Bearer Cheque as Surety of being encashed not Sufficient Explanation of Business Expediency: ITAT [Read Order]

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) upheld the Commissioner of Income Tax (Appeals) [CIT(A)]'s decision, highlighting that giving the parties a bearer cheque as an assurance that it will be cashed is not a valid justification for business expediency because a bearer cheque can bounce for inadequate balances.

The facts in brief are that return of income declaring the total income of Rs. 2,23,140 was filed by the assessee which was taken up for scrutiny through Computer Assisted Scrutiny Selection (CASS).

The assessee earned revenue from trading in iron and steels and other products during the year under review and earned profit under the heading Profit and gain from business and profession. The assessee was required to provide information on party-specific sales and purchases as well as their ledger accounts.

The AO noted that a total of Rs. 2,77,13,513 in payments for purchases made during the financial year were not made via account payee cheque.

Consequently, a show cause notice was issued, and the assessee responded that bearer cheques were issued to the supplier parties on demand as the assessee was new in the business and had to accept the suppliers' demands because it was a violation of Section 40A(3) of the Income Tax Act, 1961 read with Section 40A(3A) of the Income Tax Act, 1961.

On behalf of the assessee it was submitted that as assessee was new in business therefore, assessee was compelled to give bearer cheques to the parties. It was submitted that the confirmations from respective parties who insisted for payment through bearer cheques was provided, however, the same have not been considered.

The bench finds no ambiguity in the CIT(A)'s determinations because other banking instruments, such as banker's cheque or RTGS/NEFT capabilities, would have assured quick and secure payments if the intention had been to make bearer cheque payments to the parties as good as cash.

Additionally, there is no evidence in the file that the nature of the purchases was such that the parties had the authority to establish the terms and conditions of the mode of payment to be with cash or bearer cheques only and that the assessee's business interest would have been harmed as a result of the goods being unavailable from a source other than this specific party.

The bench of Shamim Yahya and Anubhav Sharma sustained the order of the CIT(A) and noted that the law relied, including the Board's circular, was thus not applicable on facts and evidence.

To Read the full text of the Order CLICK HERE

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Rajesh Kumar vs Income Tax Officer , 2023 TAXSCAN (ITAT) 984 , Sh. Sanjay Issar , Sh. B.K.Singh