Supreme Court Upholds Income-tax Act Provision, Allows Flexibility in Payment Methods

The Supreme Court dismissed the appeal challenging the Tribunal's decision on the applicability of the second proviso to section 40A(3) of the Income-tax Act, 1961, resulting in the deletion of a disallowance amounting to Rs. 14,58,691. The Court emphasized that the requirement of payment by crossed cheque or bank draft is not absolute, allowing for consideration of business expediency and other relevant factors. Genuine transactions are not excluded, and the assessee can explain circumstances hindering compliance with the prescribed payment method. The appeal was dismissed as no substantial question of law was found based on the Court's interpretation.

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Issues involved: Interpretation of second proviso to section 40A(3) of the Income-tax Act, 1961 leading to the deletion of disallowance of Rs. 14,58,691.

Judgment Summary:

The appellants raised the question of law regarding the Tribunal's decision on the applicability of the second proviso to section 40A(3) and the deletion of disallowance amounting to Rs. 14,58,691. The Supreme Court, in Attar Singh Gurmukh Singh v. ITO [1991] 191 ITR 667, 673 (SC), emphasized that the requirement of payment by crossed cheque or crossed bank draft under section 40A(3) is not absolute. Business expediency and other relevant factors can be considered, and genuine transactions are not excluded from the provision. The assessee has the opportunity to explain to the Assessing Officer the circumstances preventing compliance with the prescribed payment method and to identify the recipient of cash payment. Rule 6DD provides exemptions from the payment method requirement under specific circumstances. Both section 40A(3) and rule 6DD aim to regulate business transactions and curb the use of unaccounted or black money.

The Court, based on the Supreme Court's interpretation, found no substantial question of law in the appeal and consequently dismissed it.

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