1990 (11) TMI 175 - AT - Income Tax

Summary

Issues:
1. Disallowance under section 40A(3) of the Income Tax Act for cash payment.
2. Application of Rule 6DD(j) of the Income Tax Rules, 1962 for exemption from disallowance.
3. Interpretation of exceptional or unavoidable circumstances for cash payment.

Analysis:

The judgment by the Appellate Tribunal ITAT Ahmedabad pertains to an appeal by the assessee concerning the assessment year 1983-84. The primary issue revolved around a cash payment of Rs. 11,000 made to M/s Khedut Traders, Dhoraji, on 25th September 1982, which was not through an account payee cheque or demand draft. The assessing officer disallowed this payment under section 40A(3) of the Income Tax Act, prompting the appeal by the assessee.

The assessee contended that the payment was covered by Rule 6DD(j) of the IT Rules, 1962, and cited a circular of the Board to support their argument. The Department, on the other hand, argued that the payment in cash was not justified as the amount had become due in May, and there were no compelling reasons for the cash payment. The Tribunal had to determine whether the conditions under Rule 6DD(j) were satisfied to exempt the assessee from disallowance under section 40A(3).

Upon reviewing the submissions and facts, the Tribunal analyzed the conditions specified in Rule 6DD(j) for exemption from disallowance. The rule allowed for exceptions to disallowance when payment by cheque or bank draft was not practicable due to exceptional or unavoidable circumstances causing genuine difficulty to the payee. The Tribunal referred to a circular of the Board to provide guidance on interpreting these conditions.

In this case, it was established that M/s Khedut Traders did not have a bank account at the location where the transaction occurred, and the payee needed immediate cash due to the bank holiday and time constraints. The Tribunal found that these circumstances constituted exceptional and unavoidable reasons for the cash payment, as supported by evidence provided by the assessee. Additionally, the genuineness of the transaction and the identity of the payee were confirmed.

The Tribunal emphasized that the provisions of Rule 6DD(j) should be viewed from a businessman's perspective, as highlighted in a previous decision by the Gujarat High Court. Considering the circumstances and the objectives of the provision, the Tribunal concluded that the disallowance made by the assessing officer was unwarranted. Consequently, the Tribunal allowed the appeal, overturning the disallowance under section 40A(3) of the Income Tax Act for the cash payment to M/s Khedut Traders.

In summary, the Tribunal's judgment centered on the application of Rule 6DD(j) to justify a cash payment under exceptional circumstances, ultimately ruling in favor of the assessee and setting aside the disallowance imposed by the assessing officer.