1990 (6) TMI 95

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..... Act. 3. It was explained that in its foundry the assessee had only 50 permanent labours. Others labours were supplied by M/s Bhagwati Casting Co. As M/s Bhagwati Casting Co. Was required to make payment of daily wages in cash it insisted on cash payments. Likewise, M/s Dubay Transport Agency, as transporters, had also insisted on cash payment since they needed cash for making payment to the drivers going on trips. The assessee filed confirmations from the payee to the effect that that cash payments were made to them on their insistence. It was further explained that both the payees were regular income-tax payers. The ITO summoned both the parties under s. 131 and examined their books of account. On scrutiny of cash book the ITO observed .....

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..... epartmental Representative submitted that under s. 40A(3), case in respect of each payment exceeding Rs. 2,500 is to be seen. Otherwise, the requirement of the above section would not be satisfied. The CIT(A) in the impugned order deleted the additions with a general observation without examining the case with respect to each payment. The assessee had made payments through cheques to both the parties and, therefore, it was for the assessee to show that the cash payments were justified. According to the learned Departmental Representative, the assessee failed to establish that cash payments were made under exceptional and unavoidable circumstances mentioned in r. 6DD(j) of the IT Rules. He, therefore, wanted us to restore the order of the As .....

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..... payees. There is also no dispute about the fact that cash payments were insisted upon by the payees. The ITO invoked the provisions of s. 40A(3) of the Act as, according to him, payments by cheques would not have caused hardship to the payees as they had sufficient opening cash balance. In our view, this ground for disallowing the payments is not justified as the assessee could not be expected to have control over the cash balance of the payees. The assessee, in our view, was justified in accepting bonafidely without verification with reference to cash book that the payees needed cash for disbursement. The authorities cited on behalf of the assessee also support the assessee's case. We do agree with the learned Departmental Representative t .....

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