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Issues:
1. Interpretation of section 40A(3) of the Income-tax Act, 1961. 2. Application of rule 6DD(j) of the Income-tax Rules, 1962. 3. Justification for disallowing cash payments under section 40A(3). 4. Business expediency in making cash payments. 5. Assessment of facts to determine if a question of law or fact is involved. Detailed Analysis: 1. The judgment pertains to two petitions under section 256(2) of the Income-tax Act, 1961, for the assessment years 1976-77 and 1978-79 concerning the same assessee, M/s. Union Agencies, New Delhi. The primary issue in question for the assessment year 1976-77 was whether the Tribunal was correct in law in holding that there was no justification for disallowing cash payments amounting to Rs. 11,85,653 under section 40A(3) of the Income-tax Act, 1961. 2. The Commissioner of Income-tax (Appeals) accepted the contention of the assessee that the cash payments satisfied the requirement of rule 6DD(j) of the Income-tax Rules, 1962. Rule 6DD(j) allows for payments in cash in exceptional or unavoidable circumstances, or when the payment in any other manner would cause genuine difficulty to the payee. The Commissioner held that the payments made by the assessee to M/s. Om Parkash & Co. for Amul products fell within the purview of this rule. 3. The Tribunal upheld the Commissioner's decision, citing the application of rule 6DD(j) and a Board Circular to justify the cash payments. It drew parallels with the practice in the petrol pump industry, where cash payments are necessitated by the principal company, and failure to comply would result in adverse business consequences. The Tribunal found no justification for disallowing the cash payments made by the assessee in this context. 4. The Tribunal reasoned that the nature of the business, involving large quantities of perishable goods like butter and dairy products, required immediate settlement of payments to ensure expeditious distribution. The distributor, M/s. Om Parkash & Co., had specific requirements for cash payments due to the absence of credit facilities or bank guarantees provided by the assessee. Therefore, the Tribunal concluded that business expediency justified the cash payments made by the assessee. 5. The High Court analyzed whether the issue at hand was a question of law or fact. It referenced previous judgments to establish that the interpretation of section 40A(3) and rule 6DD(j) must consider business expediency and practical difficulties faced by the assessee. The Court noted that the decision to allow or disallow cash payments should be based on the factual circumstances of each case rather than a strict legal interpretation. Ultimately, the Court dismissed the application, affirming that the matter was a question of fact and not a question of law. In conclusion, the judgment provides a detailed analysis of the application of tax laws, rules, and business considerations in determining the validity of cash payments made by the assessee, emphasizing the importance of business expediency and factual circumstances in such assessments.
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