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Issues Involved:
The issue involves the disallowance of a cash payment made to an individual under section 40A(3) of the Income-tax Act, 1961. Judgment Details: The Income-tax Appellate Tribunal referred the question of law regarding the disallowance of Rs. 16,400 paid in cash to Shri Santosh Kumar under section 40A(3) of the Income-tax Act, 1961. The assessee contended that the cash payment was made as commission for bringing in new customers. However, the Income Tax Officer (ITO) disallowed the cash payment as the assessee failed to prove that the payments were made under exceptional and unavoidable circumstances. This disallowance was upheld by the Appellate Authority and the Income-tax Appellate Tribunal. The Tribunal found that the cash payments exceeding Rs. 2,500 to the extent of Rs. 16,400 were made without proof of exceptional circumstances. The Tribunal held that the provisions of section 40A(3) were applicable in this case, and the disallowance was justified. The assessee relied on rule 6DD(e) of the Income Tax Rules, 1962, which allows payments in cash under certain circumstances. However, the Tribunal ruled that this rule did not apply as no liability was incurred by the payee for any goods or services provided by the assessee. The commission was paid for services rendered by the payee to the assessee, making the rule inapplicable. In conclusion, the Tribunal's decision to confirm the disallowance of the cash payment of Rs. 16,400 under section 40A(3) was upheld. The court answered the question in the affirmative, ruling against the assessee. Each party was directed to bear their own costs in this reference.
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