COMMISSIONER OF INCOME-TAX VS KRISHNA PAPER MART, 1998 PTD-ALLAHABAD-HIGH-COURT-INDIA 1077 (1996)

Income-tax---

----Business expenditure---Payments not deductible---Payments otherwise than by crossed cheque ---Assessee-firm selling paper on commission basis on behalf of a supplier---Payment exceeding Rs.2,500---Assessee's books showing cash payments in sums less than Rs.2,500 each---Suppliers' books of account showing lump sum receipts ---I.T.O. giving opportunity to assessee to explain discrepancy---Tribunal erred in holding opportunity not given---Matter remanded to Tribunal---Indian Income Tax Act, 1961, S.40-A(3).

The assessee-firm sold paper to a mill on commission basis on behalf of one L. In connection with these transactions, the assessee paid Rs.2,34,317 to L. According to the books of account of the assessee, all these payments were in sums less than Rs.2,500. Receipt of payments was shown in the books of account of L in one lump sum and payments in instalments as shown in the assessee's books of account were not reflected in L's books. All the deposits made by L in the bank exceeded Rs.2,500. The Appellate Assistant Commissioner opined that as the payments exceeded Rs.2,500 they were hit by section 40-A(3) of the Income 'Tax Act, 1961. Before the Tribunal, the assessee contended that the payments never exceeded Rs.2,500 and they were not hit by section 40-A(3) of the Act. The Tribunal decided in favour of the assessee on the ground that the Income-tax Officer did not examine L and the assessee and that the assessee's books had been accepted. On a reference:

Held, that though the Tribunal has not disputed the fact that there was a discrepancy between the books of L and those of the assessee it had decidedfavour of the assessee only on the ground that the Income-tax Officer did not examine L and the assessee and the books of the assessee had been accepted. It erred in law in holding that the Revenue did not give an opportunity to the assessee to explain the discrepancy because the Income-tax Officer's order showed that the assessee-firm was asked to explain the circumstances under which cash payments exceeding Rs.2,500 were made. The order passed by the Tribunal was liable to be set aside and the matter remanded for a fresh decision.

B.L. Srivastava for the Assessee.

JUDGMENT

This income-tax reference has been made under section 256(2) of the Income-tax Act, 1961.

We have heard learned counsel for the Department and Sri B. L. Srivastava,. learned counsel for the assessee. The facts of the case are that the assessee is a firm which sold papers to a mill on commission basis on behalf of Shri L. D. Laddha. In connection with these transactions, the respondent-firm paid Rs. 2,34,317 to Shri L. D. Laddha on various dates. According to the details of the payments, as contained in the books of account of the assessee-firm, they were all in sums less than Rs. 2,500. But this fact was disputed by this Department. The payee had shown in his books of account receipt of such payment in one lump sum and the payments in instalments as shown in the books of account of the assessee were not reflected in his books, Shri L. D. Laddha deposited money in the books of the same dates on which he received cash from the assessee-firm. All such deposits, in the bank also exceeded Rs.2,500.

On the basis of the facts, the Income-tax Officer and the Appellate Assistant Commissioner held that the payments made by the firm to Shri L. D. Laddha exceeded Rs. 2,500 in cash and, therefore, these payments were hit by subsection (3) of section 40-A. However, on behalf of the assessee, it was contended before the Tribunal that the payments, in no case, exceeded Rs. 2,500 at any one point of time and that, therefore, its case was not hit by section 40-A. Hence, this reference.

The Tribunal has decided the case in favour of the assessee only on the ground that if the Income-tax Officer wanted to correct the entries, he should have examined the assessee-firm as well as Shri L. D. Laddha regarding their respective books. The Tribunal has not disputed the fact that there is discrepancy between the books of Shri L. D. Laddha and the assessee, but it has decided in favour of assessee only on the ground that the Income-tax Officer did not examine Shri L. D. Laddha and the assessee and that the books of the assessee has been accepted. However, it appears from the assessment order of the Income-tax Officer that he has asked the assessee firm to explain the circumstances under which the above cash payments exceeding Rs. 2,500 otherwise than by a crossed cheque drawn on a bank. In his assessment order, the Income-tax Officer added the above payments to the income of the firm.

In our opinion, the Tribunal erred in law by holding that the Department did not give an opportunity to the assessee to explain the discrepancy because as pointed out above, the assessee was given an opportunity to explain the payments exceeding amount Rs.2,500.

For the reasons stated above, we set aside the order, dated August 31, 1977, passed by the Tribunal and remand the matter to the Tribunal for a fresh decision in the light of the observations, as made above. The assessee will be at the liberty to adduce fresh evidence before the Tribunal to substantiate his claim.

With the observations as made above the present reference is finally disposed of and the matter is remanded to the Tribunal.

M.B.A./1262/FCReference disposed.