Court Confirms Disallowance of Cash Payments Over Rs. 10,000; Exceptions Limited to Direct Payments to Institutions.

The court upheld the Ext. P6 order issued by the Commissioner of Income-tax under section 264, confirming the disallowance of cash payments exceeding Rs. 10,000 under section 40A(3). The court ruled that the exception under rule 6DD(a) of the Income-tax Rules, 1962, applies only to payments made directly to specified institutions, not to payments made to accounts maintained in those institutions. Additionally, the court dismissed the petitioner's argument regarding cash remittances through truck drivers, as it was not pursued before the Commissioner. Consequently, the petition was found to be without merit and dismissed.

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Issues:
Challenge to Ext. P6 order under section 264 of the Income-tax Act confirming disallowance of addition made under section 40A(3) for cash payments exceeding Rs. 10,000. Interpretation of rule 6DD(a) of the Income-tax Rules, 1962 for exceptions to disallowance under section 40A(3).

Analysis:

1. The petitioner contested the Ext. P6 order issued by the Commissioner of Income-tax under section 264 of the Income-tax Act, which confirmed the disallowance of cash payments exceeding Rs. 10,000 under section 40A(3). The petitioner argued that the payments fell within the exception clause, rule 6DD(a) of the Income-tax Rules, 1962. The rule lists specific institutions to which payments exceeding Rs. 10,000 can be made in cash without disallowance. The petitioner claimed that payments were made to suppliers' bank accounts maintained with banks falling under clause (ii) of sub-rule (a) of rule 6DD. However, the court held that the protection under rule 6DD(a) is available only if payments are made to the institutions specified in the rule. The court emphasized that the beneficiary of the payment should be an institution referred to in the rule to qualify for the exemption. As some institutions listed in the rule were not engaged in banking operations, the court concluded that rule 6DD(a) applies only to payments made directly to the institutions specified, not to payments made to any party's account maintained in those institutions. Consequently, the court rejected the petitioner's contention and upheld the Ext. P6 order of the Commissioner.

2. The petitioner also argued that cash remittances in the suppliers' accounts were made by entrusting cash to truck drivers, which should be covered by clause (i) of rule 6DD. However, this argument was not pursued before the Commissioner. The court determined that the truck drivers who delivered the goods could not be considered as the petitioner's agents required to make cash payments to the suppliers. Therefore, this contention was also dismissed. Ultimately, the court found the O.P. to be devoid of merit and dismissed it accordingly.

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