Law:

Section:

Section 40A(3) of the Income-tax Act, 1961, read with rule 6DD(j) of the Income-tax Rules, 1962 - Business disallowance - Cash payment exceeding prescribed limits - Assessment years 1985-86 and 1986-87 - Assessee was engaged in scrap business - It made cash purchases to tune of several lakhs and explained that small dealers insisted on receipt of payment in cash but did not produce proper receipts and vouchers - Assessing Officer, by rejecting explanation of assessee and applying section 40A(3) made addition - Tribunal observed that small dealers of scrap, who themselves were unregistered businessmen, had insisted on receipt of payments in cash and had not also issued proper invoices, receipts, etc., as otherwise they might be under fear of being entangled by net of Sales Tax Department, and also noticed that it would not always be possible for assessee to issue cheques every time and accepted assessee's case as one falling within rule 6DD(j) - Whether since reasons given by assessee could not be accepted for purpose of exemption under rule 6DD(j), order of Tribunal was to be set aside - Held, yes FACTS The assessee was engaged in scrap business and manufacture of sheet metal machinery. During the previous years relevant to assessment years 1985-86 and 1986-87, it made cash purchases to the tune of several lakhs of rupees and explained that small dealers of scrap insisted on receipt of payment in cash. The Assessing Officer, however, applying the provisions of section 40A(3), added the amount to the income of the assessee. On appeal, the Tribunal accepting the contention of the assessee deleted the addition made by the Assessing Officer. On appeal : HELD The Tribunal had ruled out that there was no doubt about the fact that in general the onus lies on the assessee to prove that the cases of cash purchases above the limit of Rs. 2,500 come within the ambit of rule 6DD(j ) by producing relevant evidences. He further noticed that the assessee indeed made some cash purchases from certain small unregistered dealers at rates lower than at which it made other purchases from the registered dealers. The Tribunal noticed that the small dealers of scrap, who themselves…

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