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Issues involved: Interpretation of section 40A(3) of the Income-tax Act, 1961 and rule 6DD(j) of the Income-tax Rules, 1962 regarding disallowance of cash payments made by the assessee to a company.
Summary: The High Court of GAUHATI considered the question referred by the Tribunal regarding the disallowance of cash payments made by the assessee to a company. The assessee had made cash payments to Rallis India Ltd. and sought to explain the circumstances necessitating these payments in violation of section 40A(3) of the Act. The assessee provided a confirmation letter from Rallis India Ltd. explaining the need for cash payments due to urgent cash needs when remittances were delayed. The assessee argued that the genuineness of the transactions should not be doubted as the payee had accepted the cash payments. The Revenue, on the other hand, highlighted the legislative intent behind section 40A(3) and rule 6DD(j) to discourage cash payments to prevent tax evasion. The court examined the conditions under clause (j) of rule 6DD which allow relaxation of section 40A(3) requirements, emphasizing the need for genuine difficulty faced by the payee to warrant cash payments. Referring to previous judgments, the court emphasized that the genuineness of the transaction alone is not sufficient, and the circumstances necessitating cash payments must be established. The court noted that the certificate provided by Rallis India Ltd. did not indicate any genuine difficulty justifying the cash payments made by the assessee. The court also discussed the importance of surrounding circumstances and the discretion of the Assessing Officer in evaluating such cases. Considering the arguments and the lack of evidence showing exceptional circumstances for cash payments, the court ruled in favor of the Revenue, upholding the disallowance of the cash payments made by the assessee. The court's decision was based on the absence of genuine difficulty justifying the cash payments as required by clause (j) of rule 6DD. This judgment clarifies the importance of establishing genuine difficulties faced by the payee to justify cash payments under section 40A(3) and rule 6DD(j) of the Income-tax Rules.
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