Cash payment disallowance under section 40A(3) sent back for verification of the Rule 6DD exception and supporting evidence.

Cash transportation payments alleged to have been made under business compulsion and on Sundays required verification against the exception under Rule 6DD before section 40A(3) disallowance could be sustained. The record lacked sufficient corroborative material on the exact circumstances, mode of payment, and supporting evidence, so a final merits determination was not appropriate. The matter was remanded to the Assessing Officer for fresh adjudication after examining the evidence and giving the assessee an opportunity of hearing.

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Issues: Whether the disallowance made under section 40A(3) in respect of cash transportation payments was sustainable or required fresh examination in the light of the claimed exception under Rule 6DD.

Analysis: The assessee claimed that the cash payments were made in the course of transportation business on Sundays and under business compulsion, and that the payments fell within the exceptions to section 40A(3). The record, however, did not contain sufficient corroborative material to conclusively establish the circumstances in which the payments were made, the exact manner of disbursement, or the applicability of the claimed exception. The factual foundation for deciding whether the payments were covered by Rule 6DD required verification of the supporting evidence, confirmations, and surrounding circumstances. In these circumstances, a final adjudication on the merits of the disallowance was not appropriate at that stage.

Conclusion: The matter was remanded to the Assessing Officer for fresh adjudication on the applicability of section 40A(3) and Rule 6DD after examining the evidence and granting the assessee proper opportunity of hearing.

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