2010 (11) TMI 72 - HC - Income Tax

Assessee did the business of sale and purchase of lottery tickets on the wholesale basis - payment to the sellers for the tickets in cash - disallowed by the Assessing Officer - assessee filed an appeal - It was partly allowed by the Commissioner - benefit to the extent of Rs.3,68,442/- was denied on the ground that - payment was made in cash after 17.9.1987 - Some amount was paid after that date by draft; This could have been paid by the cheque also - Held that - conditions mentioned in Rule 6 DD (J) of Rules, 1962 were satisfied as the payment was insisted by the sellers in cash, their identity as well as genuineness of transaction of payment was not doubted by the Department - There is no illegality in the finding - Appeal is dismissed

Summary

Issues:
Assessing Officer disallowed cash payment for lottery tickets under Section 40 (A) (3) of the Income Tax Act, 1961 read with rule 6 DD (J) of the Income Tax Rules, 1962. Commissioner (Appeals) partly allowed the appeal. Department and assessee filed appeals before the Income Tax Appellate Tribunal, Allahabad. Tribunal allowed the assessee's appeal, leading to the present appeal by the Department.

Analysis:
1. The Assessing Officer disallowed a cash payment of Rs.24,32,826 for lottery tickets by the assessee in the assessment year 1988-1989 under Section 40 (A) (3) of the Income Tax Act, 1961, along with Rule 6 DD (J) of the Income Tax Rules, 1962. The Commissioner (Appeals) partially allowed the appeal, granting relief of Rs.20,52,054 but denying Rs.3,68,442 due to cash payment post-17.9.1987, despite some payments being made by draft and the option of using cheques.

2. Both the assessee and the Income Tax Department appealed to the Income Tax Appellate Tribunal, Allahabad. The Tribunal dismissed the Department's appeal and allowed the assessee's appeal. The Department then filed the present appeal challenging the Tribunal's decision. The substantial question of law admitted for consideration was whether the Tribunal was justified in allowing the cash payments under Section 40 (A) (3) of the Income Tax Act, 1961, based on the interpretation of Rule 6 DD (J) of the Income Tax Rules, 1962, and relevant case law.

3. The Tribunal's order upheld the cash payments by the assessee, stating that the conditions in Rule 6 DD (J) of the Rules were met, as the sellers insisted on cash payments, and the Department did not question the identity or genuineness of the transactions. The Tribunal's findings were deemed factual and legally sound, with no irregularities noted. Consequently, the High Court found no merit in the Department's appeal and dismissed it accordingly.