1985 (4) TMI 121 - AT - Income Tax

Summary

Issues:
Appeal against addition under section 40A(3) of the IT Act for the assessment year 1976-77.

Analysis:
The appeal was filed by the assessee against the addition of Rs. 40,092 made by the Income Tax Officer (ITO) under section 40A(3) of the IT Act. The assessee, a registered firm engaged in the purchase and sale of silver and silver ornaments, also made purchases of old silver from petty Sunars in rural areas. The ITO found that cash purchases of silver ornaments from 10 parties were not genuine and invoked the provisions of section 40A(3) of the IT Act due to payments being made in cash. The CIT(A) set aside the matter for fresh assessment. In the reassessment, the ITO accepted the purchases as genuine but maintained that the provisions of section 40A(3) were violated due to cash payments, leading to the addition of Rs. 40,092 to the total income. The CIT(A) upheld the ITO's findings, prompting the appeal by the assessee.

Upon hearing both parties, the Tribunal analyzed the provisions of section 40A(3) and Rule 6DD of the IT Rules. It was established that the assessee made cash payments under exceptional and unavoidable circumstances, as evidenced by confirmatory letters from sellers and their lack of bank accounts. The Tribunal referred to circular instructions by the CBDT and relevant case laws to support the assessee's position. The Tribunal emphasized that the burden of proof was on the assessee, which was successfully discharged in this case. The Tribunal concluded that the cash payments were justified under Rule 6DD(j) and the circular instructions, thereby deleting the disallowance of Rs. 40,092 made by the ITO and upheld by the CIT(A).

In summary, the Tribunal found that the assessee's cash payments for the purchase of silver were made under exceptional and unavoidable circumstances, in compliance with Rule 6DD(j) of the IT Rules and the CBDT circular instructions. The Tribunal emphasized the importance of meeting the requirements of the rule to justify cash payments and ruled in favor of the assessee, allowing the appeal and deleting the addition of Rs. 40,092 to the total income.