1992 (8) TMI 67

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....ng of section 40A(3) of the Income-tax Act ? " In order to answer the aforesaid question, a few relevant facts are stated herein : (1) The assessee is a partnership firm dealing in grains and grocery on wholesale basis. For the assessment year 1971-72, it has made payments exceeding Rs. 2,500 to five parties in cash. The Income-tax Officer noticed this fact on scrutiny of the accounts and called upon the assessee to explain why deduction of the said payments should not be disallowed under section 40A(3) of the Act. After considering the explanation of the assessee, the Income-tax Officer allowed deduction of payments to five parties, and disallowed the payments made to three parties, namely, (i) M/s. Gopal Punjabhai of Dholka, (ii) M/....

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....rovided further that no disallowance under this sub-section shall be made where any payment in a sum exceeding two thousand five hundred rupees is made otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft, in such cases and under such circumstances as may be prescribed, having regard to the nature and extent of banking facilities available, considerations of business expediency and other relevant factors." The aforesaid question is no longer res integra in view of the recent decision of the Supreme Court in the case of Attar Singh Gurmukh Singh v. ITO [1991] 191 ITR 667. Before the Supreme Court, along with the question of the validity of section 40A(3) of the Income-tax Act, 1961, the question of the true interp....

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.... to be taken into account while determining the gross profits under section 28 on principles of commercial accounting. The payments made for purchases would also be covered by the word 'expenditure' and such payments can be disallowed if they are made in cash in the sums exceeding the amount specified under section 40A(3). We have earlier observed that rule 6DD has to be read along with section 40A(3). The rule also contemplates payments made for stock-in-trade and raw materials. This rule is in accordance with the terms of section 40A(3). The rule provides that an assessee can be exempted from the requirement of payment by crossed cheque or a crossed bank draft where purchases are made of certain agricultural or horticultural commodities o....