1995 (9) TMI 53 - HC - Income Tax

Court upholds Tribunal decision in favor of assessee on income-tax reference case

The High Court of Allahabad upheld the Tribunal's decision in favor of the assessee, ruling against the Department in an income-tax reference case. The ... Higher Rate, Investment Allowance Issues Involved: Income-tax reference u/s 256(2) of the Income-tax Act, 1961 regarding applicability of rule 6DD(j) of the Income-tax Rules, 1962 and section 40A(3) for payments made to various parties.Judgment Details:The High Court of Allahabad considered an income-tax reference under section 256(2) of the Income-tax Act, 1961, regarding the deductibility of payments made to Sant Lal Jain, Daulat Ram Makhan Lal, M. M. Istiaq Ahmad Sultan Ahmad, and Gupta Iron and Steel Co. The main issue was whether the payments were covered by rule 6DD(j) of the Income-tax Rules, 1962, and if the addition of Rs. 65,537 made by the Income-tax Officer was justified.The Income-tax Officer disallowed the deductions under section 40A(3) as the payments were made in cash and not by crossed cheque or draft. However, the Tribunal reversed this decision, finding that the payments were covered by rule 6DD(j) based on certificates provided by the payees justifying the cash payments due to their need for cash.The High Court noted that the Tribunal's decision was based on various factors, including the parties' insistence on cash payments, disclosure of the sellers' identity, submission of certificates supporting the cash payments, and the genuineness of the transactions. The Court emphasized that section 40A(3) aims to prevent fictitious claims but does not outrightly disallow cash payments if genuine reasons are provided, as highlighted in the case law.Ultimately, the Court upheld the Tribunal's decision, ruling in favor of the assessee and against the Department. It was concluded that the transactions were genuine, supported by certificates, and the Department's interest could still be protected by assessing the amounts in the hands of the payees. Therefore, the Department would not suffer any loss due to the cash payments.In conclusion, the Court answered the reference question in the affirmative, directing parties to bear their own costs.