B.R. Jain, A.M.
This appeal has been preferred by the assessee and is arising from the order of learned Commissioner (Appeals), Rajasthan-II, Jaipur, for assessment year 1988-89. Following grounds have been raised :
1. That on the facts, in totality of the circumstances identity of M/s Vineet Trading Corporation having been established, the payee being an existing assessee, maintain regular and proper books of accounts, the payments having been acknowledged, the payment having been made on demand and insistence, there being no evasion of tax by any one of the parties, qenuineness having been proved, the learned lower authorities grossly erred in holding payment to the extent of Rs. 25,000 as in violation of provisions of section 40A(3) of the Act and in disallowing such amount to the appellant-firm.
2. That the learned lower authorities erred in disallowing 1/4th out of car expenses and depreciation on cars.
2. In the first ground, it has been contended by the assessee that there is no justification in the order of learned Commissioner (Appeals) in sustaining the disallowance of Rs. 26,000 made on account of payment to its sister concern M/s Vineet Trading Corporation which was paid owing to commercial urgency. The appellant as well as the sister concern are housed in the same premises and are operating through common partners as the family members/ladies of the parties are partners in both the firms, besides there being the same business being controlled and carried out from the same premises. The genuineness of payment having been accepted by the department besides there being payment for outstanding balance brought forward from the earlier years. Since the payments are not for purchase made during the year, the proviso to section 40A(3) of the Income Tax Act is not applicable. Reliance has also been placed on the judgment of jurisdictional High Court in the case of Kanti Lal Purshottam & Co. v. CIT (1985) 155 ITR 519 (Raj) on the principle that identity of the party having been established, disallowance under section 40A(3) cannot be made. The assessee also relied upon the Circular of the CBDT No. 220, dated 31-5-1977, reported in (1977) 108 ITR 8 (St) and also on the decision of Jaipur Bench of the Tribunal in the case of Pawan Electlic Stores v. Asstt. CIT 24 Tax World 43 (Jp-Trib).
3. On the other hand, the learned Departmental Representative contended that the assessee has failed to bring on record the exceptional circumstances as required under the rules and accordingly there is no merit in the contentions raised by the learned authorised representative. Reliance has been placed on the following decisions :
(i) Naghilal v. CIT (1987) 167 ITR 139 (Raj); and
(ii) Badrilal Phool Chand Rodawat v. CIT (1987) 167 ITR 404 (Raj).
4. Rival submissions have been heard, material on record and precedents relied upon have been considered carefully. From the copy of paper book filed at p. 16 by the assessee. We find that against the opening balance of Rs. 2,79,061, the payment in question to M/s Vineet Trading Corporation have been made prior to 24-4-1987, in cash and there are no purchase of any goods from that concern upto this date. It is, therefore, evident that the payment of Rs. 25,000 was not made for purchase of any goods or on any expenditure so as to attract any of the provisions as contained in section 40A(3) of the Income Tax Act. In view of the above findings, and the proviso to section 40A(3), we are of the view that there is no case for making any addition of Rs. 25,000. We, therefore, direct the assessing officer to delete the said addition of Rs. 25,000.
5. The next issue relates to disallowance of car expenses. Similar issue came before us for hearing in the assessee’s appeal in ITA No. 1836/Jp/of 1994. After hearing the rival submissions, we direct the assessing officer to decide the issue as per our order in ITA No. 1836/Jp/of 1994. However, no interference is called on the question of application of depreciation.
6. In the result, the appeal of the assessee is partly allowed.