COMMISSIONER OF INCOME TAX Vs. J RAJMOHAN PILLAI

JUDGEMENT

(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.

(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 :