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Issues involved: Income-tax assessment for years 1977-78 and 1978-79, disallowance of expenses, compliance with section 40A(3) of the Income-tax Act.
Summary: The High Court of Andhra Pradesh considered a case involving income-tax assessments for the years 1977-78 and 1978-79, where the assessee, a distributor of Bush Radios, claimed deductions for payments made to constituents in Madras. The Income-tax Officer disallowed the expenses, citing lack of proof of genuineness and contravention of section 40A(3) of the Income-tax Act, which requires payments over Rs. 2,500 to be made by crossed cheques. The Commissioner of Income-tax (Appeals) partially accepted the genuineness of payments but upheld the disallowance due to non-compliance with section 40A(3) and rule 6DD. The Tribunal confirmed the disallowance based on section 40A(3) despite finding the payments genuine. The assessee contended that the payments were genuine and made under exceptional circumstances, as per rule 6DD(j), even though they were in cash. The High Court noted that the assessee's explanation lacked corroborative evidence and that issuing bearer cheques in Madras, where both parties had bank accounts, was not justifiable. Emphasizing the need for strict compliance with tax laws to prevent evasion, the Court upheld the disallowance of expenses for both assessment years. In conclusion, the Court ruled in favor of the Revenue, affirming the disallowance of expenses for the assessment years 1977-78 and 1978-79, as the payments did not meet the requirements of section 40A(3) despite the genuineness claimed by the assessee.
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