1977 (10) TMI 31 - HC - Income Tax

Summary

Issues Involved:
1. Deduction of expenditure u/s 40A(3) and rule 6DD(j) of the Income-tax Act.
2. Legality and binding nature of circulars issued by the Central Board of Revenue u/s 119 of the Income-tax Act.
3. Proper consideration by the Commissioner regarding the applicability of rule 6DD(j).

Summary:

Issue 1: Deduction of expenditure u/s 40A(3) and rule 6DD(j)
The assessee claimed deductions for amounts expended on the purchase of stock-in-trade (yarn) based on the general provisions of the Income-tax Act, specifically u/s 40A(3) and rule 6DD(j). The deductions were disallowed as the requirements of section 40A(3) and rule 6DD(j) were not satisfied. Section 40A(3) mandates that any expenditure exceeding Rs. 2,500 must be made by a crossed cheque or bank draft to be allowed as a deduction. Rule 6DD(j) provides exceptions where payments exceeding Rs. 2,500 can be made otherwise than by a crossed cheque or bank draft due to exceptional or unavoidable circumstances or genuine difficulty to the payee.

Issue 2: Legality and binding nature of circulars u/s 119
The appellant relied on Circular No. 220 dated 31st May 1977, which provided circumstances under which rule 6DD(j) would be applicable. The revenue contended that such circulars could only relate to administrative matters and not judicial or quasi-judicial functions. The court noted that the circular in question was issued after the order of the Commissioner and thus had no application to the case. The court also referenced earlier circulars and press notes but found them unhelpful in this case.

Issue 3: Proper consideration by the Commissioner
The Commissioner disallowed the deductions on the grounds that mere insistence on cash payments did not constitute exceptional or unavoidable circumstances as required by rule 6DD(j). The court found that the Commissioner did not fairly consider whether the assessee's payments were made out of banking hours or on bank holidays, which could attract the rule. The court directed the Commissioner to reconsider the claims for deduction of specific amounts in accordance with the law and the observations made in the judgment.

Conclusion:
The court allowed the writ appeals, set aside the orders of the learned judge, and quashed the Commissioner's orders to the extent specified. The Commissioner was directed to reconsider the assessee's claims for deduction of specific amounts afresh in accordance with the law and the observations contained in the judgment. There was no order as to costs.