HASANAND PINJOMAL Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE assessment year with which we are concerned in this reference is assessment year 1970 -71, the relevant previous year being the financial year commencing from April 1, 1969, and dealing with March 31, 1970. The assesse, a partnership firm, is a dealer in sugar. It carries on business on wholesla e basis at Bantwa in Junagadh district. During the relevnat previous year the assessee purchased about 4,554 bags of sugar for Rs. 9,77,523. Amongst the purchases so made were included the purchases made at auctions held by two co -operative societies, viz., the Bileshwar Khand Udyog Khedut Sahakari Mandali Ltd. at Kodinar, an the Una Taluka Sahakari Khand Udyog Mandali Ltd. at Una. Part of the payment of purchase price to both the said co -operative societies was made in cash. The first named co -operative society was paid purchase price in cash to the tune of Rs. 2,49,359 and the second named co -operataive society was paid purchase price in cash to the tune of Rs. 1,08,316. The amount of purchase price paid in cash as aforesaid was made up of payments made on various dates exceeding Rs. 2,500 individually.

(2.) DURING the course of assessment to income -tax, the fact that payments as aforesaid were made on various dates in cash, although the amount involved was more than Rs. 2,500 on each occasion, came to the notice of the Income -tax Officer. The Income -tax Officer felt that, in the facts and circumstances of the case, section 40A(3) of the Income -tax Act, 1961 (hereinafter referred to as 'the Act'), was attracted and he, therefore, issued a notice to the asessee on September 21, 1972, to show cause why such payments should not be disallowed. The assessee by his reply dated October 21, 1972, raised, inter alia, the following contentions : (1) the payments having been made for the purchase of the stock -in -trade and not for expenditure incurred for the purpose of carrying on of business in respect of which deduciton coudlbe claimed under the relevant provisions of the Act, provisions of section 40A(3) were not applicable; (2) the payment had to be made in cash because sugar was purchased at the auctions held by the two co -operative societites in question and the value of the goods purchased was not known in advnace since it depended on the highest bid offered at the auction; it was even uncertain whether on a given date sugar would be purchasesd at the aucitons, having regard to the highest offer at the bid; (3) auction was usually held by the two co -operative societies at 3 p.m. and since the travelling distance from Bantwa to Kodinar or Una was about 7 to 8 hours, it was not possible to wait till the banks opened on the date of the auction and ot obtain draft and to reach the place of auction in time; and (4) since the announcement about sugar auction was made by the concerned co -operative societies only or two days in advance, on certain occasions when there was no sufficient bank balance, it became necessary to collect the requisite amount in cash from the customers of the assesse at short notice late in the evening and to go directly to the place of auction. The assessee contended thta having regard to the aforementioned circumstances, it was not necessary and convenient to make payments in question otherwise than in cash and that, under the circumstances, the provisions of section 40A(3) should not be applied. On February 7, 1973, the assessee sent a supplementary reply drawing the attention of the Income -tax Officer to the amended provisions of rule 6DD(j) of the Income -tax Rules, 1962 (hereinafter referred to as the 'Rules'), and urged that, in the circumstances of the case, the benefit of the said provisions was requried to be given to it.

(3.) THE assessee carried the matter in appeal to the Appellate Assistant Commissioenr. Before the Appellate Assistant Commissioner the same contentions, which were advanced before the Income -tax Officer, wer retierated on behalf of the assessee. The assessee pointed out that it had no roots at the place where the two co -oeprative societites in question were carrying on their businesss and thta, therefore, it was not afforded any facility in the nature of making payment at a later date. Furthermore, the assessee pointed out that out of the payments, which were disallowed, a sum of Rs. 67,330 and another sum of Rs. 59,579 were paid to one of the two co -operative societies, namely, Una Taluka Sahakari Khand Udyog Mandali Ltd., by paying into the current account of hte said co -operative society in th eformer case and by paying the same in cash after 6 p.m. on the given date in the latter case. In support of this contention, the assessee produced evidence before the Appellate Assistant Commissioner. The Appellate Assistant Commissioner was of the view that, in the facts and circumstances of the case, the provisions of section 40A(3) were attractd and that no relief could be given to the assessee under rule 6DD so far as a substantial part of the payments in question was concerned. In reaching this conclusion, the Appellate Assistant Commissioner relied upon the fact that one of the conditions of the auction which took place was that payment had to be made by a draft drawn in favour of a branch of the District Co -operative Bank and that this condition indicated that there must be facilities for obtaining bank draft. In the opinion of the Appellate Assistant Commissioner, having regard to all the circumstances of the case, it was not possible to reach the conclusion that it was impracticable for the assessee to make the payments of purchase price by way of bank drafts. So far as the payments of Rs. 67,330 and Rs. 59,573 referred to above are concerend, however, the Appellate Assistant Commissioner was of the view that those payments could be said to have been made in exceptional or unavoidable circumstances. The Appellate Assistant Commissioner, therefore, applied the provisions of rule 6DD(j)(1) and held that the assessee was entitled to the allowance of those amounts in computing its income. A total sum of Rs. 1,26,909 was accordingly allowed to be deducted from the total income computed by the Income -tax Officer and, in the result, a sum of Rs. 2,30,766 was directed to be added back to the income of the assessee.