The Income Tax Officer, Ward 4(1), Patna v. Ambika Prasad Gupta, Sri Ram Market, Mithapur, Patna (

IN THE HIGH COURT OF JUDICATURE AT PATNA Miscellaneous Appeal No.288 of 2017 ====================================================== 1.The Principal Commissioner of Income Tax I I, Patna 2.The Income Tax Officer, Ward 4(1), Patna. ... ... Appellant/s... ... Respondent/s Versus Ambika Prasad Gupta, Sri Ram Market, Mithapur, Patna (PAN No. ). ====================================================== with Miscellaneous Appeal No. 826 of 2017 ====================================================== 1.The Principal Commissioner of Income Tax -11, Patnas 2.The Income Tax Officer Ward 4 (1) Patna. ... ... Appellant/s Versus Ambika Prasad Gupta, Sri Ram Market, Mithapur, Patna (PAN No. ). ... ... Respondent/s ======================================================Appearance :(In Miscellaneous Appeal No. 288 of 2017)For the Appellant/s: Mrs. Archana Prasad, Sr. S.C. For the Respondent/s:(In Miscellaneous Appeal No. 826 of 2017)For the Appellant/s: Mrs. Archana Prasad, Sr. S.C. For the Respondent/s: ====================================================== CORAM: HONOURABLE THE CHIEF JUSTICE and HONOURABLE MR. JUSTICE PARTHA SARTHY CAV JUDGMENT(Per: HONOURABLE THE CHIEF JUSTICE) Date : 25-07-2024 The above two appeals are respectively from theassessment years 2009-10 and 2010-11. The order impugned inMA No. 288 of 2017 was followed by the Tribunal in MA No.826 of 2017. We, hence, first look at the order impugned in MANo. 288 of 2017, which would dispose the other appeal also. 2. Notice was issued to the respondent, which was received, but there was none appearing for the respondent. Afterthe notice was issued when the matter was posted on24.06.2024, we adjourned the same to 22.07.2024, awaitingappearance of the respondent. Today also, when the matter wastaken up, there was no appearance in which event, we proceededto dispose of the matter after hearing the learned SeniorStanding Counsel appearing for the Department. 3. The question of law is framed as follows:- (1) Whether the Tribunal was right in finding that onmere submission of the assessee that amountspaid to his suppliers, were deposited in theaccounts maintained by them, accompanied byproduction of pay-in-slips, there was substantialcompliance of Section 40A(3) of the Income TaxAct?mere submission of the assessee that amountspaid to his suppliers, were deposited in theaccounts maintained by them, accompanied byproduction of pay-in-slips, there was substantialcompliance of Section 40A(3) of the Income TaxAct? (2) Whether the order of the Tribunal is against thespecific provisions of Section 40A(3) read withRule 6DD of the Income Tax Rules and is not theorder perverse?specific provisions of Section 40A(3) read withRule 6DD of the Income Tax Rules and is not theorder perverse? 4. The assessee was a trader of vegetables mainly ofonions, which are purchased from traders in Maharashtra. Thepayments to the purchasers were mostly made in cash and itexceeded Rs. 20,000/- on a single day. The contention of theassessee was that the cash amounts were deposited in the bankbranches at Patna. Admittedly, the single day transactionsexceeded Rs. 20,000/- limit, as prescribed under Section 40A(3)at that point of time. It was also the submission of the assessee that he trades in agriculture produce, which are bought by theparties based at Manmad in Maharashtra directly from farmerswho are paid in cash. The traders, according to the assessee; therespondent herein, are the agents of the farmers and hence, theexemption under Rule 6DD is applicable. 4. The assessee was a trader of vegetables mainly ofonions, which are purchased from traders in Maharashtra. Thepayments to the purchasers were mostly made in cash and itexceeded Rs. 20,000/- on a single day. The contention of theassessee was that the cash amounts were deposited in the bankbranches at Patna. Admittedly, the single day transactionsexceeded Rs. 20,000/- limit, as prescribed under Section 40A(3)at that point of time. It was also the submission of the assessee that he trades in agriculture produce, which are bought by theparties based at Manmad in Maharashtra directly from farmerswho are paid in cash. The traders, according to the assessee; therespondent herein, are the agents of the farmers and hence, theexemption under Rule 6DD is applicable. 5. The Assessing Officer specifically noticed thesubmission of the assessee that Section 40A(3) is to curbwasteful and lavish expenditure in business and to check growthof black money, which is more than substantially met by thecash payments made. The assessee also produced copies of thepay-in-slips with respect to the amounts deposited in the bankaccounts of the parties. The pay-in-slips with respect to the cashamounts deposited in various accounts, were in fact impoundedby the Investigation Wing of the Department, the photocopies ofwhich were produced by the assessee. 6. The Assessing Officer found that there was nopayment made, as provided under Section 40A(3), by payeecheques or account payee bank drafts. 7. The reliance placed on Attar Singh Gurmukh Singh vs. Income Tax Officer,(1991) 191 ITR 667 (SC) washeld to be not applicable, since it only upheld the validity ofSection 40A(3) read with Rule 6DD. The exemption under Rule 6DD(e) & (k) were held to be inapplicable. 8. The First Appellate Authority found that the payments made into the account of the traders was evidenced bythe pay-in-slips and this would satisfy the object of Section40A(3). The Tribunal concurred with the First AppellateAuthority insofar as the object of Section 40A(3) having beensatisfied. The Tribunal found that the exemption to Rule 6DD isnot available. The Tribunal, to support its finding also relied onthe CBT Circular-6P dated 06.07.1968, which stated that “theprovision under Section 40A(3) is designed to counter evasionof a tax through claims for expenditure shown to have beenincurred in cash with a view to frustrating proper investigationby the department as to the identity of the payee andreasonableness of the payment”(sic). We find that the saidcircular would only buttress the case of the Department and goagainst the assessee. 9. We also notice the extract made from Attar Singh Gurumukh Singh (supra), which reads as under:- Section 40A(3) of the Income-tax Act, 1961,which provides that expenditure in excess ofRs.2,500 (Rs. 10,000 after the 1987 amendment)would be allowed to be deducted only if made bya crossed cheque or crossed bank draft (except inspecified cases) is not arbitrary and does not 9. We also notice the extract made from Attar Singh Gurumukh Singh (supra), which reads as under:- Section 40A(3) of the Income-tax Act, 1961,which provides that expenditure in excess ofRs.2,500 (Rs. 10,000 after the 1987 amendment)would be allowed to be deducted only if made bya crossed cheque or crossed bank draft (except inspecified cases) is not arbitrary and does not amount to a restriction on the fundamental rightto carry on business. If read together with Rule6DD of the Income-tax Rules, 1962, it will beclear that the provisions are not intended torestrict business activities. There is no restrictionon the assessee in his trading activities. Section40A(3) only empowers the Assessing Officer todisallow the deduction claimed as expenditure inrespect of which payment is not made by crossedcheque or crossed bank draft. The payment bycrossed cheque or crossed bank draft is insistedupon to enable the assessing authority toascertain whether the payment was genuine orwhether it was out of income from undisclosedsources. The terms of section 40A(3) are notabsolute. Consideration of business expediencyand other relevant factors are not excluded.Genuine and bona fide transactions are not takenout of the sweep of the section. It is open to theassessee to furnish to the satisfaction of theAssessing officer the circumstances under whichthe payment in the manner prescribed in section40A(3) was not practicable or would have causedgenuine difficulty to the payee. It is also open tothe assessee to identify the person who hasreceived the cash payment. Rule 6DD providesthat an assessee can be exempted from therequirement of payment by a crossed cheque orcrossed bank draft in the circumstances specifiedunder the rule. It will be clear from the provisions of section 40A(3) and rule 6DD thatthey are intended to regulate businesstransactions and to prevent the use ofunaccounted money or reduce the chances to useblack money for business transactions." 10. There is no dispute that the limit provided in therelevant assessment years as per Section 40A(3) was Rs.20,000/- and that the assessee had made payments in a singleday, far exceeding the above limit, to 13 traders, the names ofwhom are indicated in a tabular form in the order of assessmentproduced as Annexure-1. Section 40A(3) mandates that anyexpenditure in respect of which a payment is made to a personin a day, other than by an account payee cheque drawn on abank or account payee bank draft, shall not be allowed as adeduction under the Income Tax Act. The circular referred tohereinbefore also speaks of the provision being a measure tocounter evasion of tax through claims made of fictionalexpenditure. 11. What is relevant would be the exigibility to tax ofthe cash, which is claimed as an expenditure by the assessee.The identity of the payee is very relevant in such cases andmerely because cash has been deposited to the accounts, thatwould not prove that it was against the purchase made and that the recipient of such payment was an actual trader of the goodspurchased. 12. Attar Singh Gurumukh Singh (supra), as perabove extract, held that the provision insisted for payment bycrossed-cheque or crossed-bank draft to ascertain whether thepayment was genuine or whether it was income fromundisclosed sources. True, it has been held that genuine andbona fide transactions was held to be not taken out of the sweepof the section; which had to be proved by the assessee to thesatisfaction of the Assessing Officer. It is also required that theassessee identify the person who has received the cash payment. 13. In the present case, there was no identity of thetrader/person who supplied to the Assessing Officer, nor wereany invoices produced before the Assessing Officer to prove acorresponding purchase made, based on the deposits made invarious accounts. Admittedly, the traders were all located inMaharashtra and it is not clear as to why they maintained anaccount in Patna. 13. In the present case, there was no identity of thetrader/person who supplied to the Assessing Officer, nor wereany invoices produced before the Assessing Officer to prove acorresponding purchase made, based on the deposits made invarious accounts. Admittedly, the traders were all located inMaharashtra and it is not clear as to why they maintained anaccount in Patna. 14. We find absolutely no reason to uphold the orderof the Tribunal, especially considering the fact that there was noproof of genuineness of the transactions or the identity of theaccount holders. The order of the Tribunal is perverse and against the rigour of Section 40A(3). The pay-in-slips alonewould not substantiate the case of the assessee of, a genuinetransaction made to a genuine seller/supplier. 15. In the above circumstance, we answer the questionof law in favour of the Revenue and against the assessee, settingaside the order of the Tribunal impugned in MA No. 288 of2017. 16. In MA No. 826 of 2017, payments were made to39 traders, as is indicated from the tabuler form in theassessment order produced as Annexure-2. On the samereasoning the order of the Tribunal impugned in MA No. 826 of2017 is also set aside as perverse, answering the question of lawin favour of the Revenue and against the assessee as has beendone in the first case. 17. The appeals stand allowed. (K. Vinod Chandran, CJ) Partha Sarthy, J: I agree. (Partha Sarthy, J)