COMMISSIONER OF INCOME TAX Vs. ASSAM TRIBUNE

JUDGEMENT

(1.) AT the instance of the Revenue, the following two questions have been referred by the Tribunal under S. 256(1) of the INCOME TAX ACT, 1961 (for short, "the Act"), for opinion of this Court :

(2.) THE respondent is an assessee under the Act. During the course of assessment proceeding, the AO observed that the assessee made entries of cash payment exceeding Rs. 2,500 in violation of the provisions of S. 40A(3) of the Act. The AO, therefore, asked the assessee to explain the reason for making such cash payment. The assessee could produce confirmation letters from some of the parties only and also explained the exceptional circumstances in which payments exceeding Rs. 2,500 had been made, but in most of the cases, in spite of repeated request made by the AO, the assessee could not satisfactorily explain the reason for violation of the provisions of S. 40A(3) of the Act. The AO, accordingly, disallowed a sum of Rs. 9,04,553. Being aggrieved, the assessee took up the matter by way of appeal before the CIT (A.) During pendency of the appeal before the CIT (A), the assessee could produce some more confirmatory letters from various parties and was able to prove the genuineness of the transaction as well as the identity of the payee. Out of the total disallowance of Rs. 9,04,553, the CIT (A.) granted relief to the tune of Rs. 6,36,979.33. However, the CIT (A) disallowed a sum of Rs. 2,27,573.60. On further appeal before the Tribunal by the assessee as well as by the Revenue, the Tribunal sustained the order of the CIT (A.) allowing deletion of Rs. 6,36,979.33. As regards remaining disallowance of Rs. 2,27,573.60, the Tribunal was of the opinion that the assessee could produce three confirmatory letters from three parties from which it appeared that the payments made were duly recorded in their respective books of account which needed verification as those letters were neither produced before the AO nor before the CIT (A.) Accordingly, the matter was sent to the CIT (A) with a direction that if after verification, the contents of the letter particularly as to the entry in the books of account were found to be correct, he should grant necessary relief in respect of payment to those parties amounting to Rs. 1,26,111.65 after giving opportunity of hearing to both the parties. However, the Tribunal disallowed a sum of Rs. 1,01,462. Thereafter, at the instance of the Revenue, the Tribunal referred the abovequoted questions for opinion of this Court.

(3.) DR . Saraf submits that genuineness of payment is not the only criterion. The authority has to be satisfied whether the payments in violation of the provisions under S. 40A(3) had to be made under urgent and exceptional circumstances. In this connection, Dr. Saraf has drawn our attention to a decision of this Court rendered on 6th June, 1996, in IT. Reference No. 22 of 1991 -Shri Mahabir Industries vs. CIT [1996] 220 ITR 459 (Gau). In the said case, this Court held that exceptional and unavoidable circumstances may vary depending on the facts of each case. Dr. Saraf further submits that the Tribunal committed manifest error in giving a direction to the CIT (A) to verify the contents of the confirmatory letters and books of account and grant further relief.