JANAMBHUMI Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) IN this income -tax reference, at the instance of the assessee, the following question has 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 facts for the purpose of answering this reference are:

(3.) MR . R.P. Agarwalla, learned counsel appearing on behalf of the assessee, assailed the order of the Tribunal. He submitted before us that the Tribunal's finding being contrary to evidence on record was perverse. The Tribunal also failed to consider the relevant materials on record and, therefore, the order was bad in law. It was also not a speaking order. Learned counsel further submitted that the expression "exceptional circumstances" under r. 6DD(j)(1) ought to be understood in the context of the objects of S. 40A(3). But the Tribunal erred in law in not accepting the circumstances under which the payments had been made as exceptional after having accepted the genuineness of the cash transaction and the identity of the payee. Learned counsel emphasised that the circumstances ought to be looked into from the business point of view. The objects of the second proviso to S. 40A(3) and r. 6DD(j) was that "exceptional circumstances" was a non - technical expression meaning thereby unusual or uncommon circumstances. He refuted the argument of learned counsel for the Revenue that the provisions of S. 40A(3) were mandatory in nature and the AO had no discretion to allow expenditure in cash unless it came within the expression "exceptional circumstances". Learned counsel also submitted that the contention of the Revenue that the assessee could not justify the cash payments by pointing out the circumstances referred to in (1) and (2) above was factually incorrect. The assessee very clearly gave its explanations regarding the exceptional circumstances which were not dealt with in accordance with law. It was further contended that the Tribunal failed to act in accordance with law and misdirected itself in law while dealing with the expression "exceptional circumstances"; no doubt the firm and the company were two different taxable entities. But then, the issue was not who was assessable for which income. The question was whether any practical businessman in the context of the facts found and recorded should hazard the risk of movement of cash for deposit in the bank and then again bring the cash from bank. The object of S. 40A(3) read with the second proviso did not intend so. The demand of the Revenue was too rigid which would, according to learned counsel for the assessee, frustrate the object of S. 40A(3) read with its second proviso and the rules framed thereunder. Learned counsel, while making his submission, refuted the contention of the Revenue that the assessee's case was not covered by a Board Circular No. 220 dt. 31st May, 1977 [1977 CTR (Journ) 259 : (1977) 108 ITR (St.) 8]. He pointed out that the circular itself was very clear. The circular very clearly indicated that the circumstances mentioned in the circular were not exhaustive but illustrative.