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Issues Involved:
The issue involves a petition filed by the Revenue u/s 256(2) of the Income-tax Act, 1961 seeking a direction to the Income-tax Appellate Tribunal to draw up a statement of the case and refer a question of law regarding the applicability of section 40A(3) of the Act. Judgment Details: Assessee's Explanation and Disallowance: The assessee-company, engaged in manufacturing automobile parts, filed its return of income for the assessment year 1989-90 declaring a loss. An amount was disallowed u/s 40A(3) on account of 13 cash payments to a sister concern. The assessee contended that payments were made in cash at the insistence of the payee for urgent payments to tax departments and labor. The Income-tax Officer rejected this explanation, citing lack of satisfaction. Appellate Proceedings: The Commissioner of Income-tax (Appeals) deleted the disallowance, citing exceptions in rule 6DD(j) of the Income-tax Rules, 1962. The Tribunal upheld this decision, leading to the Revenue's appeal seeking a reference of a question of law. Exceptional Circumstances and Business Exigencies: The judgment highlighted the importance of exceptional circumstances u/r 6DD(j) in section 40A(3) to allow cash payments. The court emphasized that business exigencies and convenience should be considered in such cases. The Board's circular dated May 31, 1977, illustrated circumstances where rule 6DD(j) exceptions apply, including urgency for cash payments. Conclusion and Observations: The court found that the assessee's case fell within the exceptions of section 40A(3) and rule 6DD(j), as supported by the Board circular. It noted that the genuineness of transactions and parties was not in dispute. The court observed that the Assessing Officer's rejection based on the companies being sister concerns was insufficient. Ultimately, the petition was dismissed for lack of merit. Significant Legal Points: - Section 40A(3) aims to prevent tax evasion through cash payments exceeding a specified amount. - Rule 6DD(j) provides exceptions for cash payments due to exceptional circumstances. - Business exigencies and convenience are crucial factors in determining exceptional circumstances. - The genuineness of transactions and parties is essential in assessing the applicability of rule 6DD(j). - The Board's circular outlines circumstances where exceptions to rule 6DD(j) may apply.
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