2004 (3) TMI 42

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....on of Rs. 2,42,342 made under section 40A(3) of the Income-tax Act, 1961?" The brief facts of the case are that the Assessing Officer (AO) found that the aforesaid sum of Rs. 2,42,342, break up of which according to the assessee, is as under: Rs. Coal account(freight) 31,860 Sales and forwarding  23,750 Stores purchase 23,374 Raw materials account(freight) 45,547 Miscellaneous 40,866 Freight 76,945 2,42,342 was paid in cash and, therefore, the Assessing Officer held that the said payments were hit by the provisions of section 40A(3) of the Income-tax Act, 1961. It was pointed out in his order that the assessee only produced the names of persons and vouchers in certain cases and did not gi....

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....ther urged that there are exceptional circumstances for making the payments in cash. The circumstances enumerated in the Central Board of Direct Taxes circulars are not exhaustive but only illustrative, it was urged. Heard learned counsel for the respective parties. The Supreme Court in Attar Singh Gurmukh Singh v. ITO [1991] 191 ITR 667, while upholding the validity of section 40A(3) of the Act, also held that the section 40A(3) must not be read in isolation or to the exclusion of rule 6DD. If read together it will be clear that the provisions are not intended to restrict the business activities. There is no restriction on the assessee in his trading activities. Section 40A(3) only empowers the Assessing Officer to disallow the deduc....

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....ces justifying the payments in cash. The Tribunal as a final fact-finding authority has not arrived at any findings of fact to the contra, instead it proceeded on the basis that what is to be seen is whether the claim was excessive or fictitious. It took the view that where the turnover is more than Rs. 1 crore, the expenditure in question does not appear to be excessive or unjustified. We cannot sustain the said view in the light of the provisions contained in rule 6DD or the Central Board of Direct Taxes circular. Unless the Tribunal had arrived at a finding of fact that exceptional circumstances existed to warrant payments in cash or that the payment by crossed cheque was not practicable or would have caused genuine difficulty to the ....

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....As already noticed supra, the finding of the Commissioner of Income-tax subject matter of appeal before the Tribunal was to the effect that no evidence has been produced to show that there were exceptional or unavoidable circumstances justifying the payments. The judgment in Jiwanram Sheoduttrai v. CIT [1994] 208 ITR 712 (Cal), therefore, is also not applicable. Unlike the case before the Supreme Court in Salem Co-operative Central Bank Ltd. v. CIT [1993] 201 ITR 697, the Tribunal has not in the case on hand proceeded on an assumption which was erroneous in law. The case on hand is one where it is the conclusion arrived at by the Tribunal, which is erroneous in law. It is also not a case as in Sarda Plywood Industries Ltd. v. CIT [1999] ....