1985 (9) TMI 30 - HC - Income Tax

Reconsideration of Case Based on Fresh Evidence: Importance of Compliance with Tax Law (3) (j)

The court directed the Tribunal to reconsider the case based on fresh evidence regarding the application of section 40A(3) of the Income-tax Act, 1961. ... Business Expenditure, Disallowance Issues Involved: The judgment involves the interpretation of section 40A(3) of the Income-tax Act, 1961 regarding payments exceeding Rs. 2,500 made otherwise than by a crossed cheque drawn on a bank or a crossed bank draft. The key issues include the applicability of the section to stock-in-trade, the treatment of purchases and corresponding sales for income computation, and the justification for adding a specific amount under section 40A(3).Interpretation of Section 40A(3): The Tribunal was tasked with determining the application of section 40A(3) to stock-in-trade and the treatment of payments exceeding Rs. 2,500 made in a manner other than a crossed cheque or bank draft. The second proviso to the section allows for exceptions based on prescribed circumstances, as defined by rules under the Act. Rule 6DD(j) provides conditions under which no disallowance shall be made, including situations of exceptional or unavoidable circumstances or genuine difficulty to the payee. The Central Board of Direct Taxes issued Circular No. 220, outlining circumstances where rule 6DD(j) could be applicable, emphasizing the importance of establishing the genuineness of transactions.Application of Circular and Fresh Evidence: In a previous case, the court invoked Circular No. 220 to support the assessee, highlighting the need for both parties to present evidence on the applicability of rule 6DD(j) as per the circular. Following a formula adopted by the Supreme Court, the court refrained from providing an opinion and directed the matter to be reconsidered based on fresh evidence, allowing both sides to present their case regarding the application of rule 6DD(j) in light of the circular. The Tribunal was instructed to make a decision considering the new evidence and the guidance provided in Circular No. 220.This judgment underscores the importance of adhering to the provisions of section 40A(3) of the Income-tax Act, 1961, and the corresponding rules and circulars issued by the Central Board of Direct Taxes. It emphasizes the need for thorough examination of payments exceeding specified limits and the necessity to establish the genuineness of transactions to ensure compliance with the law.