CIT JALANDHAR vs. M/S G.S.AUTO INDUSTRIES P.LTD.

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ITR/31/1998HC Punjab & HaryanaPHHC01038002199813 August 2009Author: MR. JUSTICE ADARSH KUMAR GOEL,MRS JUSTICE DAYA CHAUDHARY3 pages
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What did the High Court hold?

The High Court held that the ITAT's finding that cash payments were made out of necessity in exceptional circumstances and were genuine was a categorical finding of fact. The Court observed that the requirement for payment by cheque under Section 40A(3) is not absolute and that genuine cash transactions are permissible in exceptional circumstances. Therefore, the Tribunal's finding could not be held to be perverse. The Court answered the questions referred against the revenue and in favour of the assessee. The reference was disposed of accordingly, upholding the deletion of the addition made by the Assessing Officer under Section 40A(3). No issue was expressly left undecided.

What were the facts?

The Commissioner of Income-tax, Jalandhar (the Revenue) filed an Income Tax Reference Application (ITR No. 31 of 1998) before the High Court of Punjab and Haryana at Chandigarh. This reference arose from an order dated 13.9.1990 passed by the Income Tax Appellate Tribunal (ITAT), Amritsar Bench, in ITA No. 1116 (ASR/1989) for assessment year 1988-89. The assessee, M/s G.S. Auto Industries (P) Ltd., was engaged in manufacturing and trading auto parts. The Assessing Officer had disallowed expenses exceeding Rs. 2,500/- paid in cash, invoking Section 40A(3) of the Income Tax Act, 1961. The CIT(A) upheld some of these disallowances. The ITAT, however, deleted the additions, finding that cash payments were made out of necessity in exceptional circumstances and were genuine.

What were the issues?

The High Court was asked to decide the following substantial questions of law arising from the ITAT's order: 1. Whether, on the facts and in the circumstances of the case, the ITAT was right in law in deleting the addition of Rs. 81,596/- made under Section 40A(3) of the Income Tax Act, 1961, considering the non-existent nature of exceptional circumstances for making cash payments. a. Whether exceptional and unavoidable circumstances can exist for a single unledgerised cash payment to a party with whom the assessee has a running account and makes other payments by cheque. b. Whether the mere genuineness of a payment is sufficient to exempt it from the purview of Section 40A(3). c. Whether the ITAT can substitute its own satisfaction for that of the Assessing Officer when the law requires the Assessing Officer's satisfaction for allowing amounts exceeding Rs. 2,500/-. Assessee's Contentions: The ITAT deleted the additions, holding that cash payments were made out of necessity in exceptional circumstances and were genuine. The Tribunal found that Section 40A(3) could not be invoked in such situations. The High Court noted the Tribunal's categorical finding that cash payments were made in exceptional circumstances and were proved to be genuine, and that the requirement for payment by cheque under Section 40A(3) is not absolute, permitting genuine cash transactions in exceptional circumstances. Revenue's Contentions: The Revenue argued that there were no exceptional circumstances justifying cash payments and that the ITAT erred in deleting the addition. The Revenue also questioned whether mere genuineness of payment was sufficient to override Section 40A(3) and whether the ITAT could substitute its satisfaction for that of the Assessing Officer.

Which sections of the Income-tax Act were involved?

Section 40A(3)

AI-generated summary — verify with the full judgment below

(1) IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH DATE OF DECISION: 13.8.2009 The Commissioner of Income-tax Jalandhar ..........Applicant Versus M/s G.S. Auto Industries (P) Ltd., Sodal Road, ..........Respondent Jalandhar CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL HON'BLE MRS. JUSTICE DAYA CHAUDHARY Present:- None for the applicant. Mr. Animesh Sharma, Advocate for the respondent. **** ADARSH KUMAR GOEL, J. (Oral)

1.

The Income Tax Appellate Tribunal, Amritsar Bench, Amritsar has referred, in compliance of order of this Court, following substantial questions of law arising out of its order dated 13.9.1990 in ITA No. 1116 (ASR/1989) for assessment year 1988-89 for opinion of this Court:- “Whether, on the facts and in the circumstances of the case, the Ld. ITAT was right in law in deleting the addition of Rs. 81,596/- made under section 40A (3) of the Income Tax Act, 1961, under the non-existent nature of the exceptional circumstances for making the payments in case; and (2) (i) Whether there can assist any exceptional and unavoidable circumstances for one single unledgerised payment to a party with whom the assessee is having a running account and making all other payments by cheques” (ii) Whether mere genuineness of payment is enough to take the case out of the perview of section 40A(3); and (iii) Whether the I.T.A.T. can substitute its own satisfaction, when the law requires the satisfaction of the Assessing Officer for allowing the amounts exceeding Rs.2,500/-?”

2.

The assessee was engaged in the business of manufacturing and trading of auto parts and hardware fittings. The Assessing Officer found certain expenses incurred in excess of Rs. 2500/- without cheques and the same were disallowed under Section 40A(3). The additions were upheld by the CIT(A) except for some amount. On further appeal, the Tribunal deleted the additions by observing that payments had to be made out of necessity in cash in exceptional circumstances and in such a situation Section 40A(3) could not be invoked.

3.

The Tribunal has recorded a categorical finding that cash payment had to be made in exceptional circumstances and payments were proved to be genuine. Finding of the Tribunal cannot be held to be perverse. Requirement for payment by cheque under Section 40-A(3) is not absolute and in exceptional circumstances, genuine cash transaction is permissible.

4.

In view of above, the questions referred are answered against the revenue and in favour of the assessee.

(3)

5.

Reference is disposed of accordingly. (ADARSH KUMAR GOEL) JUDGE August 13, 2009

(DAYA CHAUDHARY) pooja JUDGE Note:-Whether this case is to be referred to the Reporter .......Yes/No

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