2007 (3) TMI 810 - HC - Income Tax

Summary

Issues involved: Interpretation of u/s 40A(3) of the Income-tax Act, 1961 and rule 6DD(j) of the Income-tax Rules.

In this case, the assessee made a cash payment exceeding the limit specified in u/s 40A(3) of the Act to a partner of a firm. The provision prohibited cash payments exceeding a certain amount unless by crossed cheque or bank draft. An exception under rule 6DD(j) allowed cash payments in specific circumstances, such as exceptional or unavoidable situations. The genuineness of payment and payee's identity must be established, along with reasons for cash payment. The Tribunal found no exceptional circumstances necessitating cash payment, as the payee did not insist on cash. The assessee failed to demonstrate any valid reasons for the cash payment, as required by the law. All statutory authorities agreed that there were no special reasons for the cash payment, leading to a concurrent finding against the assessee. Consequently, the questions referred were answered in favor of the revenue regarding the disallowance under u/s 40A(3) and the sustainability of the addition, as the assessee did not meet the criteria specified under the law.