2001-VIL-354-CAL-DT
Equivalent Citation: [2001] 251 ITR 640, 170 CTR 412, 121 TAXMANN 143
CALCUTTA HIGH COURT
Date: 07.05.2001
BAGMARI TEA CO. LTD.
Vs
COMMISSIONER OF INCOME TAX.
BENCH
Judge(s) : Y. R. MEENA., ARUNABHA BARUA.
JUDGMENT
On an application under section 256(2) of the Income-tax Act, 1961, the Tribunal has referred the following questions for our opinion :
"1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in confirming the disallowance of Rs. 36,166 representing the value of absolete stores written off ?
2. Whether, on the facts and in the circumstances of the case and having regard to rule 6DD(j) of the Income-tax Rules, 1962, the Tribunal was right in confirming the disallowance of Rs. 65,500 under section 40A(3) of the Income-tax Act, 1961 ?" The assessee carries on business of manufacture and sale of tea as well as money-lending business. For the assessment year 1977-78, the assessment was completed under section 143(3) read with section 144B on September 5, 1980. The total income assessed at Rs. 8,17,260. During the course of the assessment, the Income-tax Officer noticed that assessee has claimed deduction of Rs. 36,166, on account of the written off value of obsolete items in the stores. The Assessing Officer has also noticed that the assessee has made the payment of Rs. 65,500 in contravention of the provisions of section 40A(3) of the Income-tax Act, 1961. He disallowed both the amounts and added in the income of the assessee. The Commissioner of Income-tax (Appeals) as well as the Tribunal also found that no details are filed as to what exactly are the items that became obsolete which can be written off. Before us the assessee has submitted that he has filed the details of the items though that has not been made part of the paper book but as he has produced before us a paper wherein it is mentioned in 1977 tea chests-Rs. 36,166. How many tea chests were there when they were purchased and how many became obsolete. Nothing else has been said apart from the amount and the tea chests. In the absence of such details no interference can be called for.
The second question pertains to the issue whether the amount of Rs. 65,500 should be disallowed in view of the provisions of section 40A(3) of the Act of 1961. This amount has been disallowed by the Assessing Officer, the Commissioner of Income-tax (Appeals) as well as by the Tribunal on a finding that he has not shown the compelling circumstances under which he has made the payment in cash. Therefore, the amount has been disallowed.
Learned counsel for the assessee placed reliance on the Circular No. 220, dated May 31, 1977, and also the judgment of the Andhra Pradesh High Court in the case of Venkata Satyanarayana Timber Depot v. CIT [1987] 165 ITR 253, and also the decision of this court in the case of Giridharilal Goenka v. CIT [1989] 179 ITR 122.
Circular No. 220, dated May 31, 1977, of the Board provides, inter alia, that transactions are made at a place where either the purchaser or the seller does not have a bank account. In that case, the payment in cash can be made. As the assessee has no hank account at the place of payment the provision of section 40A(3) is not applicable. The Andhra Pradesh High Court has considered that circular and in addition to that the fact that the assessee has no bank account in the place of payment, the court has taken note of the fact that the amount was paid in cash under unavoidable circumstances. In the case of Giridharilal Goenka [1989] 179 ITR 122, this court has taken the view that if the payment is genuine that should not be disallowed invoking the provision of section 40A(3) of the Act.
With respect we are of the view that when the payment is made in contravention of section 40A(3) though the payment is genuine that cannot be allowed, because the genuineness of payment is required in all cases but payment by account payee cheque or demand draft is additional requirement under section 40A(3). If we follow the view that the payment is genuine, then that should not be disallowed. In that case the provision of section 40A(3) will become redundant. Therefore, unless there are unavoidable circumstances for payment in cash that payment will be hit by the provision of section 40 A(3). The finding of the Assessing Officer and the Commissioner of Income-tax (Appeals) as well as the Tribunal that there were no unavoidable circumstances for payment by cheque or bank draft. When there were no compelling circumstances or the assessee was not compelled to make payment in cash, in such circumstances we find no infirmity in the order of the Tribunal.
In the result, we answer both the questions in the affirmative, i.e., in favour of the Revenue and against the assessee.
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