Punjab-Haryana High Court
Commissioner Of Income-Tax vs G.S. Auto Industries (P) Ltd. on 28 July, 1997
Equivalent citations: (1998)144CTR(P&H)464
JUDGMENT
N. K. AGRAWAL, J. :
This is an application by the CIT under s. 256(2) of the IT Act, 1961 (for short the Act) seeking a direction to the Tribunal, Amritsar Bench, to refer the following questions of law to this Court for opinion :
"1. Whether, on the facts and in the circumstances of the case, the learned Tribunal was right in law in deleting the addition of Rs. 81,896 made under s. 40A(3) of the IT Act, 1961, under the non-existent nature of the exceptional circumstances for making the payment in cash; and
2. Whether there can exist any exceptional and unavoidable circumstances for one single unledgerised payment to a party with whom the assessee is having a running account and making all other payments by cheques ?
3. Whether mere genuineness of payment is enough to take the case out of the purview of s. 40A(3); and
4. Whether the Tribunal can substitute its own satisfaction, when the law requires the satisfaction of the AO for allowing the amounts exceeding Rs. 2,500 ?"
2. Assessee, a private limited company, carried on the business of the manufacture and trading of auto parts and hardware fittings. The assessee filed return for the asst. yr. 1988-89, declaring income of Rs. 7,660. The AO, while making assessment under s. 143(3) of the Act, disallowed expenditure (payments) amounting to Rs. 80,421 under s. 40A(3) of the Act. He noticed that the assessee had made payments in cash exceeding Rs. 2,500 to various persons and firms during the accounting period ending on 31st March, 1988, relevant to the asst. yr. 1988-89.
Sec. 40A(3) required all payments exceeding Rs. 2,500 by crossed cheques and bank drafts. Since the assessee had not made certain payments in accordance with the provisions of s. 40A(3), those payments were disallowed and addition was accordingly made.
In appeal, the CIT(A) allowed cash payment of Rs. 3,825, after holding that it was made under exceptional circumstances. He made an addition of Rs. 5,000 also finding that one cash payment of Rs. 5,000 made by the assessee to M/s N.K. Sales Agencies had not been disallowed by the AO.
In assessees second appeal, the Tribunal allowed all payments made in cash holding that the assessee had made such payments on account of necessity and on insistence by the parties. The Tribunal also observed that the genuineness of the transactions has been established because certificates obtained from the parties concerned had been filed by the assessee.
3. Shri B. S. Gupta, learned Senior counsel for the Department, has argued that referable questions of law do arise from the controversy in hand and from the order of the Tribunal. He has argued that no exceptional circumstances existed, so as to permit cash payments exceeding Rs. 2,500. It is pointed out that the assessee was having running accounts of several parties, to whom cash payments had been made, in its books of accounts and many payments had been made to those parties by cheques. Therefore, there was no justification in making cash payments in those cases. His further plea is that genuineness of party or transaction was not sufficient to exclude the applicability of s. 40A(3) of the Act.
4. Shri N. K. Sud, learned counsel for the assessee, has argued that payments made in cash have been allowed by the Tribunal, looking to the facts and the nature of the transactions. He has opposed the plea of the Department that questions of law arose from the order of the Tribunal, placing reliance on a decision of this Court in CIT vs. Brij Mohan Singh & Co. (1994) 209 ITR 753 (P&H) In that case, a Division Bench of this Court declined to call for the statement of the case from the Tribunal after noticing that the assessee as well as the recipients of the cash payments had no bank account at the place where payments were made and since such a situation was covered by the Boards Circular No. 220, dt. 31st May, 1977, no questions of law arose. Shri Sud has also argued that all the transactions in question are covered by the aforesaid circular reproduced in (1977) 108 ITR (St.) 8.
5. From the order of the Tribunal, it transpires that the Tribunal was influenced by more than one factor. The Tribunal has referred to the audit report, wherein the assessee had declared cash payments. Therefore, it was concluded that the assessee had declared correct facts. It was also noticed by the Tribunal that certain payments in cash were made by the assessee on the insistence of the parties. It was further held that the genuineness of the expenditure and the identity of the assessee and other parties had been established. Since certain certificates had been filed by certain parties, that was also a factor which weighed with the Tribunal. Certain payments were made after bank hours also. All these circumstances were treated to constitute exceptional circumstances permitting cash payments.
6. It would appear from the perusal of the Boards circular referred to above that the sellers refusal to accept the payment by crossed cheque or draft may permit the assessee to make payment in cash. But, at the same time, it should also be shown that the assessees business interest would have suffered due to non-availability of goods otherwise than from that particular seller. Sub-cl. (iv) of cl. 4 of the circular requires the fulfilment of both the conditions as aforesaid. In this light, the factum of insistence by the recipients may not alone be sufficient to attract cl. 4 (iv) of the circular.
Keeping in view the entire facts and circumstances of the case, the following question of law is found to arise from the Tribunals order and the Tribunal is directed to draw up the statement of the case and to refer the following question to this Court :
"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that there existed exceptional circumstances for making payments in cash and that the genuineness of transactions was sufficient to take the cash payments out of the purview of s. 40A(3) of the IT Act, 1961 ?"
Ordered accordingly.
No costs.