2010 (4) TMI 1214 - HC - Income Tax

Summary

Issues involved:
The judgment involves the interpretation of Section 40A(3) of the Income Tax Act regarding cash payments made by an Assessee in the transport business.

Summary:

Issue 1: Violation of Section 40A(3) of the Act
The Revenue challenged the Tribunal's decision regarding the Assessee's violation of Section 40A(3) of the Act by making cash payments exceeding Rs. 10,000 without proper examination or evidence. The Tribunal's finding that the payments were genuine for the business operation was upheld, considering the practical aspects of the transport business and compliance with Rule 6DD of the Income Tax Rules.

Issue 2: Justification of Addition by Assessing Officer
The Assessing Officer disallowed cash payment of Rs. 7,00,036 under Lorry Hire Account, citing violation of Section 40A(3) of the Act. The Commissioner of Income Tax (Appeals) also rejected the appeal. However, the Income Tax Appellate Tribunal allowed the Assessee's appeal, considering the necessity of cash payments for business operations and compliance with Rule 6DD of the Rules.

The High Court noted that the Assessee's business of transport and fleet operations required cash payments for drivers, cleaners, and other employees, as well as for fuel and miscellaneous expenses. These payments were essential for the smooth operation of the business and fell within the scope of Rule 6DD(e) of the Rules.

The Tribunal's decision to grant relief to the Assessee was justified as the payments were made to ensure the proper functioning of the transport business and were identifiable to the Department. Therefore, there was no violation of Section 40A(3) of the Act, and the appeal by the Revenue was dismissed.