2006 (10) TMI 71 - HC - Income Tax

Exemption AO contended that in order to claim exemption under rule 6DD(j) assessee has to prove the identity of payee and genuineness of transactions Held the AO contention was correct and allowed

Summary

Issues:
Disallowance under section 40A(3) of the Income-tax Act for payments exceeding Rs. 10,000 made by the assessee through means other than account payee cheques or demand drafts, claim of exemption under rule 6DD(j) of the Income-tax Rules, burden of proof on the appellant to establish conditions for exemption, lack of evidence provided by the appellant, examination of facts by the High Court due to the significant amount involved, improbability of the petitioner's claim based on transaction details, lack of dealings with weavers in villages, dismissal of appeal due to lack of merit.

Analysis:
The judgment concerns the appeal filed by the assessee challenging the disallowance of Rs. 56,84,591 under section 40A(3) of the Income-tax Act for making payments exceeding Rs. 10,000 through means other than account payee cheques or demand drafts. The petitioner claimed exemption under rule 6DD(j) of the Income-tax Rules, which provides exceptions to the payment method requirement. However, to qualify for exemption, the assessee must prove that payments through cheques or demand drafts were impracticable and would cause genuine difficulty to the payee. The burden of proof lies on the appellant to establish these conditions with evidence to the satisfaction of the Assessing Officer.

The court noted that the appellant failed to provide sufficient details of payees and transactions, leading to returned notices sent by the Department due to non-existent or unknown addressees. Despite the Department's efforts to trace suppliers' addresses, the burden of proof remained with the assessee to identify payees and demonstrate the genuineness of transactions falling under the exception clause of rule 6DD(j). The court emphasized that the burden of proof required under the rule rests on the appellant, and the authorities' findings were based on facts without scope for interference by the High Court in normal circumstances.

The court further analyzed the improbability of the petitioner's claim based on transaction details, highlighting the significant cash purchases made to distant states without adequate risk coverage or plausible reasons for avoiding cheques or demand drafts. The suppliers were revealed to be well-established traders, not small weavers in villages as claimed by the petitioner, rendering the exemption claim under rule 6DD(j) inapplicable and unsubstantiated. Consequently, the court dismissed the appeal as lacking merit and failing to establish entitlement to any benefit under the rule.

Additionally, the court rejected a new contention raised by the petitioner under clause (g) as it did not align with previous claims and was deemed bogus. The dismissal of the appeal was upheld as no question of law arose from the Tribunal's order, further emphasizing the lack of substantial legal issues warranting reconsideration.