COMMISSIONER OF INCOME TAX Vs. J RAJMOHAN PILLAI
HIGH COURT OF KERALA
COMMISSIONER OF INCOME TAX
J Rajmohan Pillai
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(1.) THE Tribunal, Cochin Bench at the instance of the Revenue has referred the following question of law as per direction issued by this Court in the judgment dt. 5th Oct., 1999, in O.P. No. 22075 of 1999 for decision by this Court: 'Whether, the Tribunal was justified in holding that the provisions of Rule 6DD(j) of the IT Rules apply to the facts of the case, vis -a -vis Section 40A(3) of the IT Act?'
(2.) THE brief facts are as follows : The assessee is an exporter of cashew kernels. The assessee, during the previous year relevant to the asst. yr. 1990 -91, had purchased raw cashewnuts from various places including the State of Orissa and the same was transported to the assessee's factories in Kanyakumari for processing. In the assessment for the year 1990 -91 the assessee claimed deduction of a total sum of Rs. 10,98,698 as transport and coolie charges for transporting raw cashewnuts. The AO held that out of the said expenses payment of Rs. 10,28,350 had to be subjected to the provisions of Section 40A(3) of the Act as the payments were made otherwise than by way of crossed cheques or bank drafts. Since the assessee had effected payment of the said amount in cash in violation of the provisions of Section 40A(3) the said amount was disallowed. In appeal filed by the assessee, the CIT(A) upheld the said disallowance stating that the assessee has not proved that the said payment will come within the exclusionary provisions of Rule 6DD(j) of the IT Rules. In further appeal by the assessee the Tribunal allowed the claim. Hence the reference.
We have heard Sri P.K.R. Menon, learned senior counsel (Government of India) Taxes appearing for the applicant, and Sri P. Balachandran, learned counsel appearing for the respondent. The senior counsel submitted that in regard to the payment of Rs. 10,28,350 towards transportation and coolie charges, admittedly the payments were made otherwise than by way of crossed cheques or bank drafts and, therefore, the provisions of Section 40A(3) were applicable. The senior counsel further submitted that since the assessee was not able to substantiate by evidence that the proviso to Section 40A(3) r/w Rule 6DD(j) of the Rules applied to exclude the applicability of the main part of Section 40A(3) the said amount was rightly disallowed by the AO and confirmed by the first appellate authority. The senior counsel submitted that the Tribunal had committed a serious error in allowing the claim by holding that the circumstances stated by the assessee would definitely be an exceptional or an unavoidable circumstance to make the payment eligible for exclusion under Clause (i) of Rule 6DD(j). The senior counsel submitted that the assessee had not established that the present case would fall under the exclusionary clause contained in Rule 6DD(j) of the Rules. On the other hand, the contention of the counsel for the assessee is that the AO has not doubted the genuineness of the transport of raw nuts from Orissa to Kanyakumari District as also the identity of the transporter and the payment of the charges. He further submitted that the only circumstance pointed out for rejecting the claim is that the assessee had not produced evidence obtained from drivers of the vehicles in which the raw cashewnuts were transported during the relevant period to the effect that they insisted for payment of the transport and coolie charges in cash. The counsel further submitted that it was impracticable for obtaining bank drafts or for issuing crossed cheques to the transporting company or to the drivers of the vehicle at the time of purchase and that the transporting agency/drivers had insisted for payment of the transporting charges and coolie charges in cash and the assessee had no option but to pay the amount in cash having regard to the commercial expediency. He further submitted that the assessee could not get confirmation letters from the truck drivers to whom the payments were made to the effect that they had insisted for payment in cash only since they could not be contacted at a later stage. The counsel further submitted that the Tribunal, the final fact -finding authority, considering the totality of circumstances had accepted the explanation of the assessee and had held that the assessee had satisfied the exclusionary provisions of Clause (i) of Rule 6DD(j). The counsel on that basis submitted that no question of law does arise from the order of the Tribunal requiring adjudication by this Court.
(3.) WE have considered the rival submissions and had also perused the orders of the AO and the two appellate authorities. The AO had noted that the assessee had made 16 payments in cash above Rs. 10,000 for a total amount of Rs. 10,63,350 mostly for transporting charges and gunny bag purchase. The assessee had explained before the officer that the lorry drivers and secondhand gunny bag dealers will not accept cheques. The AO referred to two decisions of the Andhra Pradesh High Court regarding the scope of Rule 6DD(j) of the Rules which held that a mere assertion that the recipient was unwilling to accept payment by cheque is not sufficient, but the assessee had to furnish evidence to establish this point and that after establishing the existence of a genuine difficulty the assessee must then furnish evidence of the identity of the payee and genuineness of the transaction. The assessing authority then observed that in the instant case the assessee had not established any of the above points. The CIT(A) noted that on an earlier occasion he had remanded the matter to the AO to verify the genuineness of the bills and cash receipts produced by the assessee and also to allow the appellant an opportunity to produce necessary evidence from the company regarding their insistence on cash payment. It was also noted that the assessee had later produced the bills and the receipts issued by the Kerala Road Transport Co. but did not furnish any evidence from the company regarding their insistence on cash payment. The CIT(A) then noted that although the identity of the payee and genuineness of the transactions have been established, the assessee has not proved that the assessee had been forced to make the payment in cash. It was also observed that there is no use in arguing that the lorry drivers insisted for payment in cash and the ultimate beneficiary of the payment were not the lorry drivers but the transporting company, i.e., the K.T.C. It was further observed that K.T.C. is a reputed concern with offices and depots all over India and its headquarters in Kerala itself and that there is absolutely no reason why they would have refused to accept the crossed cheques or crossed D.D. from the appellant who himself was a very leading and reputed dealer in his line of business. With these observations the first appellate authority held that the assessee had not discharged his burden of proof that his case will fall under the exclusionary provisions of Rule 6DD(j). The Tribunal had considered the contentions of the assessee and the Department in paras 3 and 4 of the appellate order and then observed as follows :
'We have given due consideration to the submissions on both sides and gone through the facts of the case. The assessee was making payment to the truck drivers who were transporting raw cashewnuts from Orissa to Kanyakumari District in Tamil Nadu. The assessee's claim is that the drivers would not accept crossed cheque or demand drafts and that they insisted on the payment in cash only. It was submitted by the learned representative of the assessee, that by the time the assessment was made, it was not possible to contact the truck drivers and get letters of confirmation from them to the effect that they had insisted on the payment in cash only. If the assessee had to make the payments in cash to the drivers even though ultimately the money reached Kerala Road Transport Co., it would not be correct to say that the assessee's case does not fall within the exceptional clause in Rule 6DD(j). Rule 6DD(j) provides that no disallowance shall be made in a case where the assessee satisfies the AO that the payment could not be made by crossed cheques or bank drafts due to exceptional or unavoidable circumstances. If the truck drivers who were transporting raw nuts from Orissa to the assessee's factories in Kanyakumari District insisted on the payment in cash, that would definitely be exceptional or unavoidable circumstance to make the payment eligible for exclusion under Clause (i) of Rule 6DD(j). The genuineness of the payment has not been disputed by the Revenue authorities. The fact that the assessee had got the raw nuts transported in the trucks belonging to Kerala Road Transport Co. was also not disputed. The learned representative of the assessee has explained the reason why the assessee could not get evidence or confirmation letters from the truck driver to whom the payment was made. In exceptional and unavoidable circumstances, if the assessee had to make the payment in cash, we are of the view that such payments could not be disallowed under Section 40A(3). For this view of the matter, we also find support in the decision of the Tribunal (Delhi Bench) in the case of Nuchem Plastic Ltd. v. Dy. CIT (1992) 44 TTJ (Del) 261. In the above circumstances, we delete the disallowance of Rs. 10,28,350 in the computation of the total income.' ;
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