ORDER
B.R. Jain, A.M.
These appeals by the assesses are against the orders dt. 6th Nov., 2002 and 14th Nov., 2002 of learned GIT(A)-XXV, New Delhi. The solitary ground raised in both these appeals is as under:
ITA No. 712/Del/2002
The learned CIT(A) erred in confirming addition of Rs. 9,45,398 under Section 40A(3).
ITA No. 713/Del/2002
The learned CIT(A) erred in fact and circumstances of the case in confirming addition of Rs. 7,00,232 under Section 40A(3).
2. In ITA No. 712/Del/2002 briefly the facts are that the assessee is an AOP carrying on business of sale of country liquor, beer and Indian made foreign liquor (IMFL) in the District Jodhpur under a license issued by the Excise Department of Government of Rajasthan. During the year under consideration, the assessee purchased country liquor from Rajasthan State Ganganagar Sugar Mills, an undertaking of Rajasthan State Government after depositing cash and other levies. The IMFL and beer has been purchased from M/s Jai Santoshi Wine, Jodhpur, amounting to Rs. 77,21,479. The assessee also received rebate amounting to Rs. 1,56,491. The net purchases therefore have been claimed at Rs. 70,59,258. The AO observed that the assessee did not make payment to the said party M/s Jai Santoshi Wine by way of crossed bank draft or crossed cheque but the same were paid by way of adjustment against excise duty challan. The AO noticed that there is a violation of provisions of Section 40A(3) of the Act and thus required the assessee to show cause as to why the disallowance should not be made in terms of Section 40A(3). The assessee, however, explained that the payments have been made to the Excise Commissioner, a Government authority for and on behalf of the suppliers and as such provisions of Section 40A(3) would not be applicable. The learned assessing authority did not find the explanation satisfactory. Finding that out of the total purchases of Rs. 70,65,000 after rebate, the assessee has made payments aggregating to Rs. 1,78,010 for which the payment in cash is below Rs. 20,000 and also taking into account the basic exemption available for 108 payments made by the assessee, he worked out the amount paid in violation of provisions of Section 40A(3) of the Act to the extent of Rs. 47,26,990. 20 per cent of this amount stood disallowed under Section 40A(3) of the Act and the disallowance has been worked out at Rs. 9,45,398 which was added to the income of the assessee.
3. Before the learned CIT(A), the assessee contended that the payments to the Excise Department have been made on behalf of the suppliers under business compulsion and per request made by the supplier and as such his case was governed by the exception provided under Rule 6DD(j) r/w Circular No. 34, dt. 5th March, 1970. The plea of the assessee however did not find favour with the learned CIT(A) who confirmed the decision reached by the assessing authority.
4. Before us, the assessee’s counsel contends that he did not incur any expenditure in cash in making payments for purchases. It was stated that out of total payments, the assessee paid Rs. 7,86,878 to the distillers by demand draft and Rs, 39,80,100 have also been paid through demand draft to the Excise Commissioner on behalf of its supplier as per details contained in the written submissions. Provisions of Section 40A(3) were not applicable in these payments. The balance amount of Rs. 22,98,010 was also paid to the Excise Commissioner i.e. in the Government account on behalf of the suppliers on different dates and were later adjusted against the purchases. In fact, the payments were made to the Excise Department on behalf of the suppliers which were adjusted in the purchase account. Such payments made on behalf of the suppliers were due to business compulsion and on request of such suppliers. Had the assessee not adhered to such request the suppliers would not have made any supply. This would have resulted into a total loss of business of the appellant. Furthermore, the assessee received discount for making such payments and on that account also the provisions of Section 40A(3) were not applicable and assessee’s case would have been covered by the exception contained under Rule 6DD of the Rules.
5. On the other hand, the learned Departmental Representative supports the decision taken by the authorities below.
6. We have heard the parties and perused the material on record. In the peculiar nature of business the assessee was required to make payment to the Excise Commissioner. Payments aggregating to Rs. 7,86,878 made are to the distillers for purchases and Rs. 39,80,100 were paid by way of account payee demand draft to the Excise Commissioner against the liability of the appellant’s supplier. On these payments provisions of Section 40A(3) are not attracted. The balance payment of Rs. 22,98,010 in different dates have been deposited in cash with Excise Commissioner. These payments have also been made to discharge the liability of supplier which was later adjusted against the purchases made by the appellant. The appellant also received discount from the supplier on that account. It, therefore, cannot be held that the appellant made expenditure in violation of Section 40A(3) of the Act. Even otherwise, the genuineness of transaction was also not doubted by the authorities below. The supplier was duly identifiable and payments stood duly confirmed in that respect. Since the assessee had adduced evidence of genuineness of purchase and necessity to make payment in cash, having regard to IT r. 6DD(j), disallowance under Section 40A(3) was not contemplated. The Hon’ble Delhi High Court in the case of Ramaditya Investments v. CIT taking note of the fact that assessee having filed evidence of genuineness of payment and established necessity of making cash payments held that disallowance under Section 40A(3) could not be made. In that view of the matter also we do not find any justification in sustenance of disallowance made in the present case in appeal where the payment in cash were made on consideration of business exigency and exceptional circumstance like inducement of rebate to the assessee. The disallowance so made is therefore directed to be deleted.
7. In ITA No. 713/Del/2002, the assessing authority made disallowance of cash payment to the Excise Department in the account of suppliers and thus made disallowance of Rs. 7,00,232. The learned CIT(A) confirmed the disallowance.
8. After hearing the parties and as borne out from the assessment order on record, it is found that the assessee does not maintain any bank account. The payments have been made to the Excise Commissioner on behalf of the suppliers and later adjusted against the purchases made from them due to compelling circumstances and on request of such parties as in the case of M/s Mahender Singh & Party in ITA No. 712/Del/2002. Since the assessee made payments due to business exigency and he did not maintain any bank account, the authorities below were not justified in making any disallowance under Section 40A(3) of the Act particularly when the assessee had led evidence of genuineness of payment and, evidence to make such payments in cash to a different authority had been brought on record. For parity of reasons in the appeal of Mahender Singh & Party and also respectfully following the principle cited by the jurisdictional High Court in the case of Ramaditya Investments v. CIT (supra), the disallowance so made under Section 40A(3) in this appeal under consideration is also directed to be deleted.
9. In the result, both the appeals stand allowed.