Delhi High Court
Jhunjun Wala And Co. vs Cit on 12 March, 2007
Bench: M B Lokur, V Gupta
ORDER
1. In this reference under Section 256(1) of the Income Tax Act, 1961, the following questions of law have been referred for our opinion:
1. Whether on the facts and in the circumstances of the case, was the Income Tax Appellate Tribunal legally correct in upholding the disallowance as made by the Income Tax Officer amounting to Rs. 1,06,120 by invoking the provisions of Section 40A(3) of the Income Tax Act?
2. Whether or not the case of the assessee was covered within the exception provided in Rule 6DD(j) of the Income Tax Rules read with the Explanatory note of the Central Board of Direct Taxes dated 31-5-1977?
3. Whether on the facts and in the circumstances of the case and on the interpretation of Rule 6DD(j) read with the Explanatory note the addition sustained was legally justified and is thus sustainable in law?
4. Whether on the facts and in the circumstances of the case, the expenditure of Rs. 1,06,120 was expenditure within the meaning of Section 40A(3) of the Income Tax Act?
2. In sum and substance, the case before us is that the assessee had made payment of Rs. 1,06,120 in cash to P.C. Jain, a partner of a Bombay firm, that is, M/s. Bansidhar Ramesh Chand. Section 40A(3) of the Act, which is the applicable provision, prohibited, at the relevant time, payment by way of cash in a sum exceeding Rs. 2,500 otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft.
3. There was an exception to this provision and that has been given in Rule 6DD of the Income Tax Rules, 1962. Rule 6DD(j) of the Rules, as it existed at the relevant time, and on which reliance has been placed by learned Counsel for the assessee, reads as follows:
6DD. No disallowance under Sub-section (3) of Section 40A shall be made where any payment in a sum exceeding two thousand five hundred rupees is made otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft in the cases and circumstances specified hereunder, namely:
(a) to (i)****
(j) in any other case, where the assessee satisfies the assessing officer that the payment could not be made by a crossed cheque drawn on a bank or by a crossed bank draft-
(1) due to exceptional or unavoidable circumstances, or
(2) because payment in the manner aforesaid was not practicable, or would have caused genuine difficulty to the payee, having regard to the nature of the transaction and the necessity for expeditious settlement thereof;
and also furnishes evidence to the satisfaction of the assessing officer as to the genuineness of the payment and the identity of the payee.
4. A bare reading of the above provision shows that not only is the genuineness of payment and the identity of the payee required to be established, but the assessee must also show that the payment was made in cash due to exceptional or unavoidable circumstances or because payment by way of a crossed cheque or a bank draft was not practicable or would have caused a genuine difficulty to the payee.
5. In the reference before us, there is a finding of fact arrived at by the Tribunal to the effect that there was no exceptional or unavoidable circumstance which required the assessee to make the payment to P.C. Jain in cash nor that it was not practicable to make the payment in a manner other than through cash. In fact, Mr. Jain stated before the departmental authorities that there was no insistence that cash payment should be made.
6. In view of these findings of fact, it is quite clear that the assessee has not been able to show that there were some exceptional reasons for the assessee to make the payment in cash.
7. The ingredients of Rule 6DD of the Rules read with Section 40A(3) of the Act have not been satisfied by the assessee.
8. We may note that all the three statutory authorities have found that there was no special reason for the assessee to make the payment to P.C. Jain in cash.
9. We are not inclined to disturb this concurrent finding.
10. Under the circumstances, we answer the questions referred for our opinion in the following manner:
(1) In the affirmative, in favour of the assessee and against the revenue.
(2) In the negative, in favour of the revenue and against the assessee.
(3) In the affirmative, in favour of the assessee and against the revenue.
(4) In the affirmative, in favour of the assessee and against the revenue.
The reference is disposed of accordingly.
