Law:

Section:

Section 40A(3) of the Income-tax Act, 1961, read with rule 6DD(i) of the Income-tax Rules, 1963 - Business disallowance - Cash payments exceeding Rs. 2.600 - During relevant assessment year, assessee made certain purchases in cash of amount exceeding Rs. 2,500 - Tribunal found that during relevant period assessee had no bank account and that selling parties in a number of cases did not accept cheques and insisted on cash payments - Whether in view of findings of Tribunal, assessee's case was covered by rule 6DD(j) and no additions could be made under section 40A(3) - Held, yes Facts During the assessment year 1970-71, the assessee made purchases of Es. 45,799 in cash of certain goods. The ITO added the entire amount under section 40A(3) on the ground that payments exceeded Rs. 2,500 at a time and the banking facilities were available at the assessee's place, Bettiah and also at Muzaffarpur where the purchases were made. On appeal, the assessee explained that even though banking facilities were available, but for commercial reasons very often a man had to be sent for making purchases and he after contacting various parties had to decide then and there where it was more profitable to purchase. The AAC held that the provisions of section 40A(3) should not have been invoked because the payments were made for purchase of goods and genuineness of the payments wa3 established by furnishing confirmatory letters from the parties concerned. He also held that the payments were from commercial point of view and the assessee had reason for not operating through bank and, therefore, deleted the said addition made by the ITO. The Tribunal found that during the material period the assessee had no bank account and in a number of cases cheques were not acceptable to the other parties and that the assessee had to pay the purchase price of the closing stock in cash from commercial point of view and, therefore, rule 6DD(j) was applicable. He, therefore, upheld the order of the AAC. On reference: Held In the instant case, the finding of the Tribunal was a finding of fact and was not vitiated by any perversity and as such was binding on the present Court. In the circumstances, the…

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