1984 (11) TMI 173 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of cash payments under Section 40A(3).
2. Disallowance of traveling expenses.
3. Disallowance of certain purchases.

Issue-wise Detailed Analysis:

1. Disallowance of Cash Payments under Section 40A(3):
The first issue concerns the correctness of the decision by the lower authorities regarding the disallowance of Rs. 69,071 in cash payments under Section 40A(3). The assessee argued that the payments were made under exceptional circumstances and provided certificates from the concerned parties to substantiate the claims. The Tribunal noted that Section 40A(3) does not impose a blanket ban on all cash payments over Rs. 2,500. It allows for exceptions where insisting on cheque payments would cause hardship or inconvenience. The Tribunal found that the assessee had genuine reasons for making cash payments, such as the exhaustion of bank overdraft limits and the risk involved in carrying large amounts of cash. The Tribunal concluded that the lower authorities erred in disallowing the payments and allowed the sum of Rs. 69,071 in full.

2. Disallowance of Traveling Expenses:
The second issue pertains to the disallowance of Rs. 10,000 out of Rs. 21,789 in traveling expenses. The assessee contended that these expenses were incurred in the ordinary course of business and were reasonable compared to previous years. The Tribunal observed that the ITO disallowed the expenses mainly because the daily allowance of the partner increased and there were no detailed records of the work done or actual bills. The Tribunal held that while the accounts were audited, the auditors did not specify the evidence produced before them. Given the lack of satisfactory evidence, the Tribunal found that a reasonable disallowance of Rs. 5,000, instead of Rs. 10,000, was warranted.

3. Disallowance of Certain Purchases:
The last issue involved the disallowance of Rs. 1,250 out of purchases. The Tribunal pointed out that this issue did not arise from the order of the CIT(A) and was possibly raised before the CIT(A). The assessee did not press this contention during the hearing. Consequently, the Tribunal rejected this ground.

Conclusion:
The appeal was partly allowed. The Tribunal allowed the sum of Rs. 69,071 in cash payments under Section 40A(3) and reduced the disallowance of traveling expenses by Rs. 5,000. The disallowance of Rs. 1,250 out of purchases was rejected.