Law:

Section:

Section 40A(3) of the Income-tax Act, 1961, read with rule 6DD of the Income-tax Rules, 1962- Payment not deductible - Cash payment exceeding Rs. 2400 - Assessment year 1972-73 - ITO disallowed certain cash payments, each exceeding Rs. 2,500, by invoking provisions of section 40A(3) - Tribunal found that payments were genuine, identity of payees was established and case was covered by rule 6DD(j) - Whether Tribunal's finding was finding of fact based on relevant material and deserved to be upheld - Held, yes FACTS The assessee was a partnership firm engaged in purchase and sale of cloth. In the assessment relating to the assessment year 1972-73, the ITO added an amount of Rs. 56,066 in terms of section 40A(3). This amount comprised three payments made to three parties, each one exceeding Rs. 2,500. On second appeal, the Tribunal found that the payments were genuine and the identity of the payees was established. The Tribunal also found that cash payments in two cases were made in exceptional circumstances with a view not to straining relations with their suppliers and were covered by the provisions of rule 6DD. So far as the third payment was concerned, the Tribunal rejected the assessee's explanation and upheld its disallowance. On reference: HELD The Tribunal had found that the identity of the payee was established as also the genuineness of the payment. The only question was whether the assessee had established that the payment in cash was made in exceptional or unavoidable circumstances or for the reason specified in rule 6DD(j ). The Tribunal had found that the amount paid in cash was quite small as compared to the total amount involved in the transactions between the assessee and the concerned party and also that the payee had insisted upon cash payment and with a view to maintaining good relations, the assessee had made payment in cash. This was a finding of fact and there was no reason to disturb the said finding. The Tribunal had correctly found that the assessee's case in respect of these two payments was covered by rule 6DD(j). EDITOR'S NOTE The High Court declined to answer another question referred to it on the ground that it was merely…

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