2014 (9) TMI 1082 - AT - Income Tax

Applicability of Section 40A(3) - aggregation of cash payment in excess specified limit - Held that - For applicability of Section 40A(3) it is essential that the aggregate payment made to a person on any day should exceed 20, 000/-. Now in the contention of the assessee as well as remand report there is no discussion about the aggregate payment in a day. There is only discussion with regard to the payment not exceeding 20, 000/-. We therefore set aside this aspect to the file of the Assessing Officer and direct him to verify the aggregate payment made by the assessee on each day and if the payment in a day does not exceed 20, 000/- then no disallowance under Section 40A(3) would be made. That if assessee makes the payment not exceeding 20, 000/- every day it cannot be said that the payment has been made to circumvent the provisions of Section 40A(3). Section 40A(3) would be applicable when the assessee makes payment exceeding 20, 000/- in a day. If there is no payment exceeding 20, 000/- in a day there is no violation of Section 40A(3) so there is no question of any circumvention of the provisions. - Decided in favour of assessee for statistical purposes.

Summary

Issues:
1. Disallowance of expenses without rejection of accounting books.
2. Disallowance of payments under Section 40A(3) for purchases made on Sundays/Holidays/Bank Closed days.
3. Disallowance of cash payments not exceeding Rs. 20,000.
4. Consideration of written submissions and evidencing papers by the CIT(A).

Issue 1: Disallowance of expenses without rejection of accounting books
The appellant challenged the order of the CIT(A) for the AY 2009-10, arguing that the disallowance of expenses was against the law and facts on record. The appellant contended that the disallowance was made without rejecting the accounting books. However, during the hearing, it was clarified that only specific grounds required adjudication by the ITAT. The ITAT focused on the issues related to disallowances made under Section 40A(3) and the cash payments not exceeding Rs. 20,000.

Issue 2: Disallowance of payments under Section 40A(3) for purchases made on Sundays/Holidays/Bank Closed days
The appellant contested the disallowance of payments under Section 40A(3) amounting to Rs. 95,96,883, specifically challenging disallowances related to purchases made on Sundays, holidays, or bank closed days. The ITAT noted that the Assessing Officer confirmed that payments were made on such days, covered under Rule 6DDJ of the Income Tax Rules. The ITAT disagreed with the CIT(A)'s decision, stating that if payments were recorded in separate books maintained by the depot-in charge on bank holidays, the disallowance under Section 40A(3) should be deleted.

Issue 3: Disallowance of cash payments not exceeding Rs. 20,000
Regarding the disallowance of cash payments not exceeding Rs. 20,000, the ITAT observed that the Assessing Officer did not dispute the claim that such payments were duly accounted for. The ITAT emphasized that Section 40A(3) applies when payments exceed Rs. 20,000 in a day. As there was no discussion on aggregate payments exceeding Rs. 20,000 in a day, the ITAT directed the Assessing Officer to verify this aspect and set aside the issue for reassessment.

Issue 4: Consideration of written submissions and evidencing papers by the CIT(A)
The appellant argued that the CIT(A) did not consider written submissions, rejoinders, and evidencing papers properly, resulting in the wrongful confirmation of additions. The ITAT, after careful consideration of arguments and facts, disagreed with the CIT(A) and allowed the appeal for statistical purposes. The ITAT emphasized the importance of verifying aggregate payments exceeding Rs. 20,000 in a day for the applicability of Section 40A(3) disallowances.

This judgment by the ITAT Delhi addressed various issues raised by the appellant concerning the disallowance of expenses and payments under Section 40A(3). The ITAT provided detailed analysis and interpretation of the relevant rules and regulations, ultimately allowing the appeal on specific grounds while directing reassessment on others. The decision highlighted the importance of proper documentation and verification of payments to ensure compliance with tax laws.