2001 (5) TMI 40 - HC - Income Tax

Obsolescence Allowance Business Expenditure Disallowance of Expenditure Disallowance Justified

Summary

Issues involved:
The judgment involves the disallowance of deduction for obsolete stores written off and the disallowance of a payment made in contravention of section 40A(3) of the Income-tax Act, 1961.

Disallowance of deduction for obsolete stores written off:
The assessee claimed a deduction of Rs. 36,166 for the written off value of obsolete items in the stores during the assessment year 1977-78. However, the Income-tax Officer disallowed this amount as no details were provided regarding the items that became obsolete and could be written off. The Commissioner of Income-tax (Appeals) and the Tribunal upheld this disallowance, noting the lack of specific details. The assessee's submission of a paper mentioning tea chests worth Rs. 36,166 without further details was deemed insufficient for interference.

Disallowance of payment under section 40A(3):
The payment of Rs. 65,500 made by the assessee was disallowed under section 40A(3) as it was not shown to be made under compelling circumstances necessitating cash payment. The Assessing Officer, Commissioner of Income-tax (Appeals), and the Tribunal all upheld this disallowance. The assessee's reliance on Circular No. 220, dated May 31, 1977, and legal precedents was countered by the court's interpretation that genuine payment alone does not override the requirement of payment by account payee cheque or demand draft under section 40A(3). The court emphasized that unless there are unavoidable circumstances for cash payment, the provision of section 40A(3) should apply, and in this case, no compelling circumstances were found to justify the cash payment.

Conclusion:
The High Court ruled in favor of the Revenue and against the assessee, affirming the disallowance of both the deduction for obsolete stores written off and the payment made in contravention of section 40A(3) of the Income-tax Act, 1961.