2003 (9) TMI 31 - HC - Income Tax

Amount paid in cash for transportation of goods exceeding specified limits - Whether the Tribunal was justified in holding that the provisions of rule 6DD(j) of the Income-tax Rules apply to the facts of the case vis-a-vis section 40A(3) of the Income-tax Act 1961? - genuineness of the transport and the identity of the dealer had been established by the assessee. What remained was only the production of a confirmatory letter from the transporters regarding the fact that they insisted for the payment of the charges in cash. One more opportunity has to be given to the assessee to produce confirmatory letters obtained from the transporting agency Matter requires remand

Issues Involved
1. Applicability of Rule 6DD(j) of the Income-tax Rules in relation to Section 40A(3) of the Income-tax Act, 1961.
2. Justification of cash payments exceeding Rs. 10,000 and their disallowance under Section 40A(3).
3. Requirements for proving exceptional or unavoidable circumstances for cash payments under Rule 6DD(j).

Detailed Analysis

1. Applicability of Rule 6DD(j) of the Income-tax Rules in relation to Section 40A(3) of the Income-tax Act, 1961
The core issue revolves around whether the Tribunal was justified in applying Rule 6DD(j) to the facts of the case, thereby exempting the assessee from the disallowance under Section 40A(3). The assessee, an exporter of cashew kernels, made cash payments exceeding Rs. 10,000 for transportation and coolie charges, which were disallowed by the Assessing Officer and the Commissioner of Income-tax (Appeals) due to non-compliance with Section 40A(3). The Tribunal, however, allowed the claim, stating that the circumstances were exceptional or unavoidable, thereby falling under Rule 6DD(j).

2. Justification of Cash Payments Exceeding Rs. 10,000 and Their Disallowance Under Section 40A(3)
Section 40A(3) stipulates that payments exceeding Rs. 10,000 must be made via crossed cheques or bank drafts to be allowed as deductions. The assessee argued that the payments were made in cash because the lorry drivers and second-hand gunny bag dealers refused to accept cheques or drafts. The Tribunal accepted this explanation, noting the impracticality of obtaining bank drafts or issuing crossed cheques at the time of purchase, and the commercial expediency necessitating cash payments.

3. Requirements for Proving Exceptional or Unavoidable Circumstances for Cash Payments Under Rule 6DD(j)
Rule 6DD(j) provides exemptions from Section 40A(3) under specific circumstances, such as exceptional or unavoidable circumstances, impracticality, or genuine difficulty in making payments via crossed cheques or drafts. The Tribunal found that the assessee had demonstrated exceptional or unavoidable circumstances, as the truck drivers insisted on cash payments and could not be contacted later for confirmation letters. The Tribunal's decision was based on the totality of circumstances and the genuineness of the transactions, which were not disputed by the revenue authorities.

The High Court, however, noted that the Tribunal's decision lacked supporting material and emphasized the necessity of producing confirmatory letters from the transporters. The Court referred to Circular No. 220, which outlines circumstances where Rule 6DD(j) applies, including the seller's refusal to accept payment by cheque or draft, and the purchaser's business interest suffering due to non-availability of goods otherwise.

Conclusion and Remand
The High Court concluded that the assessee should be given another opportunity to produce confirmatory letters from the transporting agency, verifying their insistence on cash payments. The Court set aside the Tribunal's order and remitted the matter for fresh consideration, instructing the Tribunal to pass new orders in accordance with the principles laid down by the Gujarat High Court and the Supreme Court. The Court declined to answer the referred question, emphasizing the need for further evidence to substantiate the claim under Rule 6DD(j).

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