AVTAR SINGH Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) AVOIDANCE of the rigour of section 40A(3) of the Income -tax Act, 1961 ('the Act') in terms of rule 6DD of the Income -tax Rules, 1962 ('the Rules') in respect of payments made by the assessee in cash is what constitutes the main issue in controversy in this reference. We are concerned here with the assessment year 1972 -73. The assessee is a registered firm which deals in the sale and purchase of items like the sugar and maida. During the relevant assessment year, it purchased ghee of the aggregate value of Rs. 55 lakhs odd from Amrit Banaspati Company, Rajpura. This amount was paid to the supplier company on as many as 189 different occasions. These payments included payment of a total sum of Rs. 4,47,000 in cash on 15 occasions each of which involved payment of a sum exceeding Rs. 2,500. It is the case of the assessee that these payments in cash were made on account of the urgent demands made upon it by the supplier company. This explanation was, however, not accepted by the ITO, who, consequently, included this amount of Rs. 4,47,000 in taxable income of the assessee.

(2.) IT is in this factual background that the following question has now been referred for the opinion of this Court. It reads as under:

(3.) IN clarification of the provisions of section 40A(3) and clause (j) of rule 6DD, the CBDT issued 'Circular No. , dated 31 -5 -1977 (see Taxman?s Direct Taxes Circulars, Vol. 1,1988 edn., p. 428 -29) where in paragraph 4 thereof it was stated that though all the circumstances in which the conditions laid down in rule6DD(j) would be applicable, cannot be spelt out, some of them which would seem to meet the requirements of the said rule are: