- (1.) The Income Tax Appellate Tribunal, Allahabad Bench, has referred the following question of law under Section 256(2) of the Income Tax Act, 1961 (hereinafter referred to as the Act), for opinion to this Court: Whether on the facts and legal position of the case, the Hon'ble Tribunal was justified in holding that the cash payment exceeding Rs. 2,500 made by the assessee amounting to Rs. 44,000 were not disallowable under Section 40A(3) The reference relates to year 1987-88.
(2.) Briefly stated the facts giving rise to the present reference are as follows: The assessee is a registered firm and deals in agency sale of Ashok Masala, Match Box and Kirana business both on wholesale and retail basis. Assessment for the assessment year 1987-88, i.e., the year under consideration was framed under Section 143(3) on 30-11-1988. While scrutinising the accounts, the assessing officer found that the payments amounting to Rs. 44,000 had been made to 7 parties which in individual case exceeded the amount of Rs. 2,500 in cash. On inquiry the assessee failed to give out the special circumstances for the cash payment which could be covered by the provisions of rule 6DD(j) of Income-tax Rules. Consequently, the cash payment amounted to violation of rule 40A(3) and the Income Tax Officer disallowed the payment of the said amount and added the same as income under Section 40A(3). In appeal filed by the assessee the said disallowance was confirmed by the learned CIT (Appeals) discussing the whole issue in paragraph 7 of his order which runs as under: I have considered the facts, M/s. Om Match Co. cannot be said to be a new company to the assessee. Nor it could be said that it was the precondition for making the payment in cash. There was an agreement between the appellant and M/s. D.K. Sons that the goods will be supplied to the appellant through U.P. Distributor M/s. Om Match Co., Jhansi. That the goods will be supplied for six months on 50 per cent payment should be paid while placing next order. This does not indicate that the payment was required to be made in cash. The-provisions of Section 40A(3) are special provisions which should override the general provisions. General concept is that the payment is genuine then the deduction should be allowed. The provisions of Section 40A(3) have been brought into check the fictitious or bogus claim through these override provisions. Special provisions always override the general provisions. If there was no identity of the purchaser and purchaser was not genuine then the deduction should not have been allowed otherwise also. Therefore, in my view even if the purchasers are genuine and identity is established and if there is a violation of the provisions of Section 40A(3), the addition can be made unless it is covered under the exceptions of provisions of rule 6DD(j) and, therefore, I hold that the addition made is fully justified and is confirmed.
(3.) The assessee, being aggrieved, filed second appeal before the Tribunal. The Tribunal vide its order dated 14-3-1991 deleted the said addition on the ground that the payments were made as the supplier insisted on cash payment and because of business exigency the said payment was made in cash and consequently the alleged payment did not attract the provisions of Section 40A(3).;