JUDGMENT
1. This income-tax reference has been made under Section 256(2) of the Income-tax Act, 1961.
2. 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.
3. 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 Sub-section (3) of Section 40A. 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 40A(3). Hence, this reference.
4. 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 the 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.
5. 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.
6. 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.
7. With the observations as made above the present reference is finally disposed of and the matter is remanded to the Tribunal.
