COMMISSIONER OF INCOME TAX Vs. TRINITY TRADERS

JUDGEMENT

(1.) THESE two references arise out of one and the same order of the Tribunal. Hence we will dispose of both the matters by this common judgment. In this case, at the instance of the assessee the following question has been referred for our opinion :

(2.) THE facts leading to these two references are as follows: 'We are concerned with asst. year 1970 71. The assessee is a registered firm which derives income from a spinning mill. It purchases cotton waste and manufactures yarn which is used in manufacturing rough clothes, mats, carpets, etc, At the time of the assessment, the ITO, while scrutinising the accounts, found that the assessee had made cash payments aggregating to Rs. 48,939 to M/s Manubhai & Co. and each of those payments exceeded Rs. 2,500. The assessee, in the course of the same assessment proceedings, was also found to have made payments aggregating to Rs. 9,791 to M/s Yogesh Chandra & Co. and each of those payments also exceeded Rs. 2,500. As these payments were made in cash, the ITO, in view of the language of S. 40A(3), disallowed these payments and passed the order in the light of r. 6D of the IT Rules, 1962. On appeal filed by the assessee, the AAC confirmed the decision of the ITO. The assessee took the matter in further appeal before the Tribunal and before the Tribunal it was not disputed that the assessee had made various payments to M/s. Manubhai & Co., between April 3, 1969 and October 1, 1969. Each of those payments was in excess of Rs. 2,500. Each of those payments was otherwise than by a crossed cheque or crossed draft and the total amount paid to M/s Manubhai & Co., in the course of that period April 3, 1969, to October 1, 1969 aggregated to Rs. 48,939. Similarly, the assessee had admittedly made payments to M/ S. Yogeschandra & Co., between April 19, 1969, and September 1, 1969. The total came to Rs. 9,791. Each of these payments was in excess of Rs. 2,500 and was made otherwise than by a crossed cheque or crossed draft. The Tribunal came to the conclusion that, on facts, the assessee's contention that M/s Manubliai & Co., were not prepared to accept cheques from the assessee firm could not be accepted and it, therefore, disallowed the claim for Rs. 48,939. As regards payments made to M/s Yogeschandra & Co., the Tribunal found that all along in the past as well as during the year under appeal, the payments, past as well as during the year under appeal, were made only in cash and therefore the explanation put forth by the assessee had some merit. The Tribunal again took the fact into consideration that Yogeschandra & Co. was a Bombay party and their insistence on cash payments in the light of the facts stated by the assessee could not be ruled out. The Tribunal therefore held that the payments made to Yogeshchandra & Co. must be held to be covered by r. 6DD(j)(i) as well as r. 6DD(j)(ii) of the Income tax Rules, 1962. Thereafter, at the instance of the assessee as well as at the instance of the Revenue, the two questions which we have hereinabove respectively set out have been referred to us for our opinion.

(3.) The circular makes it clear that these are merely illustrative instances of cases in which r. 6DD (j) would be applicable. The circular also points out that the requirements of r. 6DD(j) can be satisfied if a letter to the above effect is produced in respect of each transaction falling within the categories listed above from the seller giving full particulars of his address, Sales tax number/permanent account number, if any, for the purposes of proper identification to enable the ITO to satisfy himself about the genuineness of the transaction. It is obvious that when the ITO passed The assessment order and subsequently when the matter came up before the Tribunal, the Circular of May 31, 1977, was not and could not have been available to them and hence the cases which, according to the Board, would be covered by the r. 6DD(j), could not be considered either by the ITO or by the AAC or by the Tribunal. Under these circumstances, it will be better to apply the formula adopted by the Supreme Court in CIT vs. Indian Molasses Co. P Ltd. (1970) 78 ITR 474 (SC) of the Reports, the Supreme Court has pointed out: