The main legal point established in the judgment is the strict enforcement and compliance of the provisions of section 40A(3)(a) of the Income Tax Act, 1961, the lack of distinction between a crossed cheque and an account payee cheque without a further endorsement 'not negotiable', and the importance of genuine payments and the absence of compelling reasons or commercial expediency for making payments other than by account payee cheques.

(PER : HONOURABLE MR.JUSTICE AKIL KURESHI)

1. These appeals are filed by assessee challenging the common judgment of the Income Tax Appellate Tribunal (“the Tribunal” for short) dated 30.9.2013.

2. Facts being similar, we may notice those arising in Tax Appeal No.105 of 2014. Appeal involves assessment year 2007-08. For the said assessment year, assessee filed return of income declaring total income of Rs.83.28 lakhs (rounded off). The return was taken in scrutiny. The assessing officer framed order of assessment dated 31.12.2009. In such order, he disallowed a sum of Rs.26,72,198/- being 20% of the total payment of Rs.1,33,60,988/- made by the assessee during the year under consideration otherwise than by account payee cheque in violation of provisions of section 40A(3)(a) of the Income Tax Act, 1961 (for short “ the Act”).

3. The assessee carried the matter in appeal. CIT(Appeals)dismissed the assessee’s appeal. CIT(Appeals) examined further facts as urged by the assessee for which remand report was called for from the assessing officer.

4. He highlighted such facts as under:-

4.5 All this factual matrix clearly establishes that the cheques were otherwise than Account Payee Cheques. There were “&Co.” cheques, and is found during the course of investigation, one of the partners of Shree Swaraj Oil Mill, JamKhambhalia in his statement on oath, has also admitted that they have encashed the entire payment received from M/s. Shree Rajmoti Industries though different Shroffs, vis. Pari Pankajkumar Jasubhai, Kishan Enterprise and others. On verification of Ch.Nos.196277, 195523, 195579, 195625, 195691, 195800 as mentioned above, there is a clear acceptance of the endorsement by the Partner/Proprietor of M/s. Shree Swaraj Oil Mill, Jam Khambhalia in favour of Kishan Enterprise. Therefore, the evidences in the form of endorsement and acceptance noted down on the overleaf side of the above Ch.196277, 195523, 195579,195625,195691,195800 category confirmed that these cheques were not A/c. Payee cheques. Further on the reverse side of Ch.Nos.196225,196370,& 192943 shows the name of Pari Pankajkumar Jasubhai, Paresh J. Thakkar (HUF) are mentioned. Thus, considering the statement of the partner of M/s. Shree Swaraj Oil Mill, JamKhambhalia, who confirms the fact that these cheques are “&Co” cheques only, and therefore, have been encashed. The above fact proves the statement of the partners of Shree Swaraj Oil Mill, JamKhambhalia that they have encashed the entire payment received from M/s. Shree Rajmoti Industries through different Shroffs viz. Pari Pankajkumar Jasubhai, Kishan Enterprise and others. As mentioned earlier, “Account Payee Cheques” cannot be transferred or encashed. The credit for that cheque is to be given into the account of drawee only, in whose name the cheque is drawn. On the basis of these facts and the investigation made during the course of remand, it clearly proves that the continuance claim of the appellant during the course of assessment proceedings and appellate proceedings that the payment to M/s.Shree Swaraj Oil Mill, JamKhambhalia have been made through an Account Payee cheque is false. Further, in remand report, the Assessing Officer has also pointed out that certificate filed by the appellant has not been issued by the Bank. This fact also shows that the appellant has tried to place a false claim by submitting the documents which he knew that are not true. On the basis of all above facts and in the circumstances, there is enough evidence to point out that there is violation of provisions of section 40A(3)(a) of the Act and the Assessing Officer has rightly considered that payments made to M/s. Shree Swaraj Oil Mill, Jamkhambhalia after 13-07-2006 amounting to Rs.13360988/- are otherwise than by Account Payee Cheques, and thereby, there is violation of provision of section 40A(3)(a) of the Act. The Assessing Officer, therefore, rightly disallowed 20% of above payment of Rs.13360988/-, which comes to Rs.2