AI Drafter 
TaxTMI 
TaxTMI 
2004 (11) TMI 47
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....1,11,015 was required to be deleted? (3) Whether, the finding of the Appellate Tribunal that the addition of Rs. 1,11,015 as made by the Income-tax Officer is not justified is correct in law and sustainable from material on record? (4) Whether, the Appellate Tribunal is right in law and on facts in holding that the addition of Rs. 4,16,932 cannot be justified under section 40A(3) of the Income-tax Act, 1961, in view of the exceptions contained in rule 6DD(j) of the Income-tax Rules, 1962? (5) Whether the payments of huge amounts exceeding Rs. 2,500 made by the assessee were covered by exceptions in rule 6DD(j) of the Income-tax Rules, 1962, and, therefore, addition of Rs. 4,16,932 under section 40A(3) was not justified in law?" The respondent-assessee is a registered firm carrying on construction work on contract basis. The assessment year is 1979-80, and the relevant accounting period is the year ended June 30, 1978. The Assessing Officer made addition of Rs. 1,11,015 towards items not shown as closing stock at the end of the accounting period. According to the Assessing Officer, the assessee had vide bill No. 504 debited purchase account on June 30, 1978, by a sum ....
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.... were common partners in both the firms. Additional reason assigned by the Assessing Officer is that until November 24, 1977, though Rs. 3,00,000 had been paid in cash by the assessee to M/s. Lucky Trading Co., goods to the tune of Rs. 24,690 only had been received by the said date, and hence, the explanation tendered by the assessee was not accepted. The Assessing Officer further noted the fact that there was an agreement between the assessee and M/s. Lucky Trading Co. and that M/s. Lucky Trading Co. was an income-tax payer, and further that payments for other purchases had been made by cheques, and hence, according to the Assessing Officer, no exceptional reasons or justification was forthcoming for making payments in cash, and hence, the provisions of section 40A(3) of the Act were applicable. There were cash payments to five other parties which have also been disallowed by the Assessing Officer. The assessee carried the matter in appeal before the Commissioner of Income-tax (Appeals), who for the reasons stated in his order, deleted the disallowance under section 40A(3) of the Act in relation to payments made to M/s. Lucky Trading Co., but simultaneously upheld the disall....
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....all assessees to enter into such agreements so as to frustrate statutory provisions, and in the circumstances, it be held that the orders of the appellate authorities suffered from the vice of perversity and were bad in law. Though served, there is no appearance on behalf of the respondent-assessee. The Commissioner of Income-tax (Appeals) has found that on perusal of the records and scrutiny of evidence produced before the Assessing Officer, it was apparent that the assessee had been in receipt of building materials as and when requirement arose, but the bills were raised later in point of time by M/s. Lucky Trading Co. In other words, the dates of delivery of certain materials differed from the various dates mentioned in the bills in respect of the same materials for which the bills were made subsequently; in some cases, the time lag being even four months. It has further been found by the Commissioner of Income-tax (Appeals) that this evidence was never tested or put to proof by the Assessing Officer. He has further found that this situation prevailed in relation to bills Nos. 501 to 565, and all these bills have been debited in the purchase account on the same date, and t....
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....ar as the addition on account of disallowance under section 40A(3) of the Act is concerned, the position in law is well settled by a decision of this court in the case of Hasanand Pinjomal v. CIT [1978] 112 ITR 134. This court has held as under by interpreting the provisions of section 40A(3) of the Act and rule 6DD(j) of the Rules (headnote): "Held, that section 40A(3) was intended to serve the objective of checking tax evasion and ensure that payments exceeding Rs. 2,500 are made by crossed cheque or bank draft so that it will be easier to ascertain, when deduction is claimed, whether the payment was genuine and whether it was made out of income from disclosed sources. The section is mandatory and there is no discretion left with the taxing authority under this sub-section to allow expenditure which does not comply with it. The rigour of the rule contained in this sub-section is, however, relaxed to some extent by the second proviso to the said sub-section which provides that no disallowance under this subsection shall be made where any such payment is made otherwise than by a crossed cheque or a crossed bank draft, in such cases and under such circumstances as may be prescrib....
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....oubted; in other words, the existence or the genuineness of the agreement is not in dispute. That, as per the terms of the agreement, M/s. Lucky Trading Co. was required to keep sufficient materials in stock so as to supply the same to the assessee as and when the requirement arose; for rendering of the said service or facility, M/s. Lucky Trading Co. was entitled under the agreement, to insist on cash payment as and when the need arose. The agreement stipulates a penalty clause No. 7, whereunder on failure of Lucky Trading Co. to supply the material, it became liable to pay 10 per cent.; and correspondingly on refusal of the assessee to make payment in cash when demanded by M/s. Lucky Trading Co., the assessee became liable to pay penalty at the rate of 10 per cent. It is further found by the authorities that out of total purchases of Rs. 12,72,863 only a sum of Rs. 4,16,932 was demanded in cash by M/s. Lucky Trading Co. Thus signifying that, the transaction in question was not for the purposes of evasion of tax as only about one-third payment of the total purchases from the said party had been made in cash. It has further been found by the appellate authorities that many of the p....