Ajit K.Sengupta, J. - (1.) At the instance of the assessee, the following question of law has been referred to this court under Section 256(2) of the Income-tax Act, 1961, for the assessment year 1975-76 : "Whether, on the facts and in the circumstances of the case and on a proper interpretation of rule 6DD of the Income-tax Rules, 1962, read with the Central Board of Direct Taxes Circular No. 220 dated May 31, 1977 (see [1977] 108 ITR (St.) 8), the Tribunal was justified in upholding the disallowance of Rs. 22,098 in terms of Sub-section (3) of Section 40A of the Income-tax Act, 1961."
(2.) The facts leading to this reference are that the assessee, an individual, is a wholesale dealer in jaggery. Before the Income-tax Officer, it was submitted on behalf of the assessee that he started a proprietary business styled Dilip Stores on December 13, 1973. The assessee paid an aggregate sum of Rs. 37,048 consisting of amounts paid in cash in excess of Rs. 2,500. The payments in question were made to Mangilal Nathmal of 45A, Adya Sardhya Ghat Road, Calcutta, against the following bills : JUDGEMENT_122_ITR179_1989Html1.htm
(3.) The assessee was required by the Income-tax Officer to explain the above cash purchases in excess of Rs. 2,500. The explanation offered by the assessee was that he was new to the business and, therefore, the parties refused to accept his cheques. The Income-tax Officer examined a list of sundry creditors of the assessee and found that many creditors were there including Mangilal Nathmal to whom the assessee had paid in cash. So, the assessee's explanations that he was new to the business and that the .parties were insisting on cash payments were not acceptable to the Income-tax Officer as correct and genuine. Some of the payments made towards the beginning of the accounting year were, however, accepted by the Income-tax Officer on account of his being new, and in his opinion, it was likely that cash payments had to be made to begin with to establish his credibility in the market, but when the parties in question had become familiar with the assessee, they started to give credit to him and, therefore, the latter cash payments in excess of Rs. 2,500 were, in the opinion of the Income-tax Officer, clearly not explainable. The Income-tax Officer, accordingly, made an addition of Rs. 37,048 to the total income of the assessee under Section 40A(3) of the Income-tax Act, 1961.;