381. Payment made during the period when cheque clearing operations by banks suspended – Whether covered under sub-section (3)
CLARIFICATION 1
1. Representations have been received from the members of public, chambers of commerce, etc., pointing out the hardship resulting from the operation of the provisions of section 40A(3) in view of the difficulties in clearance of cheques issued on banks.
2. Sub-section (3) of section 40A provides for the disallowance of expenditure incurred in business or profession for which payment is made in an amount exceeding Rs. 2,5001 otherwise than by a crossed cheque drawn on a bank or a crossed bank draft.
3. Under clause (j ) of rule 6DD the provision in section 40A(3) will not be applied by the Income-tax Officer where he is satisfied that the payment could not be made by crossed bank cheque or draft due to “exceptional or unavoidable circumstances” and the assessee furnishes evidence as to the genuineness of the payment and the identity of the payee. The hold-up in cheque clearing operations in the banks or any other similar circumstances which is likely to cause reasonable apprehension in the mind of the payee that the crossed cheque/bank draft will not be cleared expeditiously would constitute “exceptional or unavoidable circumstances” within the meaning of clause ( j) of rule 6DD. Accordingly, any payment for business expenditure made during the period when the cheque clearing operations are suspended or other similar circumstance as aforesaid exists, will not be covered by the provisions of section 40A(3) provided the assessee furnishes evidence to the satisfaction of the Income-tax Officer as to the genuineness of the payment and the identity of the payee.
Circular : No. 250 [F. No. 206/1/79-IT(A-II)], dated 11-1-1979.
CLARIFICATION 2
Under clause (j) of rule 6DD, the provisions in section 40A(3) will not be applied by the Income-tax Officer where he is satisfied that the payment could not be made by crossed bank cheque or draft due to exceptional or unavoidable circumstances and the assessee furnishes evidence as to the genuineness of the payment and the identity of the payee. The suspension of cheque clearing and banking operations consequential to the strike of bank employees will constitute “exceptional or unavoidable circumstances.” Accordingly, payments for business expenditure made during this period, and until clearance of cheques is resumed, will be excepted from the operation of section 40A(3), subject to the other requirements that the payment is genuine and the identity of the payee is also established to the satisfaction of the Income-tax Officer. You may inform all your members, accordingly.
Letter : F. No. 142 (14)/70-TPL, dated 28-9-1970
