Law:

Section:

Section 40A(3) of the Income-tax Act, 1961 - Business disallowance - Cash payment exceeding prescribed limit Where lower authorities found that story of assessee that he was asked by stockists to pay in cash could not be accepted and in fact authorities below had come to conclusion that assessee was telling lies as there existed no exceptional circumstances, cash payments exceeding prescribed limit were to be disallowed The assessee-firm was based at Shamshi, District Kullu, H.P. It used to purchase goods from certain outside parties, mainly from Chandigarh, Damtal and Palampur. The assessee made payments of more than Rs. 10,000 in a day to the parties. These payments were made in cash. The Assessing Officer disallowed payments of Rs. 3,57,239 on the ground that they had been made in cash whereas they should have been made by means of crossed cheque or draft. Held the Income-tax Officer had dealt with the relevant circular and rule 6DD and came to the conclusion that the case of the assessee was not covered under any of the exceptions laid down in this circular. The only explanation given by the assessee was that the purchasers did not have bank accounts at Shamshi and that the persons from whom the assessee had purchased the goods insisted on cash payments. The Assessing Officer found that no stock register was maintained and the assessee had allegedly purchased goods from Chandigarh, Damtal and Palampur. Wherever expenditure for purchase of stocks was more than Rs. 10,000 invariably in the same cash book and ledger, the assessee had shown two or more separate entries on the same day so that no entry exceeded Rs. 10,000. The Assessing Officer came to the conclusion that this was done deliberately by the assessee to avoid the rigours of the Act. According to the assessee, he had purchased the stocks on credit and the dealers came personally to collect the payments. If the goods had been purchased earlier, then the assessee knew very well what was the total amount to be paid by him to the dealer. Therefore, there was no question of making two separate payments in a single day. If the dealer was coming from outside to collect the money in respect of the…

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