Income-tax---

----Reference---Payments not deductible---Assessing Officer disallowing deduction on ground assessee splitting up payments on a single day into two or more of Rs.2,500 or less---Tribunal finding no intentional platting up of payments into items below Rs.2,500---Tribunal holding no allegation that transactions entered into by assessee not real or payees not identifiable persons---Tribunal deleting disallowance---Question of law arises for reference---Indian Income Tax Act, 1961, Ss. 40-A(3) &256(2).

For the assessment year 1987-88, the Assessing Officer disallowed payments totalling Rs.1,56,253 under section 40-A(3) of the Income Tax Act, 1961, on the ground that the assessee had split the items of payment exceeding Rs.2,500 and made payment in cash two or three times on a single day. The Commissioner (Appeals) confirmed the disallowance. The Tribune deleted the disallowance on the grounds that the mode of payment reflected in the books of account showed that the assessee took care not to commit breach of section 40-A(3), that there was no intentional splitting up of the payments into items below Rs.2,500, that unless there was positive proof that the assessee at one time made payment in excess of Rs.2,500 and later split it into smaller items, no such inference of breach of section 40-A(3) could be drawn that the Revenue Officers should not expect compliance of section 40-A(3) rigorously and that there was no allegation that the transactions entered into by the assessee were not real or that the payees were not identifiable persons. The application of the Revenue under section 256(1) of the Act for referring a question of law was rejected. On an application under section 256(2) for directing the Tribunal to refer a question of law:

Held, that a question of law, viz., "whether the Tribunal was justified in deleting the addition of Rs.1,56,253 contrary to section 40-A(3) of the Act" arose for reference.

D.D. Vyas for the Commissioner.

Nemo for the Assessee.

JUDGMENT

A. R. TIWARI, J.---The applicant (Commissioner of Income-tax, Bhopal), has filed this application under section 256(2) of the Income Tax Act, 1961 (for short "the Act"), seeking a direction to the Tribunal to state the case and to refer the question, as extracted below arising out of the order passed on June 14, 1993, in I.T.A. No.- 115/Indf of 1989 on rejection of the application presented under section 256(1) of the Act registered as R. A. No. 109/Ind of 1993 on March 18, 1994, for the assessment year 1987-88, for our consideration and opinion

"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in deleting the addition of Rs.1,56,253 made by the Assessing Officer under section 40-A(3), as 'the assessee failed to prove the, exceptional or unavoidable circumstances under which cash payments were made and also tried to defeat the provisions of section .40-A(3) by splitting up the payments on a single day into two or more of Rs. 2,500 or less?"

Briefly stated, the facts of the case are that on examination of the books of account, the Assessing Officer took the view that the assessee had split the items of payment exceeding Rs.2,500 and made payment in cash two or three times. He, therefore, disallowed such payments totalling Rs.1,56,253 under section 40-A(3). On, appeal, the Commissioner of Income-tax (Appeals), confirmed this disallowance. The Tribunal, however, deleted the disallowance holding that the provisions of section 40-A(3) were not applicable. Aggrieved, the applicant filed an application under section 256(1) of the Act. The application was rejected on March 18, 1994. Thereafter, the applicant has filed this application under section 256(2) of the Act proposing the aforesaid question for direction.

We have heard Shri D. D. Vyas, learned counsel for the applicant/Department. None appeared for the non-applicant/assessee despite service of notice in compliance with the order, dated November 8, 1994, to the effect that the non-applicant may show-cause as to why this application be not admitted and disposed of finally at the initial stage. In spite of this direction, the non-applicant has not chosen to appear.

Section 40-A(3) of the Act provides as under

"(3) Where the assessee incurs any expenditure in respect of which payment is made, after such date (not being later than the 31st day of March, 1969), as may be specified in this behalf by the Central Government by notification in the Official Gazette, in a sum exceeding ten thousand rupees otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft, such expenditure shall not be allowed as a deduction."

March 31, 1969, is the date specified, vide Notification NO.S.0.623, dated February 14, 1969 (see (1969) 71 ITR (St.) 93) (see Taxman's Direct Taxes Circulars, 1994 ed., Vol. I, page 1,739).

The Assessing Officer disallowed the deduction and the Commissioner of Income-tax (Appeals) confirmed the same. The Tribunal; however, deleted the disallowance with the undernoted observations:

"The mode of payment reflected in the books of account do show that the assessee took care of not committing breach of section 40-A(3). Therefrom, it cannot be said that it was an intentional act of splitting up the payments into the items below Rs.2,500. Unless there is positive proof that the assessee at one time made payment in extras of Rs.2,500 and later split it into the smaller items, no such inference of breach of section 40-A(3) can be drawn. It is needless to say that the Revenue Officers should not expect compliance of section 40-A(3) rigorously. There is no allegation that the transactions entered into by the assessee were not real or that the payees were not identifiable persons. The addition of Rs.1,56,250 is deleted."

Counsel for the applicant on being asked, realised that the question proposed is unnecessarily lengthy and proposed the reformulated question as under:

"Whether, in the facts and circumstances of the case, the Tribunal is justified in deleting the addition of Rs.1,56,253 contrary to section 40-A(3) of the Income Tax Act, 1961?"

As noted above, the Tribunal held that the Revenue Officers should not expect compliance with section 40-A(3) rigorously.

Considering the facts and features as also submissions,. we are satisfied that the reformulated question, as noted above, does arise out of the order passed by the Tribunal and that the refusal to state the case is unsustainable in law.

We, therefore, do not empress any opinion on the merits but deem it proper to call upon the Tribunal to state the case and refer the aforesaid question of law, as noted in para. 7 above, for our consideration and opinion as expeditiously as possible.

The application is accordingly allowed but with no orders as to costs

Counsel fee for the applicant is, however, fixed at Rs.750, if certified

Transmit a copy of this order to the Tribunal for compliance

M.B.A./3089/FCApplication allowed