Sec 40a(3)
This query is : Resolved
02 February 2012
Sir,
We have made payment of Rs. 38000 to State Electrcity Board against a single electricity bill in cash against a single receipt no (i.e. full paymant was made in single time cash payment mode)
Whether this payment is allowed u/s 40A(3)?
We have made payment of Rs. 38000 to State Electrcity Board against a single electricity bill in cash against a single receipt no (i.e. full paymant was made in single time cash payment mode)
Whether this payment is allowed u/s 40A(3)?
02 February 2012
Vexed issue. Please read the article in the link given here under and conclude accordingly. http://www.simpletaxindia.net/2010/04/electricity-bill-paid-in-cash-40a3.html
Message likes :
1 times
03 February 2012
There are certain exception to the Rule 40 a 3. Wherein if payment is made to govt undertakings is allowed. Please check to the sites.
06 February 2012
Thanks sir, The link provided by you is not clickable, How can i use this link?
07 February 2012
The content of the link given is as follows:-
Electric bill is paid for the construction site under construction . The assessee is a Builder.
The payment is technically covered by the provision of Sec. 40A(3) and would prima-facie attract a dis-allowance. However though the existence of the section has been constitutionally held to be valid by the Hon. Supreme Court in the case of Attar Sing Gurmukh Singh Vs. ITO 191 ITR 667, the same was considered along with the Rule 6DD as it existed then which duly provided for the genuine hardship that may be caused to the tax payers. The intention of the provision was to curb the use of black money, reduce tax evasion and inculcate the banking habits. However it was never intended right from the inception of this section, read with the rule and circulars issued explaining the reason for such provision, to restrict the trading activities of the assessee or the tax payer.
Rules framed and the circumstances depicted can never be treated as being exhaustive to cover all the circumstances. Unfortunately, with the passage of time the rule 6DD was amended and brought about of a situation where it proscribes the only circumstances when the payment can be considered as eligible for exception, which in my opinion would bring to fore the need for validity of the provision, as it stand now, to be tested once again vis-à-vis the strangulating rules.
Based on the principles of Natural Justice and the Interpretation of Law the disallowance cannot be justified if the payee is identifiable and the payment is genuine only because the payment was done in cash if the circumstances existing can be validly shown, despite there being no sub-clause for genuine hardships any more in the Rule 6DD.
There have been various decision covering the genuine hardship which can be used to claim the deduction of expenditure though incurred in cash.
CIT vs. Ashoka Steel Industries & Flour Mills 293 ITR 192 (P&H)
CIT Vs Parle Sales and Services P Ltd. 307 ITR 87 (Guj)
CIT Vs. Raja Pal Automobiles 320 ITR 185 (All)
In the following case the Hon. High Court of Rajasthan decided that the list contained in the Rule 6DD cannot be regarded as exhaustive and could at best be taken as an illustrative list and the facts need to be seen in order to consider only the transactions intended to be covered by this provision are covered.
You may also refer to the decision of ITAT Indore Bench, in the case of Chandra Prabha Syntex Ltd. Vs. CIT 46 TTJ (Ind) 655, where due to the restrictions placed by the banker on the assessee for issuing cheques to its associate concerns without the prior approval of the bank, the assessee had to pay the associate concern cash amounting to over Rs. 45 Lakhs which were used by the associate concern to pay electricity bills, creditors, make purchases etc. and genuineness of the transaction was not disputable and the payee could be identified. Based on the interpretation that this provision is essentially to trap tax evaders or black money and not to hinder the genuine business transaction no disallowance U/s 40A(3) was done and such addition by AO was deleted.
You need to look at the quantum of the transaction and fight on the above basis though it may not ring well at low levels but for higher levels you need to look into the economics of litigation.
Courtesy :- Mr. Harish Lalwani
The content of the link given is as follows:-
Electric bill is paid for the construction site under construction . The assessee is a Builder.
The payment is technically covered by the provision of Sec. 40A(3) and would prima-facie attract a dis-allowance. However though the existence of the section has been constitutionally held to be valid by the Hon. Supreme Court in the case of Attar Sing Gurmukh Singh Vs. ITO 191 ITR 667, the same was considered along with the Rule 6DD as it existed then which duly provided for the genuine hardship that may be caused to the tax payers. The intention of the provision was to curb the use of black money, reduce tax evasion and inculcate the banking habits. However it was never intended right from the inception of this section, read with the rule and circulars issued explaining the reason for such provision, to restrict the trading activities of the assessee or the tax payer.
Rules framed and the circumstances depicted can never be treated as being exhaustive to cover all the circumstances. Unfortunately, with the passage of time the rule 6DD was amended and brought about of a situation where it proscribes the only circumstances when the payment can be considered as eligible for exception, which in my opinion would bring to fore the need for validity of the provision, as it stand now, to be tested once again vis-à-vis the strangulating rules.
Based on the principles of Natural Justice and the Interpretation of Law the disallowance cannot be justified if the payee is identifiable and the payment is genuine only because the payment was done in cash if the circumstances existing can be validly shown, despite there being no sub-clause for genuine hardships any more in the Rule 6DD.
There have been various decision covering the genuine hardship which can be used to claim the deduction of expenditure though incurred in cash.
CIT vs. Ashoka Steel Industries & Flour Mills 293 ITR 192 (P&H)
CIT Vs Parle Sales and Services P Ltd. 307 ITR 87 (Guj)
CIT Vs. Raja Pal Automobiles 320 ITR 185 (All)
In the following case the Hon. High Court of Rajasthan decided that the list contained in the Rule 6DD cannot be regarded as exhaustive and could at best be taken as an illustrative list and the facts need to be seen in order to consider only the transactions intended to be covered by this provision are covered.
You may also refer to the decision of ITAT Indore Bench, in the case of Chandra Prabha Syntex Ltd. Vs. CIT 46 TTJ (Ind) 655, where due to the restrictions placed by the banker on the assessee for issuing cheques to its associate concerns without the prior approval of the bank, the assessee had to pay the associate concern cash amounting to over Rs. 45 Lakhs which were used by the associate concern to pay electricity bills, creditors, make purchases etc. and genuineness of the transaction was not disputable and the payee could be identified. Based on the interpretation that this provision is essentially to trap tax evaders or black money and not to hinder the genuine business transaction no disallowance U/s 40A(3) was done and such addition by AO was deleted.
You need to look at the quantum of the transaction and fight on the above basis though it may not ring well at low levels but for higher levels you need to look into the economics of litigation.
Courtesy :- Mr. Harish Lalwani
Message likes :
1 times
You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now
Click here to login now
Similar Resolved Queries
Unanswered Queries
- REGARDING GST ON COMMERICIAL PROPERTY
- Is this income indian or foreign income?
- 15ca /15cb whose income tax login? remitter or nri seller's login?
- RCM applicability on Rent Paid by Registered Person to Unregistered Landlord for Residental Building
- TDS U/S. 194NF
- ITC temporary reversal and reclaim
- GST on export of services and Input Credit
- Regarding Documentation & Compliances for Opening of Unit of Pvt Ltd.
- Applicable TDS rate for sale of property in Nov 2024
- Can we claim ITC of Feb-2024 in the month of November-2024 which was not claimed by oversight
- Is online PGCE worth it?
- ITC c/f from FY2022-23 to FY2023-24 entered the same in table 8C of GSTR9 of FY 2022-23, in FY23-24
- Late filling fees Demand by gst office
- IGST Credit-Show cause notice issued-confusion
- Short and Excess provision of expenses
- Issue of gst e invoice
- Interchangeable words in accounts
- Adjusted profit/Loss in the case of LLP and Pvt. Ltd.company
- How to adjusted advances given or receipt
- Foreign vendor without PAN unable to to register due to non receipt of OTP on foreign number ?
Trending Online Classes
CAclubindia
