COMMISSIONEROF INCOME-TAX vs. HARI ENTERPRISES

ITR/134/1994HC GujaratGJHC24020211199429 September 2005Author: HONOURABLE MR. JUSTICE D.A.MEHTA,HONOURABLE MS. JUSTICE HARSHA DEVANI8 pages
AI SummaryAllowed

What were the facts?

The assessee, Hari Enterprises, a registered firm, is engaged in manufacturing H.D. Polythene bags. For the assessment year 1978-79 (accounting year ended 30th June 1977), the assessee made cash payments totaling Rs. 1,06,383/- to M/s Hoechst Dyes & Chemicals Ltd., with each payment exceeding Rs. 2,500/-. The Assessing Officer (AO) disallowed this amount under Section 40A(3) of the Income Tax Act, 1961. The Commissioner of Income Tax (Appeals) confirmed the AO's order. The assessee appealed to the Income Tax Appellate Tribunal (ITAT), which deleted the addition. The Commissioner of Income-Tax (CIT) has referred the matter to the High Court.

What did the High Court hold?

The High Court held that the Income Tax Appellate Tribunal was justified in deleting the addition of Rs. 1,06,383/- made under Section 40A(3) of the Income Tax Act. The Tribunal had found that the existence and genuineness of M/s Hoechst Dyes & Chemicals Ltd. were not disputed. It also found that due to a misunderstanding and bounced cheques, the supplier insisted on cash payments for raw materials. The Court referred to its own decision in Hasanand Pinjomal v. Commissioner of Income Tax, Gujarat, [1978] 112 ITR 134, which stated that Section 40A(3) aims to check tax evasion and ensure payments are made through banking channels. However, the concept of practicability under Rule 6DD(j) should be viewed from a businessman's perspective, and business expediency is a relevant factor. The revenue failed to provide material to disprove the genuineness of the transaction or the payee, or to show that the assessee was not compelled to make cash payments due to dishonoured cheques. Therefore, the Tribunal was justified in holding that the assessee's case fell under the exception provided by Rule 6DD(j), and Section 40A(3) could not be invoked for the addition. The question was answered in the affirmative, in favour of the assessee.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in deleting the addition of Rs. 1,06,383/- made by the ITO u/s 40A(3) of the Income Tax Act? Assessee's Arguments: The judgment does not record specific arguments made by the assessee before the High Court. However, the ITAT's findings, which the High Court is upholding, indicate that the assessee likely argued that the payments were necessitated by circumstances and that the payee's existence and genuineness were not in dispute. The ITAT also noted that similar disallowances in earlier years were successfully challenged by the assessee and had become final. Revenue's Arguments: The revenue, through its counsel, argued that the ITAT erred in reversing the Commissioner (Appeals)'s order, particularly because the assessee failed to adduce evidence when called upon by the AO. The revenue contended that the question should be answered in its favour.

Which sections of the Income-tax Act were involved?

Section 40A(3),Section 256(1)

AI-generated summary — verify with the full judgment below

ITR/134/1994 1/8 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD INCOME TAX REFERENCE No. 134 of 1994 For Approval and Signature: HONOURABLE MR.JUSTICE D.A.MEHTA HONOURABLE MS.JUSTICE H.N.DEVANI ============================================================== 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ============================================================== COMMISSIONEROF INCOME-TAX - Applicant(s)

Versus HARI ENTERPRISES - Respondent(s) ============================================================== Appearance : MRS M.M.BHATT FOR MR MANISH R BHATT for Applicant NOTICE UNSERVED for Respondent(s) : 1, ================================================================== CORAM :  HONOURABLE MR.JUSTICE D.A.MEHTA and HONOURABLE MS.JUSTICE H.N.DEVANI Date : 29/08/2005 ORAL JUDGMENT (Per : HONOURABLE MR.JUSTICE D.A.MEHTA) 1.The Inc

The order continues below.

Read the full judgment

A free account opens 10 full judgments a month. Re-reading one you have already opened does not count again.

Create a free accountSign in

See plans and prices

The summary, the parties, the sections and the citations above are open to everyone and always will be. Only the text of the order and the PDF are metered.

More judgments on Section 40A(3)

All 3,221 judgments and leading authorities on Section 40A(3) →

Recent GST High Court judgments

Search GST case law →