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Issues Involved:
The judgment involves a reference made u/s 256 of the Income-tax Act, 1961, regarding two assessment orders of 1978-79 and 1979-80. The main issue is whether the Tribunal was justified in reversing the finding of the Commissioner of Income-tax (Appeals) regarding the disallowance of certain payments made in cash. Assessment Year 1978-79: The assessee, a business firm in Assam, made cash payments to various firms at Tezpur, totaling Rs. 50,559. The Income-tax Officer initially disallowed these payments as they were not made by crossed cheques or bank drafts. However, the Commissioner of Income-tax allowed the appeal, but the Appellate Tribunal reinstated the Income-tax Officer's decision based on section 40A(3) of the Act. Assessment Year 1979-80: Similarly, for this assessment year, the assessee made cash payments totaling Rs. 36,530 to two firms at Tezpur. The Tribunal upheld the disallowance of these payments based on the same section 40A(3) of the Act. Legal Provisions and Precedents: Section 40A, rule 6DD, and Circular No. 220 mandate that payments above a certain threshold must be made by crossed cheques or bank drafts unless exempted. Various High Court decisions have discussed the legislative intent behind these provisions to prevent tax evasion and have outlined circumstances where exemptions can be claimed based on genuine difficulties faced by the assessee. Court's Analysis and Decision: The Court considered the genuine nature of the transactions, where the payments were made in cash due to the insistence of the Gauhati-based firms' representatives who visited Tezpur. The Court noted the practical difficulties faced by businesses in the banking system, where delays in cashing cheques are common. The Tribunal's rejection of the explanation for cash payments was deemed unjustified, as the genuineness of the transactions was not in question. The Court emphasized that the acceptance or rejection of explanations under the law is a matter of inference and a question of law. The Court ruled in favor of the assessee, holding that the payments were genuine and the explanation offered was valid, thus disallowing the Revenue's claim. The Court also left open the question of whether payments for goods purchased should be considered as expenditure, to be decided in a more appropriate case. Conclusion: The Court answered the referred question in the negative, in favor of the assessee and against the Revenue, without awarding any costs.
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