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TMI Blog1988 (12) TMI 59X X X X Extracts X X X X X X X X Extracts X X X X ..... amounts paid in cash in excess of Rs. 2,500. The payments in question were made to Mangilal Nathmal of 45A, Adya Sardhya Ghat Road, Calcutta, against the following bills: Bill No. Date Amount paid in cash Rs. 5590 11-9-1974 14,906 5547 5-9-1974 8,682 5592 11-9-1974 13,416 The assessee was required by the Income-tax Officer to explain the above cash purchases in excess of Rs. 2,500. The explanation offered by the assessee was that he was new to the business and, therefore, the parties refused to accept his cheques. The Income-tax Officer examined a list of sundry creditors of the assessee and found that many creditors were there including Mangilal Nathmal to whom the assessee had paid in cash. So, the assessee's explanations that he was new to the business and that the parties were insisting on cash payments were not acceptable to the Income-tax Officer as correct and genuine. Some of the payments made towards the beginning of the accounting year were, however, accepted by the Income-tax Officer on account of his being new, and in his opinion, it was likely that cash payments had to be made to begin with to establish his credibility in the market, but when the parties in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aited for the encashment of the cheques. He, accordingly, rejected the assessee's plea and sustained the addition made by the Income-tax Officer. The Tribunal opined that there may be justification for making payment in cash in case the creditor wanted such payment and the granting of special discount for cash payment is enough indication of the mind of the creditor. Taking a liberal view of the matter, the Tribunal held that there may be justification for the payment of Rs. 14,906 in cash provided the factual averment made in the grounds of appeal is borne out on verification. The Tribunal noted that the assessee did not appear to have taken any such plea at the earlier stage. The Tribunal, therefore, restored the matter to the Income-tax Officer on this point and directed him to ascertain the facts for himself and to re-examine the matter from the point of view of the instructions of the Central Board of Direct Taxes contained in Circular No. 220 dated May 31, 1977. With regard to the other credits, the Tribunal held that no case whatsoever was made out by the assessee justifying interference. The Tribunal agreed with the reasons given by the Appellate Assistant Commissioner. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the identity of the payee." The Board, therefore, issued a circular on May 31, 1977, being Circular No. 220, clarifying the provisions of section 40A(3) as well as rule 6D D (j). It has been provided as follows : "4. All the circumstances in which the conditions laid down in rule 6DD(j) would be applicable cannot be spelt out. However, some of them which would seem to meet the requirements of the said rule are: (i) The purchaser is new to the seller; or (ii) The transactions are made at a place where either the purchaser or the seller does not have a bank account ; or (iii) The transactions and payments are made on a bank holiday; or (iv) The seller is refusing to accept the payment by way of crossed cheque/draft and the purchaser's business interest would suffer due to non availability of goods otherwise than from this particular seller ; or (v) The seller, acting as a commission agent, is required to pay cash in turn to persons from whom he has purchased the goods ; or (vi) Specific discount is given by the seller for payment to be made by way of cash. 5. It can be said that it would generally satisfy the requirements of rule 6DD(j), if a letter to the above effect i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... awn to another decision of the Rajasthan High Court in the case of Badrilal Phool Chand Rodawat v. CIT [1987] 167 ITR 404. There, the court took into consideration the fact that this was the first dealing of the assessee and the firm could not have accepted the cheque of the assessee and the assessee could create confidence by making cash payment only. The genuineness of the payment and the identity of the payee were fully established. Therefore, the payment had to be allowed. We have already set out the facts of this case. The Tribunal was of the view that the Board's circular cannot be made applicable to the cases of payments which have been made long after the date of purchase without any justification whatsoever. In other words, the ground of disallowance of the payments is that there was a time-lag between the date of the bill and the payment made. The object of the provision of section 40A(3) is to check evasion of taxes so that the payment is made from the disclosed sources. Both the payer and the payee would be showing in the respective account the payments made and received. It presupposes that the transactions must be genuine transactions. In this case, genuineness of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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