1997 (4) TMI 106 - AT - Income Tax

Summary

Issues:
- Disallowance under section 40A(3) of the IT Act for cash payments made by the assessee.
- Interpretation of rule 6DD(j) regarding circumstances where cash payments are allowed.
- Examination of genuineness of transactions and necessity of cash payments.

Detailed Analysis:

Issue 1: Disallowance under section 40A(3)
The appeal was filed by the Revenue against the CIT(A)'s order deleting the addition of Rs. 1,77,976 made under section 40A(3) of the IT Act for the assessment year 1988-89. The AO disallowed the amount as the payments made by the assessee for purchasing ghee were not covered by the circumstances specified in rule 6DD. The CIT(A) deleted the addition except for two payments made to specific parties, which were found to be in violation of section 40A(3). The Revenue challenged this decision.

Issue 2: Interpretation of rule 6DD(j)
The assessee argued that the cash payments were made due to exceptional and unavoidable circumstances, as allowed under rule 6DD(j). The parties involved in the transactions provided statements supporting the genuineness of the payments and the necessity for cash transactions. The CIT(A) examined these statements in detail and found that certain payments were genuine and covered by the circumstances mentioned in rule 6DD(j), while others were not.

Issue 3: Examination of genuineness of transactions
The legal position of section 40A(3) was discussed, citing the Supreme Court's decision in Attar Singh Gurmukh Singh case. The judgment emphasized that genuine and bona fide transactions should not be excluded from the scope of the section. The High Court's decision in Hasanand Pinjomal case highlighted that practicability for cash payments must be judged from the businessman's perspective, not the Revenue's. The CIT(A) considered the circumstances of each transaction, including parties insisting on cash due to new relationships or strained interactions, and concluded that the cash payments were justified under rule 6DD(j).

In conclusion, the Tribunal dismissed the appeal, upholding the CIT(A)'s decision that the cash payments made by the assessee were genuine and justified under the circumstances outlined in rule 6DD(j). The judgment emphasized the importance of considering business expediency and genuine difficulties faced by the payee in assessing the validity of cash transactions under section 40A(3).