukla, Judicial Member
Dr. B. R. R. Kumar, Accountant Member
(Through Video Conferencing)
ITA No. 4111/Del/2015 : Asstt. Year : 2011-12
ITO, Vs M/s. Suresh Kumar,
Ward-52(1), 84/367, Sec-1, DIZ Area,
New Delhi-110002 Gole Market,
New Delhi-110001
(APPELLANT) (RESPONDENT)
PAN No. AJGPK2729R
Assessee by : None
Revenue by : Sh. Sohail Malik, Sr. DR
Date of Hearing: 03.11.2020 Date of Pronouncement: 09.12.2020
ORDER
Per Dr. B. R. R. Kumar, Accountant Member:
The present appeal has been filed by the revenue against the order of the ld. CIT(A)-18, New Delhi dated 25.03.2015.
2. Following grounds have been raised by the revenue:
"1. The Ld. CIT(A), on the facts and in the circumstances of the case, has erred in deleting the addition of Rs. 2,25,40,000/- made by AO without appreciating the fact that assessee made purchase payments in cash in contravention to the provisio ns of section 40A(3) of the act, read with Rule 6DDJ and that this was the practice of the assessee.
2. The Ld. CIT(A), on the facts and in the circumstances of the case, has erred in deleting the addition of Rs. 4,47,483/- made by the AO without appreciating the fact that assessee made 2 ITA No. 4111/Del/2015 Suresh Kumar reimburse ment of expenses in contravention to the provisions of Section 40A(3) of the act, read with rule 6DDJ."
3. During the course of assessment proceedings, the AO noticed that the assessee who is running a travel agency has made purchases exceeding Rs.20,000/- in violation of Se ction 40A(3) of the Act to the tune of Rs.2,25,40,000/- and paid amo unts in cash two entities namely, Indraprashta Travels Pvt. Ltd. and Oasis Travels India Pvt. Ltd. on account of purchase of flight tickets.
4. The ld. CIT (A) deleted the addition holding that the provisions of Section 40A(3) are not attracte d where the parties are identified and there is no material on record to doubt the genuineness of the payment. T he Assessing Officer has not expressed his doubts with respect to payments made. It is submitted that it be held that the AO has mechanically invo ked provisions of section 40A(3) disregarding the fact that the hardship would have been caused to the appellant if, the payments were not made in cash.
5. Aggrieve d, the revenue filed appeal be fo re us.
6. Before us, the ld. DR relied on the orde r of the AO and the provisions of Section 40A(3 ) and Rule 8DD along with the circular No. 220 of the CBDT dated 31.05.1997.
3 ITA No. 4111/Del/2015Suresh Kumar
7. We have gone through the facts and record and proceed to adjudicate the issue on me rits taken into consideration plethora of judgment available on this issue.
8. The pro visions of Sectio n 40A(3) as amended w.e .f. 01.04.2009 are as under:
"40A..........
(3) Where the assessee incurs any expenditure in respect o f 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, or use of electro nic clearing system through a bank account 39[or through such other electronic mode as may be prescri bed], exceeds ten thousand rupees, no deduction shall be allowed in respect of such expenditure.
(3A) Where an allowance has been made in the assessment for any year in respect of any liability incurred by the assessee for any expenditure and subsequently during any previous year (hereinafter referred to as subsequent year) the assessee mak es payment in respect the reo f, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, [or use of electroni c clearing system through a bank account [or through such other electronic mode as may be prescribed]], the payment so made shall be deeme d to be the profits and gains of business or profession and accordingly chargeable to income-tax as inco me of the subsequent year if the payment or aggregate of payments made to a pe rson in a day, exceeds [ten] thousand rupees:
Provided that no disallowance shall be made and no payment shall be deemed to be the profits and gains of busine ss or profession under sub-section (3) and this sub-sectio n whe re 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 4 ITA No. 4111/Del/2015 Suresh Kumar account payee bank draft, 54[or use of electro nic clearing system through a bank account [or through such o the r electronic mode as may be prescribed], exceeds te n tho usand rupees,] in such cases and unde r such circumstances as may be prescribed56, having regard to the nature and extent of banking facilitie s available, considerations of business expediency and other relevant factors:] [Provided further that in the case of payment made for plying, hiring or leasing goods carriages, the provisions of sub-sections (3) and (3A) shall have effect as if fo r the wo rds "[ten] thousand rupees", the words "thirty-five thousand rupees" had been substituted.]"
9. The rule 6DD(j) reads as under:
"[Cases and circumstances in which a payment or aggregate of payme nts exceeding te n thousand rupees may be made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft or use of electronic clearing system thro ugh a bank account o r through such other electronic mode as prescribed in rule 6ABBA.] 6DD. No disallowance under sub-section (3) of section 40A shall be made and no payment shall be dee med to be the pro fits and gains of business or profession unde r sub-section (3A) of section 40A where a payment o r aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account 2[acco unt payee bank draft or use of electronic clearing system through a bank account o r through such other electronic mode as prescribed under rule 6ABBA, exceeds ten thousand rupees]
(a) where the payme nt is made to--
(i) the Reserve Bank of India or any banking company
(ii) the State Bank of India or any subsidiary bank
(iii) any co-operative bank or land mo rtgage bank;5 ITA No. 4111/Del/2015
Suresh Kumar
(iv) any primary agricultural credit society or any primary credit
(v) the Life Insurance Corporation of India where the payment is made to the Gove rnment
(i) any letter of credit arrangements thro ugh a bank;
(ii) a mail o r telegraphic transfer through a bank ;
(iii) a book adjustment from any acco unt in a bank to any o the r account in that o r any o the r bank ;
(iv) a bill of exchange made payable only to a bank;
(e) where the payment is made for the purchase of--
(i) agricultural or forest produce, the produce of animal husbandry , fish or fish products, the products of horticulture or apiculture,to the cultivator, grower or producer of such articles, produce o r products;
(f) where the payment is made for the purchase of the products manufactured o r processed without the aid of power in a cottage industry, to the producer of such products;
(g) where the payment is made in a village or town, which on the date of such payment is not served by any bank, to any person who ordinarily reside s, or is carrying on any business, profe ssion or vocation, in any such village or town;
(h) where any payment is made to an employee in connection with the retirement, retrenchment, resignation etc.
(k) where the payme nt is made by any person to his agent who is requi red to make payment in cash for goods or services on behalf of such person;
(l) where the payment is made by an authorised dealer or a money changer against purchase of foreign currency etc. 6 ITA No. 4111/Del/2015 Suresh Kumar
10. In the background of the provisions of the Act, Rules, Circular and the judgment, we have examined the facts of the instant case.
11. The assessee has paid amounts for obtaining flight tickets for his client and the agency from whom the tickets have been procured by the assessee to his agents insisted for cash payment for arranging the tickets. This amounts to business contingency for the asse ssee. We have also given our abo ut the genuineness of the payment. From the record, we find that the Assessing Officer has not que stioned the genuineness of the payment or credential of the receivers. Asse ssment u/s 143(3) primarily directed at detailed scrutiny of the return of income to confirm the correctness and genuinene ss of various claims, deductions, exemptions claimed by the tax payer in the return of income. The objective of the scrutiny assessment is to confirm that the tax taxpayer has not understated the income or claimed excessive loss which results ultimately under payment of taxes. In the instant case, in the scrutiny proceedings, the AO has not questioned the veracity o f the payments made to Indraprashta Travels Pvt. Ltd. and Oasis T ravels India Pvt. Ltd. Nowhere transaction with M/s Indraprastha Travels Pvt. Ltd. are doubted, the assessee has made a bonafide payments to M/s Indraprastha Travels who in turn have made payments to railways, airlines etc. Had it been the case of unexplained expenditure, the provisions of Section 69C would have been attracted. Invoking the provisions of Section 40A(3 ) by the Assessing Officer itself prove s that the genuiness of the payment is not doubted. Having said that we have looked into the aspect whether the payments made by the assessee being a 7 ITA No. 4111/Del/2015 Suresh Kumar travel agent to the ticketing companies attract the provisions of 40A(3) or not.
12. We have also gone through the Circular No. 220 of the CBDT and also the case laws accepted by the revenue with regard to disallowance u/s 40A(3).
13. The circular of the CBDT and the judgme nts accepted by the revenue are as under:
" 383. Circumstanc es when Income -tax Office r can re lax requireme nt of making p ayments in ex cess of Rs. 2 ,500 by crossed c heque s unde r c lause (j) o f rule 6DD
1. Clause (j ) of rule 6DD provides that no disallowance und er section 40A (3) shall be made where the assessee sati sfies the I ncome-tax O fficer that the p ayment could not be m ade by way of a crossed ch equ e drawn on a ban k or by a crossed ban k draft--
a. d ue to excep tio nal or unavoi dab le circum stances; or b. b ecause payme nt in th e manner aforesaid was not p racticable, or would have caused genuin e d ifficulty to the payee, havin g regard to the nat ure of the transaction and th e n ecessity for expeditious settlement thereof, and also furnish es evidence to t he satisfaction of the I ncome-tax O fficer as to the genuine ness of the payment and the identity of th e payee.
2. It would b e se en that w here payment of a sum exc eeding Rs. 2,500 is mad e, otherwi se tha n by a crossed ch equ e/draft, the assesse e besid es furnishing evidence as to the genuineness of the paym ent and the id entity of th e payee, is req uired to satisfy the Inc om e-tax O fficer that his case falls und er any one of the circumstances m entioned in (a) 8 ITA No. 4111/Del/2015 Suresh Kumar and (b ) above, if he claims that no disallowance should be m ad e under secti on 4 0A (3).
3. Vari ous representati ons have b ee n recei ved b y the Board regarding the d ifficulties that are being exp erienced by the taxpayers due to l ack of uniformi ty i n th e interpretation of the p rovisions of rule 6DD(j ) b y the Inc ome-tax O fficers. The Board have considered thes e rep resentations and have d ecided to lay down certain guid elines to ensure u niform ity of ap proach am ong the I ncom e-tax O ffi cers in this behalf.
4. All the circum stances i n w hich the conditions laid d own in r ule 6DD(j) would be applicab le cannot be spelt out. H owever, some of them which would seem to m eet the req uirements of t he said rule are:
a. the p urchaser is new to the s eller, or b. the transacti ons are m ade at a pl ace where either the p urchaser or the seller d oes not have a bank acc ou nt; or c. the transacti ons and payments are made o n a b ank hol iday; or d. the sel ler is refusing to accept the paym ent by way of crossed cheq ue/d raft and the p urchaser's b us iness interest woul d suffer d ue to non-availab ility of goods o therwise than fr om this p articular seller; or e. the s eller, acting as a comm ission agent, is requi re d to pay cash in turn to per sons from whom h e has purchased the good s; or f. specific discount is given by the s eller for paym ent to be m ad e b y way of cash.
5. It can be said that it would , gene rally, satisfy the requirements of rule 6DD(j), if a letter to t he ab ove effect is prod uce d in respect of each transaction f alling within the categories listed above from the seller giving full p articulars of his add ress, sales tax num ber/perm anent account num ber, i f any, f or the pur poses of proper identification to enab le t he I ncom e-tax O fficer to satisfy hi mself ab out t he genui nen ess 9 ITA No. 4111/Del/2015 Suresh Kumar of the transaction. The Income-tax O fficer will , however, record his satisfaction before allowing the b ene fit of rule 6DD(j).
6. It is further clari fied that the ab ove circum stances are not exha ustive b ut illustrative. There could be cases other than thos e fal ling within th e above cate gorie s which would also m eet the req uirem ents of r ule 6DD(j)."
14. Further, we find that the revenue has accepted the judgme nts of various courts mentioned as under and directed the authorities to consider the ratio of the judgment while dealing with the issue of Section 40A(3).
15. The above circular was explained in Navsari Waste Cotton Products v. CIT [1987] 163 IT R 378 (Guj.) with the following observations:
". . . The cases indicated in paragraph 4 are merely illustrative and not exhaustive but the underlying idea is that if the seller's identity can be established, it would be possible for the Income-tax Officer to cross-check whe the r the transaction in fact had taken place as stated and was of a genuine nature . Even though this circular came to be issued in May, 1977, the assessee is justified in pressing it into aid as the circular merely i ndicates the circumstances in which rule 6DD( j) would be attracted."
16. The abovesaid circular was commented upon Girdharilal Goenka v. CIT [1989] 179 ITR 122 (Cal.) with the following observations:
". . . The circular o f the Board is not exhaustive but only illustrative. The Income-tax Officer has to take a pragmatic view of the matter. The Income-tax Officer should take a practical approach to proble ms and strike a balance between the direction of law and hardship to the assessee. He should no t enmesh himself in te chnicalities. After all, the object is not 10 ITA No. 4111/Del/2015 Suresh Kumar to deprive the assessee of the deductio n which he is otherwise entitled to claim. 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. The circular of the Board is not exhaustive; it is only illustrative and the Assessing Officer has to take into account the surrounding circumstances, considerations of business expediency and the facts of each particular case in exercising his discretion either in favo ur o r against the assessee. There may be an oral agreement between the assessee and the seller for payment i n cash. A seller may not be willing to accept cheques; cash payment may be made at the request of the payee who is also an assessee and a certificate to that effect filed; absence of banking facilities in places where cash payme nts are made. All such cases would come within the purview of exceptional or unavoidable circumstances."
17. In CIT Vs. Trinity T raders [1987] 163 ITR 381 (Guj.), the abo ve circular was referred to with the following observations:
"The circular makes it clear that these are merely illustrative instances of cases in which rule 6DD(j) would be applicable. The ci rcular also points out that the requirements of rule 6DD(j) can be satisfied if a letter to the above effect is produced in respect of each transaction falling within the cate gories listed above from the seller giving full particulars of his address, sales-tax number/pe rmanent 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 . . . ."
18. The abovesaid circular was commented upon in Badrilal Phool Chand Rodawat Vs. CIT [1987] 167 ITR 404 (Raj.) with the following observations:
11 ITA No. 4111/Del/2015Suresh Kumar "It is no doubt true that the said circular was not available at the time whe n the Income-tax Officer passed the assessment order and the Appellate Assistant Commissioner conside red the appeal of the assessee. The guidelines contained in the said circular can, in our opinion, be taken into account for the purpose of considering as to whether the payments in question can be regarded as falling within the ambit of rule 6DD(j) of the Rules."
19. The above circular was referred to in Venkata Satyanarayana Timbe r Depot v. CIT [1987] 165 ITR 253 (AP) with the following observations:
". . . On the me rits, we are satisfied that the assessee is enti tled to exemption for the payments in view of rule 6DD(j) read with clause 4(ii) of Circular No. 220, dated May 31, 1977 of the Central Board of Direct Taxes...."
20. In Rajarajeswari Weaving Mills v. ITO [1978] 113 ITR 405 (Ker.), the above circular was referred to with the following observations:
". . . We do not wish to get enmeshed in the intricacies as to the exact scope and purview of a circular under section 119 of the Income -tax Act, and as to whether, and, if so , to what extent, such a circular can fetter the judicial or quasi-judicial discretion of autho rities functioning under the Act. In this particular case, the circular that we have noticed e arlier is dated May 31, 1977, and the o rder of the Co mmissioner with respect to which the question has arisen in these appeals is dated June 21, 1976. It is obvious, therefore, that the circular in question can have no application to these cases. We are not impressed by the argument of the assessee that the circular is only clarificatory or declaratory." (pp. 409-410) 12 ITA No. 4111/Del/2015 Suresh Kumar See also CIT v. Unio n Agencies [1987] 166 ITR 529 (Delhi).
21. The above circular was relied on in Ingenieurs & Agents v. ITO [1984] Taxation 72(6A) - II (All. - T rib.), for disallowing the assessee's claim for de duction.
22. The above circular was referred to and applied in Tatiko nda Subba Rao v. ITO [1987] 28 TTJ (Hyd.) 146, 150.
23. The above circular was explaine d in Paul Bros. v. CIT [1990] 186 ITR 356 (Gauhati), with the following observations:
"Pursuant to the provision in sub-section (3) of section 40A, rule 6DD was promulgate d and Circular No. 220 was issued by the Central Board of Direct Taxes on May 31, 1977. Section 40A, rule 6DD and the Circular No. 220 recite that after March 31, 1969, any payments on account of expenditure of more than Rs. 2,500 will have to be made by a crossed cheque or by a crossed bank draft unless exempted by the revenue autho rities. . . .
The Indian Parliament incorporated the above provisions to check evasion of taxes. Even in ge nuine cases where payments are shown to have been made in cash, the assessee is put to the nece ssity to prove that in the area of business, banking facilities are not adequate. There fore, impelled by genuine difficul ty, the assessee had to make payment in cash. The same idea is writ large in the Rules. The assessee will have to show that there was no way left for the assessee except to pay in cash. In the nature of things whe ther in the statute , rules or circulars, all the contingencies cannot be enumerated exhaustively. Parliament referred to the inadequacy of facilities in section 40A. The rule-making authorities illustrated some of the circumstances in the Rules. The Revenue supplemented the further 13 ITA No. 4111/Del/2015 Suresh Kumar circumstances when exemption can be claimed and allowed."
24. The above circular was applied in Dhorajia Construction Co. v. ITO [1991] 92 CTR (Trib.) (Ahd.) 51, with the following observations:
". . . In the paper book we find that the three sub- contracto rs appear to have agreed to take up the work from the assessee-firm on the clear unde rstanding that payme nts to them, as and when needed, shall have to be made in cash as they would be requiring cash for payment to the labourers who were executing the work on site. The site of the work was admittedly at abo ut 12 Km. away from the place where bank facilities were available to the parties. Looking to the nature of the business of the assessee-firm, the insistence of the sub-contractors who received payments in cash in order to enable them to pay cash to the labourers o n site , the provisions of r. 6DD(j) read with the Circular of the Board applies for the benefit of the assessee-firm. ."
25. The abo ve circular was relied on in ITO v. New Card Board Industries [1992] Tax LR 80 (Cal. - Trib.), and the Tribunal remitted the matter to the Assessing Officer for examining the documents pro duced for the first time by the assessee before the Tribunal.
26. The above circular was relied on in CIT v. Meghdoot Sales [1993] 200 ITR 490 (Delhi), with the following observations:
"In our opinion, the answer to the said question which has been referred is self-evident. The Income- tax Tribunal has found as a fact that cash payments were made only under exce ptional and unavoidable circumstances. This conclusio n has been arrived at by the Tribunal after examining the entire material 14 ITA No. 4111/Del/2015 Suresh Kumar which was placed before it. It has further observed that the ge nuineness of the transaction was not in dispute. This being so, on the facts fo und by the Tribunal, the case not only fell within the provisio ns of rule 6DD(j), but the assessee was also enti tled to claim the benefit of Circular No. 220, dated May 31, 1997, issued by the Central Board of Direct Taxes. In the said circular, it is, inter alia, stated that, if a seller refuses to accept payment by way of crossed cheque or crosse d draft and the purchaser's business interest wo uld suffer due to non-availability of goo ds otherwise than from the particular seller, then even if the payment is made by cash, the same would be allowable as a deduction."
27. The above circular was relied on in Drill Rock Engg. Co. (P.) Ltd. v. ITO [1993] 45 ITD 149 (Hyd. - Trib.) with the following observations:
". . . Looking into the wording of section 40A(3) as well as rule 6DD( j) and also Board's Circular No. 220 issued in 1977 one of the primary requirements of section 40A(3) is that the identity of the payee should be established be fo re the ITO. The section is specifically enacted in order to curb the transactio ns in black money. However, the appellant before us failed to comply with the requirements of the above provisions as we ll as the Board's circular. Hence for these reasons also the amount of secret commission is to be disallowed."
28. The above circular was explained in ITO v. Patidar Ginning & Pressing Co. Ltd. [1994] 51 ITD 7 (Ahd. - Trib.), with the following observations:
"6.1 In Circular No. 220 dated 31-5-1977, it has been clarified that it would generally satisfy the requirements of rule 6DD(j) if a letter e xplaining the exceptional and unavoidable circumstance s such as mentioned in para 4 of the said circular is produced in respect of e ach transaction falling within the categories listed in para 4 of the said circular from 15 ITA No. 4111/Del/2015 Suresh Kumar the seller giving full particulars of his address, sales- tax number, permanent account number, if any, for the purpose of proper identification to e nable the ITO to satisfy himself abo ut the genuine ness of the transaction. One of the illustration of exceptional circumstance given in para 4 of the said circular is that if the seller is re fusing to accept payment by way of crossed cheque/draft and the purchasers business interest would suffe r due to non-availability of goods otherwise than from this particular seller. The other illustration is that the seller, acting as a co mmission agent, is required to pay cash in turn to persons from whom he had purchased the goods. Few more instances of exceptional circumstances have been given in the said circular. The Hon'ble Gujarat High Court in the case of Navsari Waste Cotton Products v. CIT [1987] 163 ITR 378 has held that the said circular merely indicate the circumstances in which rule 6DD(j) would be attracted. The underlying idea is that if the seller's identity can be established, it would be possible for the ITO to cross-check whether the transactions in fact had taken place as stated and was of a genuine nature. The instances given in the said circular are merely illustrative and not exhaustive. . . ."
29. The above circular was referred to and applied in Avon Sales Corporation v. ITO 1994 Tax LR 79 (ITAC - Delhi), with the following observations:
". . . The CBDT vide Circular No. 220 have issued instructions that where the payee had insisted for cash payment and a certificate from them is furnished giving the income -tax number and sales- tax numbers, etc., disallowance u/s 40A(3) should not be made. In this case substantial payments to M/s. Avon Sales Corporatio n had been made by cross-cheques or bank drafts. Only two payments of Rs. 2,600 and Rs. 4,000 had be en made by cash on the party having insisted for cash payment. These payments, in our view, are covere d under rule 6DD(j) read with Circular No . 220 of CBDT. The disallowance of Rs. 6,600 is accordingly deleted."16 ITA No. 4111/Del/2015
Suresh Kumar
30. Janambhumi v. CIT [1998] 99 Taxman 451/225 ITR 517 (Gau.) with the following observations:
"The circular itself indicates that these are not the only circumstances which can be said to be exceptional and unavoidable. There may be some other exce ptional and unavoidable circumstances which may no t be put in writing. The Commissioner (Appeals) upheld the o rder of the ITO on the ground that the assessee failed to establish exceptional and unavoidable circumstances under which payment had to be made in cash exceeding Rs. 2,500. While considering the exceptio nal circumstances the business exigencies, conve nience and security should also be looke d into."
31. CIT v. G.S. Auto Industries (P.) Ltd. [1998] 144 CTR (Punj. & Har.) 464 with the following observations:
"It would appear from the perusal of the Board's circular referred to above that the seller's refusal to accept the payment by crosse d cheque or draft may permit the assessee to make payment in cash. But, at the same time , it should also be shown that the assessee's business inte rest would have suffered due to non-availability of goods otherwise than from that particular seller. Sub-clause (iv) of clause 4 of the circular requires the fulfillment of both the conditions as afo resaid. In this light, the factum of insistence by the recipients may not alone be sufficient to attract clause 4(iv) of the circular."
32. Shri Mahabir Industries v. CIT [1996] 220 ITR 459 (Gau.) with the following observations:
"Circular No. 220, date d May 31, 1977, specifies some of the circumstances in which rule 6DD(j) of the Income -tax Rules, 1962, would apply. The circular itself indicates that these are no t the only circumstances which can be said to be exceptional and unavoidable. Exceptional and unavoidable 17 ITA No. 4111/Del/2015 Suresh Kumar circumstances may vary depending on the facts of each case. Merely because the parties have bank accounts and there is a long gap between submission of the bill and making payment, the conclusion cannot be arrived at that the assessee failed to show exceptional and unavoidable circumstances. Before coming to a decision regarding failure to establish exceptional and unavoidable circumstances, the authority must give reasons why it came to such conclusions."
33. CIT v. G.S. Auto Industries (P.) Ltd. [1999] 106 Taxman 473 (Punj. & Har.) in following words:
". . . [According to Circular No. 220, the seller's refusal to accept the payment by crossed cheque or draft] may permit the assessee to make payment in Cash. But, at the same time, it should also be shown that the assessee's business interest would have suffered due to non-availability of goods otherwise than from that particular seller. Sub-clause (iv) of clause 4 of the Circular requires the fulfilment of both the conditions as afo resaid. In this light, the factum of insistence by the recipients may not alone be sufficient to attract clause 4(iv) of the Circular."
34. The abovesaid circular was explained in CIT v. Avtar Singh & Sons [1992] 194 ITR 80 (Punj. & Har.) with the following observations:
"The said circular was noticed and considered in Navsari Waste Cotton Pro ducts v. CIT [1987] 163 ITR 378 (Guj.), where it was held that it would appear from clauses (i) to (v) of paragraph 4 of the said circular that if the identity o f the seller is kno wn, it would be possible for the Department to cross-check if the payment in question was actually made in cash to the seller from whom goods were purchased and the requirements of rule 6DD(j) would stand satisfied if a letter is produced from the seller in respect of each transaction falling within the categories illustrated in paragraph 4 giving full particulars of his address, sales tax registration 18 ITA No. 4111/Del/2015 Suresh Kumar number, if any, for the purposes of proper identification to enable the Income-tax Officer to satisfy himself about the genuineness of the transaction. It was further added that the circumstances indicated in paragraph 4 of the circular were merely illustrative and not exhaustive, but the underlying idea was that if the seller's identity can be established, it would be possible for the Income-tax Officer to cross-check whe the r the transaction had, in fact, taken place as stated and was of a genuine nature ."
35. A similar view is expressed by the High Court of Calcutta in Girdharilal Goenka v. CIT [1989] 179 ITR 122, where it was observed that (at p. 128):
"The circular of the Board is not exhaustive, it is only illustrative and the Assessing Officer has to take into account the surrounding circumstanc es, considerations of business expediency and the facts of each particular case in exerc ising his discretion either in favour or against the assessee'. It was also held that the Income-tax Officer should take a prac tical approach to the problem and strike a balance between the direction of law and hardship to the assessee."
36. The circular and judgments unequivocally intend at allowing the expenses owing to genuineness of the payment and contingency of the business. Hence, keeping in view the provisions of the Act, Rules and the above judgments and having examine d the issue and the pe culiar facts and circumstances of the case, on finding that the assessee is merely facilitator and intermediary in the transaction and his receipts assessable to tax constitute the margin between the price obtained and further paid but not the entire receipts which stands further passed on to the two ticketing age ncies, we hereby hold that the provisions u/s 40A(3) are not attracte d.
19 ITA No. 4111/Del/2015Suresh Kumar
37. In the result, the appeal of the revenue is dismissed on all the grounds.
Order Pronounced in the Open Court on 09/12/2020.
Sd/- Sd/-
(Amit Shukla) (Dr. B. R. R. Kumar)
Judicial Member Accountant Member
Dated: 09/12/2020
*Subodh*
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
ASSISTANT REGISTRAR