1977 (1) TMI 66 - AT - Income Tax

Summary

Issues:
1. Admissibility of deductions under Rule 6DD of the Income-tax Rules, 1962 for cash payments above Rs. 2,500.
2. Disallowance of payments by the Income-tax Officer.
3. Rejection of contentions by the Appellate Assistant Commissioner.
4. Exceptional and unavoidable circumstances for cash payments.
5. Consideration of banking facilities and encashment of cheques or drafts.

Analysis:

The appeal before the Appellate Tribunal ITAT Delhi-A involved the admissibility of deductions under Rule 6DD of the Income-tax Rules, 1962 for cash payments above Rs. 2,500 made by a registered firm engaged in the purchase and sale of Bardana. The Income-tax Officer disallowed the payments, stating they were not made by crossed cheques or bank drafts and did not qualify under Rule 6DD. The Appellate Assistant Commissioner upheld this disallowance, rejecting the assessee's contentions and certificates provided by the payees.

During the appeal, the counsel for the assessee conceded that the payments constituted expenditure under s. 40(a)(3), but argued that exceptional circumstances necessitated the cash payments. The counsel contended that the payees had no bank accounts and insisted on cash due to their own cash transactions. The Appellate Tribunal found merit in the assessee's arguments, noting that the payees lacked bank accounts, making crossed cheques or bank drafts impractical for them. The Tribunal also considered the contractual terms requiring cash payments and the nature of transactions involving other cash payees.

The Tribunal concluded that Rule 6DD(j) was applicable due to the genuine difficulties faced by the payees in encashing cheques or drafts without bank accounts. Therefore, the Tribunal allowed the assessee's claim for deduction of the disputed cash payments. The revenue's argument regarding the availability of banking facilities was countered by the Tribunal's findings on the practicality and necessity of cash payments in the given circumstances.

Ultimately, the appeal was allowed in favor of the assessee, emphasizing the exceptional and unavoidable circumstances that justified the cash payments and the applicability of Rule 6DD(j) in this case. The judgment highlights the importance of considering practical difficulties faced by payees in encashing non-cash payments when determining the admissibility of deductions under tax laws.