B.P Jeevan Reddy, C.J:— Under S. 252(2) of the Income-tax Act the Income tax Appellate Tribunal has stated following two questions:—
1. Whether the Tribunal was justified and has material for holding that the assessee's case was covered by the provision of R. 6-DD (j) of the Income-tax Rules, 1962?
2. Whether the Tribunal's decision was vitiated in law having ignored the material fact that the assessee has no bank account and had made purchases to the tune of Rs. 4 lacs from Messrs. Shyam Fabrics but the cash payments towards the said purchases, which attracted S. 40-A(3) were only to the extent of Rs. 47,000/- and odd?
2. The assessee is a partnership firm. It is engaged in the business of purchase and sale of powerloom cloth. In the assessment relating to assessment year 1972–73 the Income-tax Officer added an amount of Rs. 56,066 in terms of sub-section (3) of S. 40-A of the Income-tax Act. This amount comprised three payments made to three parties. All the three payments were in a sum of more than Rs. 2600/- and the payments were made in cash. But the assessee pleaded that these payments were made in certain exceptional circumstances and also submitted that the payment is genuine. The Income-tax Officer rejected the assessees explanation, but on appeal, the Assistant Commissioner held the genuineness of the payments and identity of the payee as established. He also found that one of the three payees, M/s. Shyam Fabrics did not have a bank account and therefore the assessee's case was covered by clause (j) of R. 6-DD of the Income-tax Rules. The department went up in appeal to the Tribunal and contended inter alia that M/s. Shyam Fabrics did have a bank account. It also submitted that the requirements of clause (j) of R. 6-DD were not satisfied in this case.
3. The Tribunal agreed with the revenue that M/s. Shyam Fabrics did have a bank account but yet dismissed the appeal holding that the facts of the case established that payments to two of the payees, namely M/s, Shyam Fabrics and M/s. P.P Yarn Traders were made in exceptional circumstances and with a view not to strain relations with their suppliers. So far as the payment to the third party, M/s. Shashikala Textiles is concerned, the Tribunal rejected the assessee's explanation and allowed the appeal to that extent.
4. Section 40-A(2) provides that if any payment over and above Rs. 2500/- is made otherwise than under a crossed cheque or under a crossed bank draft, it shall not be allowed as a deduction, This bar applies to all and any expenditure incurred by the assessee. However, second proviso to that sub-section says that no such disallowance shall be made
5. if the payment is made in the circumstances as may be prescribed by the Rules. Rule 6-DD has been framed in pursuance of this proviso. One of the situations where the disallowance will not be made is specified in clause (j) which reads as follows:—
“(j) if any other case, where the assessee satisfies the Assessing Officer that the payment could not be made by a crossed cheque drawn on a bank or by a crossed bank draft:—
(i) due to exceptional or unavoidable circumstances, or
(ii) because payment in the manner aforesaid was not practicable, or would have caused genuine difficulty to the payee, having regard to the nature of the transaction and the necessity for expeditious settlement thereon,
and also furnishes evidence to the satisfaction of the Assessing Officer as to the genuineness of the payment and the identity of the payee.
6. The Tribunal has found that the identity of the payee is established as also the genuineness of the payment. That was indeed the finding of the Assistant Commissioner of Income-tax. The only question was whether the assessee has established that the payment in cash was made in exceptional or unavoidable circumstances or for the reasons specified in sub-clause (2) of Clause (j).
7. The Tribunal has found that the amount paid in cash is quite small compared to the total amount involved in the transaction between the assessee and M/s. Shyam Fabrics and it also found that the payee insisted upon cash payment and with a view to maintain good relations the assessee made payment in cash. This is a finding of fact and we see no reason to disturb the said finding in this reference. Accordingly, the question No. 1 is answered in affirmative that is in favour of the assessee and against the revenue.
8. So far as question No. 2 is concerned, it is argumentative in nature and cannot be treated as question of law. Just because one of the reasons given in support of a finding of fact is untenable, the finding itself does not become vitiated unless we are in a position to say that but for the said untenable reason the said finding could not have been recorded. We cannot say that is the position here. We, therefore, decline to answer the question No. 2. Reference answerd accordingly. No costs.
9. Order accordingly.