1996 (4) TMI 13

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....iving rise to this reference application are that the assessee is a partnership firm deriving income from rice milling, purchase and sale of foodgrains and pulses. A return of income was filed on July 30, 1982, showing income of Rs. 49,356 and the assessment was completed on a total income of Rs. 10,72,440. The Income-tax Officer made a disallowance of Rs. 8,72,130 under section 40A(3) represented by payments shown to have been made being purchase price of rice to 57 different parties. The Income-tax Officer observed that the managing partner of the assessee-firm, Shri Kanhaiyalal Kothari, drew the cheques, encashed these from the banks and himself received the payments from the bank. Shri Kothari deposed before the Income-tax Officer that ....

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....The matter was taken up by the Revenue before the Tribunal and the Tribunal also affirmed the finding of the Commissioner of Income-tax (Appeals) and it was observed that it is covered by rule 6DD and also the Board's Circular No. 220, dated May 31, 1977. Hence, the Revenue approached the Tribunal for making reference before this court of the aforesaid question of law. We have gone through the matter in detail. It is true that before the Income-tax Officer, no evidence was led by the assessee to show as to whether these transactions were bona fide or they lacked bona fides. Therefore, the Income-tax Officer inferred that the assessee has failed to account for these items and payments made thereafter were in contravention of section 40A(3....