1985 (7) TMI 120 - AT - Income Tax

Summary

Issues:
1. Disallowance under section 40A(3) of the IT Act for an amount of Rs. 11,646.
2. Applicability of Rule 6DD in the case.
3. Treatment of separate bills under section 40A(3).

Analysis:

1. Disallowance under section 40A(3):
The case involved disallowance of Rs. 11,646 under section 40A(3) of the IT Act. The Assessing Officer disallowed this amount as the assessee failed to verify the genuineness of purchases made from customers. The CIT (A) upheld the disallowance based on aggregation of amounts paid to the same party on the same date with consecutive cash memo numbers. The contention was that no single cash purchase exceeded Rs. 2500, hence section 40A(3) should not apply. However, the disallowance was sustained by the CIT (A) based on the statutory provision.

2. Applicability of Rule 6DD:
The appellant argued that Rule 6DD was fully applicable in the case, and the disallowance under section 40A(3) should not have been made. The Departmental Representative contended that separate bills were made to circumvent section 40A(3) and highlighted the necessity for exceptional circumstances under Rule 6DD. The Tribunal observed that the sellers, being members of the public, could not be expected to trust the assessee, justifying cash payments. The Tribunal found that the requirements of Rule 6DD were satisfied, leading to the cancellation of the addition.

3. Treatment of separate bills under section 40A(3):
The Tribunal rejected the argument that each bill should be treated as a separate expenditure, emphasizing the need to identify each expenditure independently. The acceptance of the assessee's accounts by the CIT was not conclusive to preclude the applicability of section 40A(3). The Tribunal considered the requirements of Rule 6DD, which allow for payments in cash due to exceptional or unavoidable circumstances. It was noted that expecting further proof of genuineness of payments or identity of the payee was unrealistic given the nature of the trade and the diverse customer base. Ultimately, the Tribunal cancelled the addition and allowed the appeal.

In conclusion, the Tribunal's decision focused on the statutory provisions of section 40A(3), the applicability of Rule 6DD, and the treatment of separate bills in the context of the genuineness of payments and identity of the payee. The cancellation of the addition was based on the satisfaction of Rule 6DD requirements and the realistic approach taken towards the evidence presented by the assessee.