Section 40A is inserted in Income Tax Act with an aim and object to discourage payment of money in cash beyond a certain limit. That is to encourage cheque transactions and banking operations. Thus, in these circumstances, Assessing Officer is correct in making disallowance of Rs. 36,16,500 out of the total consideration of Rs. 39,00,960 as substantial sum has been paid in cash even though banking channels are available to both, the Assessee as well as the stockist.
FULL TEXT OF THE HIGH COURT ORDER / JUDGMENT
1. By this Appeal, the Assessee is challenging the order of the Income Tax Appellate Tribunal Bench at Pune.
2. The Assessment year is 2009-2010.
3. The Assessee-Appellant before the Tribunal filed three Appeals arising out of the reassessment order dated 2nd March, 2015.
4. In all these, the principal ground was that the Assessee, an individual, engaged in the business of sale of Kerosene purchased it from the notified dealers for onward sale to the ration card holders. During the year, the Assessee made purchase of Kerosene to the tune of Rs.55,93,673/- from M/s. Baldawa and Company and other companies. In this case we are concerned with the sale of Kerosene and purchase thereof by the Assessee from M/s Baldawa and Company. That was subject of scrutiny assessment. The Assessing Officer noticed that the Assessee purchased Kerosene from the said company to the tune of Rs. 39,00,960/-. He made payment to the seller, both by way of cheque as also cash. The cash segment out of Rs. 39,00,960/-works out to Rs. 36,16,500/-. The details of cash payment were tabulated and the Assessing Officer invoked Section 40A (3) of the Income-tax Act, 1961.
5. The question proposed in this Appeal is, such invocation was improper given the facts and circumstances of the present case. The essential argument was that the circumstances in which this transaction was entered into and finalized ought to be taken into consideration. Section 40A was inserted with an aim and object. That was very specific and that is to discourage cash payment beyond certain limit. All transactions beyond specified monetary limit had to be by cheque or what is commonly understood as Demand Drafts/Pay Orders. That would ensure that the channel of payment is legal and fair. The proviso to the Section is permitting such payment by cash but on evidence and clear proof that, either it is because of extent of banking facilities, consideration of business expediency and other relevant factors.
6. In the present case the Assessee stated that this provision is inapplicable and the payment of the amount was made as per the guidance of the District Civil Supply Officer of the State Government. The Assessing Officer held that, both Assessee and seller are possessed of banking facilities and have an operating bank account. Hence, this is not a case where the proviso would be attracted but the main provision.
7. Thereafter upon disallowance, addition was made. The aggrieved Assessee carried the matter to the First Appellate Authority which confirms the view of the Assessing Officer. Hence, the further Appeal to the Tribunal at the instance of the Assessee.
8. The Tribunal found from the concurrent orders that this is not a case where there is any stipulation in the order of the Government and made by the District Supply Officer. That order facilitates the consumer for whose benefit the Public Distribution System is made so that the essential commodity reaches him expeditiously. At the ration shop, the Kerosene was to be sold to the ration card holders. At the ration shop, therefore, there should be adequate stock of Kerosene. Hence, on the number of ration card holders the individual ration shops were directed to book their orders and upon booking of the orders within three days, the agents were to supply the Kerosene/essential commodity to the party like the Assessee for onward sale to the ration card holder. The Assessee shop keeper therefore could not have devised anything contrary to Section 40A (3) of the I. T. Act and passed it of as an order of the Government.
9. The order of the District Supply Officer is conspicuous by its silence with regard to the mode of payment. It is only saying that the payment has to be made within a specified period. The District Supply Officer’s order or for that matter of the State Government cannot be contrary to law much less I.T. Act.
10. Income tax discourages payment of money in cash and beyond a specified limit. That is to encourage cheque transactions and banking operations. It is in these circumstances that the Assessing Officer found that out of the total consideration of Rs. 39,00,960/-, a substantial sum has been paid in cash even though banking facilities are available to both, the Assessee as well as the stockist. In such circumstances the Tribunal upheld the concurrent findings against the Assessee.
11. Mr. Raichandani has taken us through both the Section 40A(3) and Clause (b) thereof to urge that it will have to be read together with the Rule. The Rule relevant at the time, namely Rule 6 (DD) of the Income Tax Rules, 1962 would enable the Assessee to urge that the exceptional or unavoidable circumstances led to payment made in cash. However, the reliance was placed on the District Supply Officer’s order and which does not mandate any mode of payment either in cash or by cheque. It only says that the essential commodity should reach ration shop holders on making payment and within three days thereof. Beyond that, it can never override the stipulation in the I.T. Act. Such is the understanding of both the First Appellate Authority as also the Tribunal. In fact, the First Appellate Authority has rendered a detailed finding of fact as to how the huge cash payment has been made by the Assessee who claims to be an Agriculturalist and his whole agricultural income is exempted from I.T. Act. Additionally, he is a dealer but at or near Solapur this Assessee’s ration shop was located. There were banking channels available even when supplies have been effected from the remote corner of Maharashtra. It is in these circumstances that there is no justification to invoke the proviso are the concurrent findings of fact. These findings of fact are based on the material produced on record. They cannot be said to be vitiated by perversity or error of law apparent on the face of the record. That this Court has admitted an Appeal and framed similar questions as substantial questions of law, is no justification for admitting this appeal. That is not an Appeal of the Assessee but that is of the State. That is against contrary findings and when the provision was not applied though invoked. The circumstances in the order of admitting the Appeal are of no assistance to Mr. Raichandani.