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40(a)3

MANNU (Senior Article Assistant) (49 Points)

06 May 2014

In West Bengal, Electricity is being marketed, supplied and collection done by Pvt Co. Rajeev Goenka &Group Co. So, If any payment is made in cash above Rs.20000/- in cash for electricity charges then the payment will be Disallowed or Not U/s 40 (A) 3?

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Mannu jagnani

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7 Replies

Devadas K S (One life one Dream) (3525 Points)
Replied 06 May 2014

I think it is required to be disallowed because the payment is not made to any Government Authority.... wait for expert opinion..

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Sourabh Agarwal (Student) (33 Points)
Replied 06 May 2014

As per Rule 6DD, cash payment exceeding 20000 in relation to electricity bill is allowable expenditure although the payment has been made to a private co ...the aforesaid mentioned private co is definitely licenced by Electricity Board of State to carry on the electricity distribution and payment collection activity.

Sourabh Agarwal (Student) (33 Points)
Replied 06 May 2014

I would like to add further that electricity is being provided by CESC Ltd in West Bengal. CESC Ltd is the flagship company of RP-SANJIV GOENKA GROUP, which makes it a privately owned company but the government also has a stake in it since its objective is to serve the public.

Income Tax Wala: (Fin. Expert) (Chartered Accountants) (2015 Points)
Replied 06 May 2014

all the electricity supplying company are under the control of central govt or state govt through some stake.

hence that ele. company is deemed to be a govt company and payment in cash above 20000 is allowable .

JIBIN THOMAS BABU (CA FINAL STUDENT) (147 Points)
Replied 06 May 2014

The validity of Sec. 40A(3) was upheld by the Supreme Court even as applicable to purchases by treating it as expenditure in Attar Singh Gurmukh Singh v ITO (1991) 191 ITR 667 (SC), because under the pre-existing rule 6DDJ the disallowance was not possible, if the payee could convince the assessing officer of the exceptional circumstances warranting receipt as pointed out by the Supreme Court in following words:

``Sec. 40A(3) must not be read in isolation or to the exclusion of rule 6DD. The section must be read along with the rule. If read together, it will be clear that the provisions are not intended to restrict the business activities. There is no restriction on the assessee in his trading activities. Sec. 40A(3) only empowers the assessing officer to disallow the deduction claimed as expenditure in respect of which payment is not made by crossed cheque or crossed bank draft. The payment by crossed cheque or crossed bank draft is insisted on to enable the assessing authority to ascertain whether the payment was genuine or whether it was out of the income from undisclosed sources.

The terms of Sec. 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 assessing officer the circumstances under which the payment in the manner prescribed in Sec. 40A(3) was not practicable or would have caused genuine difficulty to the payee.

Also note that the intention of the provision was to curb the use of black money, reduce tax evasion and inculcate the banking habits.(Mudiam Oil Company v ITO 19730 92 ITR 519 (AP)."

With respect to above facts, you have to prove the genuinity of the transaction & hardships faced for giving cheque to the respective payments before the assessing officer. Other wise Sec 40A(3) attacted b'coz the payment is made to another person not Centralor State goverment.

Refer also

https://www.simpletaxindia.net/2010/04/electricity-bill-paid-in-cash-40a3.html

https://indiankanoon.org/doc/77867891/

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Dipjyoti Majumdar (CA in service & CS. dipmaj@ rediffmail.com ) (3468 Points)
Replied 06 May 2014

Thanks, Thomas Babu for your case laws and lucid explanation. I am keeping this bookmarked in order to defend cases before the tax auditor and AO. For example recently there was a beer and snacks party in our office for some reason. The shop selling beer to us would not accept cheque though the bill was above Rs 20,000. We had to pay cash.

Regards,

Rajagopalakrishnan R (PARTNER) (1422 Points)
Replied 07 May 2014

While many courts have analysed the existence of exceptional circumstances under the earlier rule 6DD, the present Rule 6DD does not contain any sub clause for exceptional circumstances. Therefore the rulings based on "exceptional circumstances" may not hold good any longer. On the contrary many courts have also held that 40(A)3 being a deterrent provision must be interpreted strictly.

On the matter of payment to EB in cash, this will certainly not be covered by the exemptions. Even in a case where the cheque given by an assessee which was bounced and the EB refused to accept further cheques, it was held that the assessee could have taken an account payee DD for the payment. This is a case where the EB is wholly owned by the government and it was held that the payment to EB cannot be classified as payment to Government. So private Electric companies will defenitely not be covered.

As regards other purchases referred like snacks beer etc. there can be no excuse at all even if the shop does not accept cash!!. ( Exceptional Circumstance no doubt but no scope in rules)

What then would be the remedy?

In case of EB payments, some EB's accept part payment so pay in blocks of 20000/-. in any case what difficulty arises in payment by cheque is nt clear from the query.

in other cases, get cash bills in amounts less than 20000/- and make payment.