B.P. Jeevan Reddy, C.J. - (1.) Under Section 256(2) of the Income-tax Act, the Income-tax Appellate Tribunal has stated the following two questions : "1. Whether the Tribunal was justified and had material for holding that the assessee's case was covered by the provisions of Rule 6DD(j) of the Income-tax Rules, 1962 ?
(2.) Whether the Tribunal's decision was vitiated in law having ignored the material fact that the assessee had no bank account and had made purchases to the tune of Rs. 4 lakhs from Messrs. Shyam Fabrics but the cash payments towards the said purchases which attracted Section 40A(3) were only to the extent of Rs. 47,000 and odd ?" 2. The assessee is a partnership firm. It is engaged in the business of purchase and sale of powerloom cloth. In the assessment relating to assessment year 1972-73, the Income-tax Officer added an amount of Rs. 56,066 in terms of Sub-section (3) of Section 40A of the Income-tax Act. This amount comprised three payments made to three parties. All the three payments were in sums of more than Rs. 2,500 each and the payments were made in cash. But the assessee pleaded that these payments were made in certain exceptional circumstances and also submitted that the payments were genuine. The Income-tax Officer rejected the assessee's explanation, but on appeal, the Appellate Assistant Commissioner held that the genuineness of the payments and the identity of the payees were established. He also found that one of the three payees, Shyam Fabrics, did not have a bank account and, therefore, the assessee's case was covered by Clause (j) of Rule 6DD of the Income-tax Rules. The Department went up in appeal to the Tribunal and contended, inter alia, that Shyam Fabrics did have a bank account. It also submitted that the requirements of Clause (j) of Rule 6DD were not satisfied in this case.
(3.) The Tribunal agreed with the Revenue that Shyam Fabrics did have a bank account but yet dismissed the appeal holding that the facts of the case established that payments to two of the payees, namely, Shyam Fabrics and P. P. Yarn Traders, were made in exceptional circumstances and with a view not to strain the relations with their suppliers. So fax as the payment to the third party, Shashikala Textiles, is concerned, the Tribunal rejected the assessee's explanation and allowed the appeal to that extent;