Anupam Tele Services vs. ITO (Gujarat High Court)

DATE: (Date of pronouncement)
DATE: February 5, 2014 (Date of publication)

Click here to download the judgement (anupam_40A_3_Rule_6DD.pdf)

No s. 40A(3) disallowance for cash payments even if Rule 6DD(j) exception does not apply if there is no dispute as to genuineness of payment and business compulsion

The assessee acted as an agent of Tata Teleservices Ltd for distributing mobile cards and recharge vouchers. Tata Teleservices issued a circular to all distributors stating that where the distributor had a bank account with a cooperative bank, payment should be made in cash. Tata Teleservices also wrote to the assessee asking it to pay in cash. Though there was no dispute regarding the genuineness of the payments made, the AO made a disallowance u/s 40A(3) on the ground that the exception in Rule 6DD did not apply. The CIT(A) reversed the AO. However, the Tribunal reversed the CIT(A). On appeal by the assessee to the High Court HELD reversing the Tribunal:

S. 40A(3) and Rule 6DD are not intended to restrict business activities. The terms of s. 40A(3) are not absolute. Considerations of business expediency and other relevant factors are not excluded. Genuine and bona fide transactions are not taken out of the sweep of the section. It is open to the assessee to furnish to the satisfaction of the AO the circumstances under which the payment in the manner prescribed in s. 40A (3) was not practicable or would have caused genuine difficulty to the payee. It is also open to the assessee to identify the person who has received the cash payment. On facts, though the case of the assessee did not fall within the exclusion clause in Rule 6DD (j), s. 40A(3) will not apply because (a) there is no doubt as to the genuineness of the payment nor the identity of the payee, (b) the assessee was compelled to pay cash owing to the insistence of its principal and if it had not abided by the direction, the business would have suffered & (c) the exceptions in Rule 6DD are not exhaustive and the rule must be interpreted liberally (Attar Singh Gurmukh Singh 191 ITR 667 (SC), Hynoup Food & Oil Industries 290 ITR 702 (Guj) & Harshila Chordia 298 ITR 349 (Raj) referred)

See also Basu Distributor 206 TM 45 (Del) where a similar practical view was taken

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