Sanjay Arora, Accountant Member - This is an Appeal by the Assessee agitating the Order by the Commissioner of Income Tax (Appeals)-3, Chennai ('CIT(A)' for short) dated 30.06.2016, dismissing the assessee's appeal contesting his assessment u/s. 143(3) of the Income-tax Act, 1961 ('the Act' hereinafter) dated 30.03.2015 for the assessment year (AY) 2012-13.
2. The appeal raises three issues, each of which we shall take up in seriatim. The first issue relates to the deeming of a gift/s received by the assessee during the relevant year, i.e., financial year 2011-12, as income u/s. 56(2)(vii) of the Act. The gift admittedly is from a person who does not fall within the definition of 'relative' as given in the section (vide Explanation (e) thereto). The assessee's case, however, which did not find favour with the Revenue, is that it is a gift in contemplation of death and, thus, excluded under sub-clause (c) of the second proviso thereto. The reason for its non-acceptance is that the assessee had received the gifts not only much earlier to the date of death (18/11/2012), but had also appropriated and utilized the gift amounts, investing the same in immovable property and business. The gift had attained finality, become inter vivos and absolute, and could not therefore be regarded as a gift/s in contemplation of death.
3. We have heard both the parties, and perused the material on record.
Findings
3.1 A gift in contemplation of death is defined u/s. 191 of the Indian Succession Act, 1925, which reads as under:
"191. Property transferable by gift made in contemplation of death – (1) A man may dispose, by gift made in contemplation of death of any movable property which he could dispose of by will,
(2) A gift is said to be made in contemplation of death where a man who is ill and expects to die shortly of his illness delivers to another the possession of any movable property to keep as a gift in case the donor shall die of that illness.
(3) Such a gift may be resumed by the giver and shall not take effect if he recovers from the illness during which it was made: nor if he survives the person to whom it was made.
Section 191 is followed by three illustrations:
Illustrations – (i) A being ill, and in expectation of death, delivers to B, to be retained by him in case of A's death:—
a watch:
a bond granted by C to A:
a bank-note:
a promissory note of the Central Government endorsed in blank:
a bill of exchange endorsed in blank:
Certain mortgage deeds.
A dies of the illness during which he delivered these articles.
B is entitled to –
the watch:
the debt secured by C's bond:
the bank-note:
the promissory note of the Central Government:
the bill of exchange:
the money secured by the mortgage-deeds.
(ii) A, being ill, and in expectation of death, delivers to B the key of a trunk or the key of a warehouse in which goods of bulk belonging to A are deposited, with the intention of giving him the control over the contents of the trunk, or over the deposited goods, and desires him to keep them in case of A's death. A dies of the illness during which he delivered these articles. B is entitled to the trunk and its contents or to A's goods of bulk in the warehouse".
(iii) A, being ill, and in expectation of death, puts aside certain articles in separate parcels and marks upon the parcels respectively the names of B and C. The parcels are not delivered during the life of A. A dies of the illness during which he sets aside the parcels. B and C are not entitled to the contents of the parcels." [Emphasis, by italics, ours]
The Apex Court in CGT v. Abdul Karim Mohd.[1991] 191 ITR 317/57 Taxman 238, relied upon by the assessee, referring to s. 191 supra, explained that it does not introduce anything further to the constituent elements of a valid donatio mortio causa. The gift must firstly be given in contemplation, not necessarily in expectation, of death. Further, to constitute a gift in contemplation of death two other conditions must be satisfied; (i) there must be delivery of possession of the gifted movables to the done and, (ii) the gift is entitled to take effect only in the event of the donor's death and if the donor recovers from the illness, the property should revert to him (pg. 321). That a gift given in contemplation of death, therefore, takes effect only on the death of the 'donor', i.e., the person making the gift, is not in dispute. Such a gift, or any gift for that matter, could be given only prior to the death. In the present case, it is eight months in advance. Though it does raise some doubts as to whether it is indeed given in contemplation of death, the matter in our view is to be considered in view of the attending circumstances; rather, the totality of the facts and circumstances. If the person was, as claimed, sick, with little hope of recovery at the time of gift/s, it would matter little that he survived for 8 months thereafter. Though there is no finding in the matter, nor any material on record (except the affidavit by the donor stating that he is being treated for the kidney failure), it is inferable from the circumstances that he was ill at the relevant time. Yes, he may have recovered inasmuch he is not shown to be suffering from an incurable illness (or one at a critical stage), i.e., which is not manageable and generally results in death, yet his condition was serious, which could have and, as it appears, led to his death. Again, we presume it to be from same illness inasmuch as there is no reference to this aspect as well in the assessee's contentions and, consequently, in the orders by the Revenue authorities. The objection, thus, though not invalid, would require being examined further with reference to such related aspects having a bearing in the matter, which we shall presently do.
3.2 The next objection is of the gift having not been made per a registered document; rather, not even per a deed of gift, but by an Affidavit (dated 12/3/2012). We consider this objection as of little moment inasmuch as the gift, being of money (legal tender as well as through bank transfer), i.e., movable property, would be legally valid even if oral where accompanied by delivery of possession. The affidavit, where it clearly reflects the alienation of the subject property in favour of the assessee, would, subject to the latter's acceptance, operate as a valid gift. The transfer of movable property is only on its delivery. The factum of acceptance is borne out both by the assessee's conduct (in utilizing the amount for his purposes) as well as of the money having been transferred to his bank account and, thus, in his possession. True, it is not a gift simpliciter, but a gift in contemplation of death, which takes place only in the event of the 'donor' predeceasing the 'donee' and, further, liable to be revoked where the circumstances change, as, for example, where the donor recovers from the illness, i.e., the condition under which the disposition was made. That is, is conditional and, two, takes place on the death of the 'donor', so that it assumes the nature of a 'Will'. A will, however, is not required by law to be registered. It may require being witnessed, which requirement is again towards establishing its authenticity and/or genuineness. The same shall assume significance only on it being challenged, which is apparently not so in the instant case, even as affidavit is also witnessed.
3.3 This leaves us with the Revenue's principal objection, i.e., of the 'gift' having taken effect much prior to the date of death, with the moneys having been in fact utilized by the assessee for investment in immovable properties as well as in his business. The affidavit (gift statement) reads as under:
AFFIDAVIT (free English translation)
'I, Amaloresamy, son of Late Thiru Mariadass, aged about 65 years, residing at No. 4, Ramachandra Road, Mylapore, Chennai - 600 004, do hereby solemnly affirm and wilfully out of my own volition execute this Affidavit in favour of Thiru F. Susai Raju, S/o. Francis Arockiam, residing at Flat No. C3, Krishnamansi, 3rd Floor, No.96, First Main Road, Gandhi Nagar, Adyar, Chennai - 600020 on this the 12th day of March, 2012 [12.03.2012].
I am not keeping good health. I don't have any legal heirs as on date and you have been taking care of me and rendering all the necessary service to all the needs. You are my maternal uncle's son and paternal aunt's son. In order to provide for your future and out of natural love and affection, I am swearing this affidavit. I am being treated for kidney failure and dialysis is going on. You are taking care of all the hospital expenditure for treatment. You have engaged necessary assistant nurses to facilitate to do the assistance to serve me. Further you are taking care of my aunt Thirumati Theresa Ammaiyar including medical assistance and engaging servant maid to take care of her. In consideration of all the above and out of natural love and affection, without any compulsion from anyone whomsoever, I hereby gift you the following by way of Cheque and Cash:
| 1. |
Rs.3,00,000/- vide Cheque No. 40103, dated 06.07.2011 |
2. |
Rs.l0,00,000/- vide Cheque No. 995447, dated 27.01.2012 |
3. |
Rs.1,10,000/- vide Cheque No. 475982, dated 17.02.2012 |
4. |
Rs.87,00,000/- vide Cheque No. 995451, dated 15.03.2012 |
5. |
Rs.5,00,000/- vide Cheque No. 995445, dated 25.01.2012 |
6. |
Rs.8,00,000/- vide Cheque No. 995448, dated 27.01.2012 |
7. |
Rs.5,00,0000/- vide Cheque No. 995446, dated 25.01.2012 |
8. |
Rs.35,00,000/- in Cash on various dates |
totally a sum of Rs.1,54,10,000/- [Rupees One Crore Fifty Four Lakhs Ten Thousand Only] is handed over to you as gift.
No other person has any right to make any claim or interest in the above gift.
I declare that I am affirming this Affidavit before the under-mentioned witnesses with sound and disposing state of mind without anyone's compulsion.
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Witnesses: |
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Sd/- |
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1. Sd/- |
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Deponent |
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2. Sd/- |
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Sd/- |
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Notary Public' |
We find this charge by the Revenue as of considerable import. The first thing that strikes one on a mere glance of the affidavit is that the disposition of property is made not in one or two, but the series of transactions, seven by cheque, beginning eight months prior to the gift – taking the date of deposition as the date of the gift, to up to 43 days prior thereto, with one, being by cheque dated 15/3/2012, to take effect after the said date. This is apart from the amount delivered in cash, both the dates and the corresponding amounts of which remain unspecified. The 'gifts' or the 'gift amounts' have been given piecemeal, or does one say, systematically, starting at least (inasmuch as the dates of the cash transactions are not known) 8 months prior to the date of the affidavit, which is itself 8 months prior to the date of death, i.e.,commence at least 16 months prior to the date of death and continue up to 8 months prior thereto. Surely, this is not the manner in which one, critically ill, is expected to and would, therefore, make his parting gift, or record his final testamentary declaration. He having arrived at a decision to, in view of his illness, gift the amount to a near one, as the assessee, a 'relative', and who has been taking care of him, would do so per one or (may be) two transactions, i.e., giving allowance for revision - upon reflection, putting the same in writing, preferably immediately thereafter. This is as the donor, as claimed, apprehending death, does not know how long thereafter he may survive. The transactions have taken place over a period of eight months (6/7/2011 to 15/3/2012), if not more, and without any document. Why? Clearly, there is no obligation to return. Why, one may ask, would one keep on giving? Is it that as his health or condition deteriorated he needed to transfer more and more funds to the assessee? Couple this with the fact that the amounts given stand employed by the assessee in his business and/or for purchase of immovable properties, both entailing market/business risk, besides representing an illiquid avenue of investment, and it is clear that the same were never intended to be returned. In fact, it is clear from the language of the affidavit that the gift is not conditional to the donor's death, but unequivocal, so that it takes effect immediately. No doubt the assessee-donee has felt free to appropriate the amounts, using them for his various interests, requirements.
Then there is the question of the donor-payer, despite being a man of means, even as the gift amount (Rs.154.10 lacs), and which may not exhaust all his assets, suggests, does not spend his money but allows his nephew (assessee) to do so. Why, he even does not even spend 'his' money for his own aunt's treatment/welfare, who, as it appears, is dependent on him? A quid pro quo is readily inferable under the circumstances. Why, the affidavit itself says so. As clearly stated therein, the consideration for the gift is not only the love and affection, but the medical treatment and other attendant costs being incurred by the assessee, as well as medical and other assistance provided to the donor's aunt. This is clear from the words 'In consideration of all the above and out of natural love and affection, …….'. Surely, medical treatment, particularly of a condition of renal failure, is expensive, if not exorbitantly costly. The assessee is admittedly incurring expenditure toward the same, which could be for years, and continues even after the date of the affidavit, entailing a lot of expenditure. To the extent, therefore, the 'gift' is in consideration of such costs incurred in relation to the donor and his aunt, the payment is in the nature of reimbursement, and cannot be by definition regarded as a gift. The clothing or the colour of a 'gift' is in such a case a ruse, perhaps a case of a planned device to recompense the funds already, or to a large extent, expended by the assessee in taking care as well as the medical treatment of the 'donor' and his aunt. That is, it cannot in any case be regarded as a gift, much less one in contemplation of death. In fact, the document (affidavit) is explicit on this, so that it is to be regarded as bearing two limbs; one toward the costs incurred (as well as likely to be incurred in future), and the balance, if any, as gift. The latter, however, would not be – for the foregoing reasons, a gift in contemplation of death, but a gift simpliciter, i.e., out of love, affection and care bestowed by the assessee on them, or, complete and absolute at its inception.
Further, being in consideration of the expenditure incurred, the same would not – to that extent, be a gift, so as to attract s. 56(2)(vii) of the Act. The assessee would however have to, for its exclusion, establish the expenditure incurred, as well as the source of the expenditure incurred for the current year. This is as to the extent the source remains unproved, the same would stand to be brought to tax as deemed income u/s. 69-C and, therefore, of little consequence to the assessee, i.e., whether deemed as income u/s. 56(2)(vii) or u/s. 69-C. The source may not be required to be exhibited for the expenditure incurred for other years as the same could not in any case be brought to tax for the current year, the year of receipt of consideration of the unexplained (or explained) expenditure incurred. This is as the same may stand to be assessed as income u/s. 69-C only for those years and not the current year, in which the assessee has received the consideration. To the extent therefore the assessee is able to exhibit the expenditure incurred for any year, the same shall get excluded as income for the current year u/s. 2(24)(xv) r/w s.56(2). Needless to add, the expenditure incurred, to the extent it is unable to be satisfactorily explained (to the AO) as regards its source, is liable to be deemed as income u/s. 69-C for that year, i.e., the year of incurring the expenditure.
3.4 We may before concluding this matter, consider the assessee's reliance on the decision in Abdul Karim Mohd. (supra), which we have carefully perused. The issue in that case – under the Gift Tax Act, 1958, insofar as we are concerned, was whether the gift was in contemplation of death or a gift pure and simple, as opined by the Tribunal, inasmuch as there was no recital in the settlement deed that the gift shall take effect on the settlor's death and the movables shall revert back to him in case of his recovery. The Hon'ble Apex Court, to begin with, referred to the findings recorded by the first appellate authority qua the circumstances attending the gift, reproducing the same (at pg. 320 of its order), as under:
"Now, I agree with Sri Karunakaran that the absence of any reference in the deed of settlement to the illness from which the donor was suffering does not lead to the conclusion that there was no illness, or that the donor was not apprehensive of death resulting from the same. There is ample evidence to show that he was seriously ill at the time when he made the gift. He was aged about 72 at that time and he was also suffering from paralysis, diabetes, hernia, etc. In fact, in view of the seriousness of his condition, he could not proceed to the Sub-Registrar's office for registration of the document; on the other hand, the Sub-Registrar was brought to his residence for the purpose of effecting the registration. In an affidavit filed by him before the Gift-tax Officer on August 3, 1969, the Sub-Registrar has affirmed that at the time of execution of the document, the settlor was in sick bed and was unable to move out of the same. He has also stated that the settlor as well as his children showed anxiety and haste in the matter of registration on account of the serious nature of the illness. At that time, according to the Sub-Registrar, the settlor was in his proper senses, but, soon after the execution of the deed, further complications set in and his power of speech and movements became impaired. Dr. V. B. Mohamed who was treating him has certified that on June 4, 1964, the patient was unable to recognise the surroundings properly and that his mental condition was impaired to a great degree. On June 9, 1964, i.e., within about six weeks from the date of the settlement, he died. In these circumstances, I am satisfied that the donor, an aged gentleman who was seriously ill at the time of the Settlement entertained no hope of recovery, and that it was in such a state of mind, that he made the settlement. Hence, the gifts must be taken to have been made in contemplation of death."
It was in view of these undisputed factual findings that the Hon'ble Court observed as under: (refer pgs. 323-324 of the decision)
'The gift was made when the donor was seriously ill and in apprehension of his death. The donor died within six weeks after the execution of the deed. The possession of the property gifted has been delivered to the donee before the death. But it is said that there is nothing to show in the document expressly or impliedly that the gift was made under such circumstances that the thing was to revert to the donor in case he should recover. Dr. Gauri Shankar, learned counsel for the Revenue, contends …….
It seems to us that the recitals in the deed of gift are not conclusive to determine the nature and validity of the gift. The party may produce evidence aliunde to prove that the donor gifted the property when he was seriously ill and contemplating his death with no hope of recovery. These factors in conjunction with the factum of death of the donor, may be sufficient to infer that the gift was made in contemplation of death. It is implicit in such circumstances that the donee becomes the owner of the gifted property only if the donor dies of the illness and if the donor recovers from the illness, the recovery itself operates as a revocation of the gift. It is not necessary to state in the gift deed that the donee becomes the owner of the property only upon the death of the donor. Nor it is necessary to specify that the gift is liable to be revoked upon the donor's recovery from the illness. The law acknowledges these conditions from the circumstances under which the gift is made.'
before finally concluding as under after, once again, clarifying the legal position in the matter with reference to various authoritative texts: (pg. 325)
'In the light of these principles and in view of the findings recorded by the Tribunal about the serious sickness of the donor and his state of mind at the time of making the gift in question, it can be reasonably concluded that the gift was not absolute and irrevocable. On the contrary, it will be legitimate to infer that the gift was in contemplation of death. Any other view in this case would be inappropriate.' [Emphasis, by italics, ours]
The circumstances under which a gift is made thus assumes utmost importance. Inferential findings are equally findings of fact. The matter, thus, given the settled position of law, becomes principally factual. The facts and circumstances obtaining in the present case are strikingly in contrast. The gifts are, firstly, far removed from the date of the death, i.e., by at least 16 months, so that 'death' – a certainty, was not eminent at the time of gift, which itself continues over a period of eight months, through a series of cash and bank transfers. The predominant objective of the disposition, even as stated in the affidavit itself, was to 'compensate' the assessee for the provision of medical and other related costs being incurred by him in respect of the 'donor' – a man of means, and his aunt, ostensibly dependent on him, and which also explains the manner of disposition. No wonder there was no element of its return back and, sure enough, was quickly appropriated by the assessee for his purposes. Reference in this regard may be made to para 3.3 of this order. Merely because the 'gift' is given at the time of illness, or 'occasioned' by the donor undergoing its treatment, would not by itself make it a gift in contemplation of death – a certain phenomenon and which has therefore to in any case occur, which is a legally defined concept, so that its attributes are to be satisfied if it is to qualify as one. Surely, the same could not be regarded as 'gift', much less as a gift in contemplation of death. The said decision would thus be of little assistance to the assessee.
Decision
4. In view of the foregoing, we restore the matter back to the file of the Assessing Officer (AO), to enable the assessee an opportunity to establish his case with reference to our findings. The AO has not examined this aspect, and both the expenditure and, consequently, the amount of gift, if any, is indeterminate. Where and to the extent the assessee is able to prove the expenditure incurred -whether by himself or by the donor (who may also incurred a part of the expenditure), the same would stand excluded as a gift and, thus, as a gift assessable u/s. 56(2)(vii), though is liable to be assessed u/s. 69-C to the extent the source of the expenditure, incurred for the current year, remains unproved. The estimate of the total expenditure incurred over the years, i.e., during the currency of the illness, which shall have to precede this exercise, is to be an informed estimate, based on medical history, reports, prescriptions, bills, etc. - a matter of record. A similar estimate in respect of the medical treatment and nursing of the donor's aunt may also be made, to the same effect and in the same manner. Further, where (and to the extent) the total expenditure falls short of the gift amount of Rs . 154.10 lacs, the same is surely a gift for the love, care and affection bestowed by the assessee on the donor and his aunt. The same would though, for the reasons afore-stated, not be a gift/s in contemplation of death, and assessable u/s. 56(2)(vii).
True, the burden of proof in case of the deeming provision of s. 69C, as for others, viz. 69, 69A, 69B, et. al, is on the Revenue, so that it is only where the factum of the assessee being the owner of any property, investment, etc., or of having incurred expenditure is established by the Revenue, that the assessee can be called upon to explain the nature and source thereof, failing which only the deeming shall have effect. In the instant case, however, the fact of incurring expenditure emanates only from the document furnished and relied upon by the assessee in furtherance of his case. We have also, albeit for different reasons, expressed our concurrence inasmuch as if the 'gift' is toward reimbursement or in consideration of the expenditure incurred, the same cannot - to that extent, be possibly considered as a gift, so as to fall within the purview of s. 56(2). The expenditure having been admittedly incurred by the assessee, it is only he who can therefore furnish information in its respect, furthering his case in the matter. That s. 69-C may have applicability where the source of the expenditure, incurred during the current year, is not proven, is a different matter altogether. At the same time, in the absence of the assessee showing the factum of the expenditure incurred by him, i.e., failing to exhibit the same, its mention in the deposition by the 'donor' is merely a surreptitious mention, to therefore no legal effect. We have already clarified that where the expenditure is to a part extent, the balance shall operate to be a gift, qualifying as such, which though would not be a gift in contemplation of death. We decide accordingly.
5. The next disallowance agitated per the instant appeal is for Rs . 46,82,000/- in respect of purchases in cash, u/s. 40A(3) of the Act. The purchases are admittedly in cash, i.e., other than per the prescribed modes of account payee cheque or account payee bank draft (in the name of the payee), of immovable property, which though constitutes the assessee's - in real estate business, stock-in-trade, from four persons, as under:
| S.No. |
Name of the party |
Amount of purchase (Rs .) |
Date of payment |
1. |
Egabathamoorthy |
27,48,000 |
25.10.2011 |
2. |
Gayathri Devi |
15,00,000 |
25.07.2011 |
3. |
Giridhar |
2,39,500 |
27.03.2012 |
4. |
Manimegalai |
1,94,500 |
15.12.2011 |
|
Total |
46,82,000 |
|
The assessee's case is that in all cases the payments were for business expediency; the sellers' insisting on the same, so that in case of non-payment thus, he would stand to loose business. The payments in cash were made under such critical circumstances, and in fact represent advance payments, so that the balance purchase cost was remitted through bank draft only. The AO, however, found the same as incorrect. The payments, in all cases, were not advance payments, made to secure the transaction/contract. In fact, the amounts represented the total consideration, except in the case of Shri Giridhar, where it was for the balance (of the total consideration of Rs. 13.395 lacs), the advance of Rs. 11 lacs having been rather paid earlier by cheque on 17.12.2011. None of the exempted clauses of r. 6DD (of the Income Tax Rules, 1962 - 'the Rules' hereinafter) applied in the present case. The disallowance was accordingly made, alluding also to s. 40A(4), which provides that no persons shall be allowed to raise in any suit or other proceedings a plea based on the ground that payment was not made in cash or in a proscribed mode. The same found confirmation with the first appellate authority for the same reasons. Aggrieved, the assessee is in second appeal.
6. Before us, the ld. AR would rely on the decision in Asstt. CIT v. R.P. Real Estate (P.) Ltd. [2016] 95 CCH 86 (Chatt.), while the ld. Departmental Representative (DR) would reiterate the Revenue's case, claiming it to be in accordance with law, cast in clear terms.
7. We have heard the parties, and perused the material on record.
Section 40A in its relevant part reads as under:
'Expenses or payments not deductible in certain circumstances.
40A. (1) The provisions of this section shall have effect notwithstanding anything to the contrary contained in any other provision of this Act relating to the computation of income under the head "Profits and gains of business or profession".
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(2)(a) to (b)..... |
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....... |
Explanation. – …. ….
(3) Where the assessee incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day, otherwise than by an account payeee cheque drawn on a bank or account payeee bank draft, exceeds twenty thousand rupees, no deduction shall be allowed in respect of such expenditure.
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(3A)......... |
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Provided that no disallowance shall be made and no payment shall be deemed to be the profits and gains of business or profession under sub-section (3) and this sub-section where a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds twenty thousand rupees, in such cases and under such circumstances as may be prescribed, having regard to the nature and extent of banking facilities available, considerations of business expediency and other relevant factors.
Provided further ……
(4) Notwithstanding anything contained in any other law for the time being in force or in any contract, where any payment in respect of any expenditure has to be made by 67 an account payee cheque drawn on a bank or account payee bank draft in order that such expenditure may not be disallowed as a deduction under sub-section (3), then the payment may be made by such cheque or draft; and where the payment is so made or tendered, no person shall be allowed to raise, in any suit or other proceeding, a plea based on the ground that the payment was not made or tendered in cash or in any other manner.'
The section is cast in near absolute terms, with the excepting categories provided for under proviso to s. 40A(3A), stating the consideration of, inter alia, business expediency, per r. 6DD. The assessing authority has clearly stated that none of these excepting circumstances, which are exhaustive, are applicable in the facts and circumstances of the case, with the ld. CIT(A) finding no reason to, in view of the undisputed facts, differ with him. There is no estoppel against law. The terms of a contract must therefore yield to the law, made explicit per s. 40A(4). Rather, any contract which is inconsistent with the public policy or the express provision of law is not valid in law. The plea that the sellers insisted on cash payment – itself unproved, is thus not a legally valid argument, even as pointed out by the AO with reference to s. 40A(4). In fact, even if the bar of s. 40A(4), which thus renders the stipulation in a contract for cash payment (in a sum in excess of the threshold limit) as nugatory and defeative of law, was not present, so that such a stipulation was valid in law, the assessee's claim for deduction in respect of the corresponding expenditure would yet, in view of the express bar of s. 40A(3), suffer an infirmity, making it inadmissible under the Act. This is as the law, per the non-obstante provision of s. 40A(1) r/w s. 40A(3), clearly provides a caveat in respect of otherwise allowable expenditure, and the income under chapter IV-D of the Act has necessarily to be computed having regard thereto. Sec. 40A(4), thus, completes the law in the matter, precluding any person from raising a plea of having entered a legally valid contract, or to that extent, so that one arm of law cannot be inconsistent with the other, or that the law cannot draw a distinction for payments per legal tender (vis-a-vis other modes of payment) or place the payment thereby in a less favourable light or position so as to attract the debility of disallowance of the corresponding expenditure for that reason. The constitutionality of s. 40A(3) stands upheld by the Apex Court in Attar Singh Gurmukh Singh v. ITO[1991] 191 ITR 667/59 Taxman 11 (SC) and, notably, s. 40A(4) overrides any other law in force for the time being. If the parties have therefore chosen to act inconsistent with the law, representing the public policy, the legal consequence shall follow. Again, the assessee's plea of the impugned payments being advance payments - found incorrect by the AO, is of no moment in law. Even if therefore it were to be factually so, which we find it as not, it matters little if the payments made in contravention of the law is the first or the last or any between the two, where the liability qua an expenditure, deduction in respect of which in computing business income is being claimed, is discharged in more than one instalment. We are therefore unable to appreciate the argument. What all is relevant in the matter is if the expenditure falls in the revenue field and stands incurred for business purposes, so that deduction in its respect is being rightly claimed. Where so, it will, where violative of the non obstante provision of s. 40A(1) r/w s.40(A)(3)/(3A) r/w s. 40A(4), disqualify itself for deduction in computing the income for the current year or, as the case may be, be deemed as income for a subsequent year. Clearly the restriction and the corresponding disallowance, which is with reference to the mode of payment, is not of the entire expenditure, but only to the extent paid in violation of the provision, irrespective of its time, i.e., preceding or succeeding payment/s that per other modes. For example, if a payment of Rs. . 50,000/- (out of total of Rs. 3 lacs) is paid in cash (on a single day), it is only Rs. . 50,000/-, irrespective of its scheduling in the discharge of Rs. . 3 lacs, that shall attract the disallowance u/s. 40A(1) r/w s. 40A(3).
The plea of business expediency cannot be a ruse. The law has been in place since 01/4/1969, with r. 6DD undergoing several changes over time, reflecting the extant concerns obtaining for time to time, chiefly being the extent of the banking facilities in the relevant area and business expediency, which stand clearly enumerated thereunder. Banking facilities are by now ubiquitous, so that the former translates into transactions where the banking services stand suspended on the day on which the payment is to be made. Allowance is made for transactions in the unorganized sector, more so in the agricultural and rural segments, including fishing and animal husbandry. Without doubt, the prescription per r. 6DD, which regulates the deduction, is made having regard to, inter alia, the consideration of business expediency, which cannot be viewed independent of or removed from that prescribed. We have already shown that a stipulation for or insistence on cash payment - except where and under the circumstances specified in r. 6DD, cannot be a valid ground for non-invocation of s. 40A(3). In short, cannot be regarded as a business expediency under the provision. The provision cannot be discounted by stating it to be a technical consideration, whatever that may be mean, and is a part of the substantive law. Taxing statutes, it is trite law, are to be strictly construed. Where, therefore, the conditions for the applicability of the provision are satisfied, there is no reason that it cannot be invoked, even as held in Addl. CIT v. Shree Shanmuga Gunny Stores[1984] 146 ITR 600/18 Taxman 127 (Mad.) by the Hon'ble jurisdictional High Court, where it had an occasion to interpret the provision, in the following words (the threshold limit at the relevant time being Rs. .2,500/-):
'As we read the provision, attention must be directed first to the payment made by the assessee, in order to see if the payment is in a sum exceeding Rs. 2,500. If it does exceed that limit, the further enquiry is whether such payment is made as and towards business expenditure. If it is made in respect of any such expenditure, then the further question is whether the payment is made by cash or by crossed cheque or bank draft. If it is by cash, then, unless special circumstances are pleaded and established by the assessee in terms of the appropriate saving provisions of the statutory rules, the expenditure will be disallowed on the ground that the payment has not been made by a crossed bank draft or crossed cheque. Even if the payment is made by crossed cheque or bank draft, the expenditure may run the risk of being disallowed for various other reasons which may be germane for purposes of the statutory computation of business income.' (pgs. 602-603) [Emphasis, ours]
As would be apparent, there is no scope for arguments such as bona fide payments, etc., i.e., except where and to the extent shown as falling within the scope of the provision r/w r. 6DD, inasmuch as the savings from the provision are built into therein, even as also noted by the Apex Court in Attar Singh Gurmukh Singh (supra). The upholding of its constitutionality implies that the provision is not arbitrary, including in its' application, nor constitutes and unfair restraint on trade. In fact, as noted earlier, r. 6DD has itself undergone changes from time to time in the legislative bid to admit and thus to exclude from the ambit of the provision circumstances regarded as not practicable from the standpoint of a trader or inconsistent with the trade customs, which also explains in part the exclusion of the transactions involving payments of agriculturists, even as the banking sector has deeply penetrated the rural sector as well. In fact, only an expenditure otherwise allowable would be hit by s. 40A(3); an expenditure which is not genuine cannot be regarded as admissible for deduction (as, say, u/s. 37(1)) in the first place. True, the section was conceived to help mitigate tax evasion by providing a manner for verifying the trail of expenditure deduction in respect of which is being claimed as business expenditure. However, once a provision is legislated, it is the statutory language alone that would be determinative of the legislative intent and, thus, of its' interpretation. Even as no mitigating circumstances have been shown in the present case, basing a decision of such considerations would be to infer casus omissus, or importing considerations not admissible per the clear language of the provision, both impermissible. Nothing in fact is more settled than the dictum that where the language of a provision is clear, the same must, unless leading to some absurdity or incongruity, be followed, and that no tools of interpretation or interpretative aids be invoked. Though the case law in the matter is legion, it may suffice to refer in this regard to the decision by the Apex Court in CIT v. Calcutta Knitwears[2014] 362 ITR 673/273 Taxman 115 (Mag.)/43 taxmann.com 446 (SC). We may in this regard, once again, draw on the decision in Shree Shanmuga Gunny Stores (supra), being by the Hon'ble jurisdictional High Court as well as contextual inasmuch as it interprets the provision, extracting its relevant part as under:
'We do not think this is the proper approach to s. 40A(3) of the Act. We are satisfied that the section concentrates on the size of the payment and the manner of the payment. We must no doubt see if the payment is made in relation to an item of business expenditure. But, what is pertinent to the inquiry is whether the payment for the expenditure is in a sum exceeding Rs. 2,500. If it does, unless the further condition of the payment having been made by crossed cheque or bank draft is fulfilled, the expenditure will be disallowed for no other reason than that the payment is made in cash. The Tribunal's approach to s. 40A(3) of the Act tends to render the inquiry into the payment purposeless, for, according to the Tribunal's method, the size of each item of expenditure under a purchase invoice must be determinant, whereas the statutory inquiry is about the manner of payment as related to the size of the payment. We disapprove of the Tribunal's reading of the purchase invoices in this case in a selective fashion. Such a reading distorts the invoice. The proper way is to read the entries in a wholesome fashion.' (pgs. 603-604) [Emphasis, ours]
Coming to the decision in R.P Real Estate (P.) Ltd. (supra), we extract the findings by the Hon'ble Court as under:
'The Tribunal has interpreted the aforesaid to hold that cash payments above twenty thousand rupees could be accepted if the conditions prescribed in the rules were fulfilled to the satisfaction of the authority concerned. The reasoning of the Tribunal and the interpretation by it of Section 40A(3) and Rule 6DD(g) supported by judicial precedents have not been assailed in this appeal and no submission has been made before us with regard to the same. We are satisfied that the appeal ought not to have filed and raises no substantial question of law for determination under Section 260A of the Act.'
It is the ratio decidendi of a decision that is binding or has precedent value. We find nothing therein or stands held by the Hon'ble Court as in contradiction or as inconsistent with what is stated by us in this order, drawing support from the law laid down by the Apex Court and the Hon'ble jurisdictional Hon'ble Court. Rather, we find it as supportive inasmuch as it emphasizes the satisfaction of the conditions prescribed in the rules (r. 6DD) for the allowance of the expenditure. The said decision shall therefore be of no assistance to the assessee.
In view of the foregoing, we, therefore, find no infirmity in the invocation of the provision by the Revenue in the instant case. There is no excess of the legislative intent or abuse of the judicial process in the instant case. We decide accordingly, and the assessee fails.
8. The third and the final issue is with reference to disallowance u/s. 40(a)(ia) at Rs. 3,56,180/-, in respect of the following expenditure:
- Commission: Rs. . 3 lacs
- Audit fees : Rs. . 56,180/-
The reason for the same was stated to be lack of availability of PAN of the payees, and which expectedly did not find favour with the Revenue authorities.
9. We have heard the parties, and perused the material on record. In view of the subsequent amendments to s. 40(a)(ia), since held retrospective by the Hon'ble Courts, we consider it appropriate that the matter be re-examined. To the extent the assessee is able to adduce evidence, which may at his option be verified by the AO, of the impugned payments as forming part of the income of the payees, duly returned and tax paid thereon, the assessee cannot be treated as in default and, accordingly, s. 40(a)(ia) would stand excluded to that extent. We decide accordingly.
10. In the result, the assessee's appeal is partly allowed for statistical purposes.