Court upholds assessee-firm's cash payments over Rs. 2,500 for purchases under rule 6DD(j)

The High Court of Punjab and Haryana upheld the Tribunal's decision in a case involving an assessee-firm making cash payments exceeding Rs. 2,500 for purchases. The Court found that the payments were justified under rule 6DD(j) of the Income-tax Rules due to exceptional circumstances faced by the assessee. Despite the revenue's argument against accepting an affidavit as evidence, the Court ruled in favor of the assessee, dismissing the revenue's petition and affirming the deletion of the disallowed amount of Rs. 80,000.

---

---

Issues involved: Interpretation of section 40A(3) of the Income-tax Act, 1961 and rule 6DD of the Income-tax Rules, 1962 regarding cash payments exceeding Rs. 2,500 made by the assessee-firm for purchases of bardana and new gunny bags.

Judgment Summary:

The High Court of Punjab and Haryana, in a case involving an assessee-firm engaged in husking of paddy, addressed the issue of cash payments exceeding Rs. 2,500 made to a supplier for purchases. The Income Tax Officer (ITO) disallowed these payments under section 40A(3) read with rule 6DD of the Income-tax Rules, prompting the assessee to appeal. The Appellate Authority Commissioner (AAC) and the Tribunal found that the payments were made due to exceptional circumstances, satisfying rule 6DD(j) of the IT Rules, and deleted the addition of Rs. 80,000 made by the ITO.

The revenue challenged this decision, seeking a reference to the High Court on the interpretation of section 40A(3) and rule 6DD. The Court, after considering the facts and circumstances, upheld the Tribunal's decision. The Court noted that the AAC and Tribunal had relied on evidence, including an affidavit and statements, to conclude that the cash payments were justified under rule 6DD(j) due to exceptional circumstances faced by the assessee.

The revenue argued that the affidavit should not have been accepted as the agreement for cash payments was oral. However, the Court disagreed, stating that reliance on a truthful affidavit is permissible. Ultimately, the Court dismissed the revenue's petition, affirming the Tribunal's decision to delete the disallowed amount of Rs. 80,000.

---