SILK FAB EXPORTS Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) The question raised in the appeal filed by the assessee under Section 260A(l) of the Income Tax Act, is against disallowance of Rs. 56,84,591 under Section 40A(3) of the Income Tax Act. The petitioner who was engaged in purchasing massive quantity of fabrics during 1994-95 from various persons made payments of above Rs. 10,000, other than through account payee cheques and by demand drafts which attracted disallowance under Section 40A(3) of the Act. Even though the petitioner claimed benefit of exemption with reference to Rule 6DD(l) of the Income-tax Rules, petitioner could not establish the facts required to grant benefit of exemption. Thereafter the disallowance of exemption was contested in two rounds of statutory appeals but confirmed by an authorities including the Tribunal. In order to grant exemption of expenditure over Rs. 10,000, Section 40A(3) requires that such payments should be made through account payee cheques or demand drafts. However, Rule 6DD(j) during relevant year provided for certain exception to this provision. The provision relied on by the petitioner, namely, Sub-rule Q) of Rule 6DD is extracted here under for easy reference:

(2.) It is clear from the above provision that in order to fall within the exemption clause, the assessee making such payments should prove that payments through cheques or by demand drafts were not practicable and would have caused genuine difficulty to the payee having regard to the nature of transaction which assessee should prove with evidence to the satisfaction of the assessing officer and establish genuineness of the payment and identity of the payee. Therefore, the burden of proving the above conditions required under the rule by adducing evidence is obviously on the appellant. However, it is seen from the order of the assessing officer and that of the appellate authorities that in many cases details of payees and transactions were not furnished and in cases where payees addresses were furnished notices were sent by department. But the notices were returned by the postal authorities stating that such party does not exist or with endorsement that addressee is not known. In fact we are of the view that when the burden is on the assessee to identify the payee and prove genuineness of the transaction, there was no necessity for the department to try to trace the address of the suppliers to whom payments were made. It was for the petitioners to produce evidence including addresses of suppliers and to establish that the case falls under the exception clause. The findings by the authorities are purely on facts and in the normal course there is no scope for interference by the High Court in the appeal. However, since the amount involved is quite high, we feel we should look at the facts closely and examine whether injustice is caused to the appellant.

(3.) The very nature of transactions themselves establish improbability of the petitioner's claim. The purchasers are admittedly located in far away places located in the States of Andhra Pradesh, Rajasthan and other States. On a single day, namely, 9-10-1993, the assessee made cash purchases for Rs. 4,69,172 and cash purchases under two transactions alone are worth Rs. 4,19,972, as per accounts. This means that the petitioner sent huge cash through carriers to far away States for making cash purchases which is an unbelievable story. No prudent businessman will take risk by sending huge cash through carrierswithout even covering risk of loss through insurance. Another day that is on 2-2-1994, the petitioner has made three cash purchases for Rs. 1 lakh each and one purchase for Rs. 2 lakh. One difficulty expressed by the petitioner in transacting business other than through cheques and demand drafts is want of banks and banking facilities in far away villages where the real manufacturers are stationed. However it is seen from the details narrated by the officer in his order that all, except the few, purchases, suppliers are institutions, and the transactions with each of them exceed lakhs of rupees. These suppliers of the petitioners are admittedly traders and are not manufacturers or small weavers and the petitioners have no dealings with the manufacturers or small weavers. The suppliers are only traders and volume of their business discloses from records, shows that they had no difficulty to arrange transactions through bank. The facts on record clearly establish that the petitioner had no dealing with the weavers and the petitioner has not made any payment to weavers in the so-called villages. So the claim of exemption under Rule 6DD(J) is not applicable at all as the suppliers to whom payments were made are well-established business concerns and the payments were worth lakhs. In these circumstances the claim of the petitioner under Rule 6DD(1) not only does not stand established with evidence but is incapable of being proved. There-fore, we do not find any injustice caused to the petitioner, as the petitioner is rightly held to be not entitled to any benefit. The appeal is, therefore, dismissed as devoid of any merit.