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S. 40A(3): There is a difference between “crossed cheque” and “account payee cheque”. Payment by crossed cheque attracts s. 40A(3) disallowance
The expression earlier used in s. 40A(3)(a) was a “crossed cheque or a crossed bank draft”. This was amended by the legislature to be replaced by the expression “an account payee cheque or account payee bank draft”. This was done in the background of the experience that even crossed cheques were being endorsed in favour of a person other than the drawee making it difficult to trace the constituent of the money. To plug this possible loophole the requirement of section 40A(3) was made more stringent. If we accept the contention of counsel for the assessee that there was no distinction between a crossed cheque and an account payee cheque, we would be obliterating this amendment brought in the statute with specific purpose in mind. Accordingly, payment by a crossed cheque is subject to disallowance u/s 40A(3) (Anupam Tele Services vs. ITO distinguished)
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Good and valuable information. Thank you.. Mohandas
Why in all Judgments quoted reference number of Cases in High Court / Tribunal is not mentioned ? If given one may get full text of Judgments from directly from High Court web sites. Please do some thing for convenience.
C A Shah D J
Sir, I am not sure what you mean. The full text of the judgement in pdf format is available by clicking the download icon on the top right hand side of the post.
I tried but PDF File could not be open. No message . Only I could see Gist only.
Regards,
C A Shah D J
Very surprising. Pl click on this link to access the pdf file:
http://itatonline.org/archives/wp-content/files/rajmoti_cheque_40A_3.pdf
Please click on the round icon with the downward arrow, not on the link with the case name.
Few Point:
Section 40A(3) Requires to payment by account payee bank cheque or draft. It does not laid that the payment should be in the name of person account of which get credited in the books of payee. If an assessee paid by account payee cheque in the name of agent of supplier from whom goods purchased (Bill issued by the supplier & payment made to agent or third person by account payee cheque), the same will not disallowed u/s 40A(3).
Despite deletion of clause (j) from rule 6DD the same is still valid as while constitution validity of the section 40A(3) was upheld by the Hon’ble Supreme Court in the case of 191 ITR 667 (SC) it was held that when the provisions of section 40A(3) read with rule 6DD the same not intended to restrict business activities. In absence of rule 6DD(j) whether it can be said that the provision of section 40A(3) not intended to restrict business activities. Further the rule 6DD(j) was deleted when the dis-allowances was reduced from 100% of expenditure to 20% of expenditure but the same was not reintroduced when the dis-allowance increase from 20% to 100%. Hope the legislation or delegated authority(CBDT) will brought necessary amendment.