Law: Income Tax Act, 1961

Section: 40A(3),256(2)

Income-tax---Reference---Payments not deductible---Assessing Officer disallowing deduction on ground assessee splitting up payments on a single day into two or more of Rs.2,500 or less---Tribunal finding no intentional platting up of payments into items below Rs.2,500---Tribunal holding no allegation that transactions entered into by assessee not real or payees not identifiable persons---Tribunal deleting disallowance---Question of law arises for reference---Indian Income Tax Act, 1961, Ss. 40-A(3) & 256(2). For the assessment year 1987-88, the Assessing Officer disallowed payments totalling Rs.1,56,253 under section 40-A(3) of the Income Tax Act, 1961, on the ground that the assessee had split the items of payment exceeding Rs.2,500 and made payment in cash two or three times on a single day. The Commissioner (Appeals) confirmed the disallowance. The Tribune deleted the disallowance on the grounds that the mode of payment reflected in the books of account showed that the assessee took care not to commit breach of section 40-A(3), that there was no intentional splitting up of the payments into items below Rs.2,500, that unless there was positive proof that the assessee at one time made payment in excess of Rs.2,500 and later split it into smaller items, no such inference of breach of section 40-A(3) could be drawn that the Revenue Officers should not expect compliance of section 40-A(3) rigorously and that there was no allegation that the transactions entered into by the assessee were not real or that the payees were not identifiable persons. The application of the Revenue under section 256(1) of the Act for referring a question of law was rejected. On an application under section 256(2) for directing the Tribunal to refer a question of law: Held, that a question of law, viz., "whether the Tribunal was justified in deleting the addition of Rs.1,56,253 contrary to section 40-A(3) of the Act" arose for reference. JUDGMENT A. R. TIWARI, J.---The applicant (Commissioner of Income-tax, Bhopal), has filed this application under section 256(2) of the Income Tax Act, 1961 (for short "the Act"), seeking a direction to the Tribunal to state the case and to refer the…

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