1982 (9) TMI 185 - AT - Income Tax

Summary

Issues:
Disallowed payment under section 40A(3)

Analysis:
The appellant, an individual engaged in cloth business, appealed against the disallowance of a payment of Rs. 54,342 made in cash to a trading company under section 40A(3). The Income Tax Officer (ITO) disallowed the payment, stating that it should have been made by cheque to be deductible. The Appellate Assistant Commissioner (AAC) upheld the ITO's decision, rejecting the appellant's explanation of an oral agreement with his son. The appellant contended that the payment was genuine, supported by documentary evidence and an oral agreement. The appellant's representative argued that the ITO's conclusion was hasty and unjustified, emphasizing the genuineness of the transaction and the absence of any dispute regarding the oral agreement.

The appellant presented detailed evidence, including account extracts and letters, to support the genuineness of the transaction. The appellant's representative highlighted that the seller was a genuine party and the oral agreement with the son was not disputed by the authorities. The representative also referenced a Board Circular allowing cash payments if insisted by the seller, regardless of the amount. The appellant's son, the seller, could have been examined to verify the transaction's authenticity, but the ITO failed to do so. The Tribunal noted that the transaction was supported by accounts, and the lack of examination of the son by the ITO weakened the disallowance basis.

The Departmental Representative supported the lower authorities' decision, arguing that the appellant had sufficient time to make payments by cheque or demand draft. However, the Tribunal observed that the oral agreement with the son was not challenged, and the genuineness of the transaction was evident from the accounts. The Tribunal emphasized that the ITO's failure to examine the son and the existence of documentary evidence supported the appellant's claim. Consequently, the Tribunal allowed the appeal, deleting the addition made by the ITO and upheld by the AAC, concluding that the payment was genuine and deductible.