1996 (4) TMI 35 - HC - Income Tax

Tribunal deletes addition under Income-tax Act, emphasizes need for proof

The Tribunal deleted the addition made under section 40A(3) of the Income-tax Act, 1961, as it found no evidence of intentional splitting of payments by ... Assessing Officer, Payments Not Deductible, Question Of Law, Splitting Up Issues:1. Interpretation of section 40A(3) of the Income-tax Act, 1961.2. Application of section 40A(3) in disallowing cash payments exceeding Rs. 2,500.3. Tribunal's authority to delete disallowance under section 40A(3).4. Refusal to state the case under section 256(2) of the Act.Analysis:The judgment pertains to an application filed by the Commissioner of Income-tax seeking a direction to the Tribunal to state the case and refer a question regarding the deletion of an addition made under section 40A(3) of the Income-tax Act, 1961. The Assessing Officer disallowed cash payments exceeding Rs. 2,500, totaling Rs. 1,56,253, made by the assessee. The Commissioner of Income-tax (Appeals) upheld the disallowance, but the Tribunal deleted it, stating that the provisions of section 40A(3) were not applicable. The Tribunal observed that unless there is positive proof of splitting payments, no inference of breach of section 40A(3) can be drawn. The Tribunal emphasized that Revenue officers should not expect strict compliance with section 40A(3) and deleted the addition.The judgment highlights the interpretation of section 40A(3) of the Act, which disallows certain expenditures exceeding a specified amount if not made through a crossed cheque or bank draft. The Tribunal's decision to delete the disallowance was based on the lack of evidence showing intentional splitting of payments by the assessee. The Tribunal emphasized the need for positive proof before inferring a breach of section 40A(3) and noted that compliance should not be rigorously expected by Revenue officers.The court considered the reformulated question proposed by the applicant and found it to be arising from the Tribunal's order. The court held that the refusal to state the case was unsustainable in law and directed the Tribunal to refer the question for consideration. The judgment does not express an opinion on the merits but calls for expeditious consideration of the referred question.In conclusion, the court allowed the application, with no costs imposed, and fixed the counsel fee for the applicant. The court directed the transmission of the order to the Tribunal for compliance, emphasizing the need to address the referred question promptly.