Court Upholds Cash Payments in Areas Lacking Banking Facilities, Overturns Tax Disallowance

Case Name:**

COMMISSIONER OF INCOME TAX VS PARLE SALES & SERVICES (P) LTD_(High court)

**Key Takeaways:**

1. Cash payments can be justified under exceptional circumstances, such as lack of banking facilities.

2. Concurrent findings of fact by lower authorities carry significant weight in higher courts.

3. The case reinforces the importance of considering practical realities in tax law application.

**Issue:**

Was the disallowance under section 40A(3) of the Income Tax Act justified when there were no local banking facilities available for making payments by cheque?

**Facts:**

- Parle Sales & Services (P) Ltd. made cash payments amounting to Rs. 4,75,000.

- The payments were made in a village called Vanivali.

- Vanivali did not have any banking facilities.

- Neither the assessee (Parle Sales & Services) nor the supplier had banking accounts in the area.

- The payments were otherwise found to be genuine.

**Arguments:**

The Commissioner of Income Tax argued:

- The payments should be disallowed under section 40A(3) of the Income Tax Act.

- The exceptional circumstances under Rule 6DD were not applicable.

Parle Sales & Services (P) Ltd. argued:

- The payments were made in cash due to the lack of banking facilities in the area.

- The circumstances fall under the exceptions provided in Rule 6DD(j) of the Income Tax Rules.

**Key Legal Precedents:**

While no specific legal precedents are mentioned in the judgment, the court refers to:

- Section 40A(3) of the Income Tax Act

- Rule 6DD(j) of the Income Tax Rules

- A circular issued by the Central Board of Direct Taxes (CBDT) regarding exceptional circumstances

**Judgement:**

The High Court dismissed the appeal, upholding the decisions of the CIT(A) and the Tribunal. The court reasoned:

1. The question of whether there were compelling reasons to make payments in cash is essentially a question of fact.

2. Both the CIT(A) and the Tribunal concurrently found that there were no local banking facilities for making payments by cheque.

3. The payments were covered by the exceptional circumstances prescribed in Rule 6DD(j) and as circulated by the CBDT.

4. Given these concurrent findings, the court saw no reason to interfere with the lower authorities' decisions.

**FAQs:**

1. Q: What is section 40A(3) of the Income Tax Act?

  A: Section 40A(3) generally disallows deductions for expenses paid in cash above a certain limit. However, there are exceptions to this rule.

2. Q: What is Rule 6DD(j) of the Income Tax Rules?

  A: Rule 6DD(j) provides exceptions to the disallowance under section 40A(3), including cases where there are exceptional or unavoidable circumstances.

3. Q: Why did the court dismiss the appeal?

  A: The court dismissed the appeal because both lower authorities (CIT(A) and Tribunal) had concurrently found that there were no local banking facilities, which justified the cash payments.

4. Q: Does this judgment mean all cash payments are allowed?

  A: No, this judgment only applies to situations where there are exceptional circumstances, such as a lack of banking facilities in the area.

5. Q: What's the significance of "concurrent findings"?

  A: Concurrent findings by lower authorities carry significant weight in higher courts, as they are considered factual determinations made after careful consideration of evidence.

Heard learned counsel for the appellant.

Following question is proposed for admission in this appeal.

“Whether the Appellate Tribunal has correctly appreciated the facts on record in confirming the order passed by the CIT(A) in deleting disallowance made u/s.40A(3) of the Act holding the same to be covered by rule 6DD, for an amount of Rs.4,75,000/­?”

While confirming the order of the CIT(A), the Tribunal has observed in paragraph 5 as under:­

“We have heard rival submissions and perused material available on record. As facts are similar in all the cases, it has not been disputed that village Vanivali does not have banking facility and consequently, neither assessee nor supplier has any banking accounts, payments are otherwise held to be genuine. In our considered view CIT(A) was justified in holding that payments made by assessee is covered by exceptional circumstances as prescribed by Rule 6DD(j) and as circulated by CBDT by the above circular,we uphold his order.”

Whether there was compelling reasons to make payment in cash or not is basically a question of fact. CIT(A) as well as the Tribunal, both have concurrently found that there were no banking facilities for making the payment by way of cheque.

Considering the concurrent finding, we dismiss the appeal at the admission stage.

(Y.R.MEENA,C.J.)

(SMT.ABHILASHA KUMARI,J.)