1992 (11) TMI 71 - HC - Income Tax

Summary

Issues:
1. Interpretation of section 40A(3) of the Income-tax Act.
2. Applicability of Circular No. 220, dated May 31, 1977, issued by the Central Board of Direct Taxes.
3. Allowance of cash payments exceeding Rs. 2,500 under exceptional circumstances.

Detailed Analysis:
1. The judgment pertains to the assessment year 1972-73, where the Income-tax Tribunal referred a question to the court regarding the applicability of section 40A(3) of the Income-tax Act. The assessee, a registered firm, had made cash payments exceeding Rs. 2,500 to M/s. Meghdoot Pistons (P.) Ltd. The Income-tax Officer disallowed these payments, citing a violation of section 40A(3), which requires payments exceeding Rs. 2,500 to be made by crossed cheques or bank drafts. The Appellate Assistant Commissioner, considering the circumstances, held that the payments fell within the scope of rule 6DD(j) of the Income-tax Rules, allowing the deduction. The Tribunal upheld this decision, noting that the payments were made under exceptional and unavoidable circumstances.

2. The Tribunal's decision was supported by Circular No. 220, dated May 31, 1977, issued by the Central Board of Direct Taxes. The circular stipulates that if a seller insists on cash payments and the purchaser's business interest would suffer without goods from that seller, then even cash payments exceeding Rs. 2,500 are allowable as a deduction. The Tribunal found that the assessee's case aligned with the provisions of the circular, which was binding on the Income-tax Officer. Consequently, the Tribunal confirmed the allowance of the cash payments, dismissing the Revenue's appeal.

3. The court concurred with the Tribunal's findings, emphasizing that the cash payments were made under exceptional circumstances, as determined by the Tribunal based on the evidence presented. The genuineness of the transactions was not in dispute, further supporting the allowance of the deduction. Given these facts, the court held that the assessee was entitled to claim the benefit of Circular No. 220 and that the Tribunal's decision was well-founded. Therefore, the court answered the referred question affirmatively and in favor of the assessee, with no order as to costs.