PORWAL UDYOG INDIA Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) BY this reference under Section 256(1) of the I.T. Act, 1961 (hereinafter referred to as "the Act"), the Income-tax Appellate Tribunal, Indore Bench, Indore, has referred the following question of law for the opinion of this court:

(2.) THE facts giving rise to this reference briefly stated are as follows: During the assessment year 1971-72 relevant to the accounting period ending Diwali 1970, the assessee was assessed to tax in the status of an association of persons. THE assessee derived income from manufacture and sale o oil engines and pumping sets. Daring the course of scrutiny of accounts the ITO found that Shri Santosh Kumar was paid various amounts aggregating to Rs. 30,482 during the relevant accounting period. THE assessee contended before the ITO that Shri Santosh Kumar was paid the above amount by way of commission as he worked for the assessee in bringing new customers. THE ITO found that out of the aforesaid amount of Rs. 30,482 credited to the account of Shri Santosh Kumar, he was paid various amounts in cash exceeding Rs. 2,500 and such cash payments were to the extent of Rs. 16,400 out of the total amount of Rs. 30,482. Since the assessee failed to establish that the various payments in cash exceeding Rs. 2,500 to Shri Santosh Kumar were made in exceptional and unavoidable circumstances, the ITO invoked the provisions of Section 40A(3) of the Act and disallowed the said cash payment totalling Rs. 16,400.

(3.) THE learned counsel for the assessee placed reliance upon Rule 6DD(e) of the I.T. Rules, 1962, and contended that the Tribunal committed an error of law in upholding the disallowance of the said amount. THE contention of the learned counsel for the assessee has no force. Rule 6DD(e) of the I.T. Rules is as follows :