2011 (3) TMI 1349 - AT - Income Tax

Disallowance u/s 40A(3) - Cash payment - Rule 6DD(j) - The mode of payment to the publishers depends upon circumstances time and obligation imposed on assessee - since procedure laid down by newspapers for delivery of matters and making mode of payments the assessee had to follow such procedure in order to give effect to the orders of the principals who sought for advertisement - assessee will derive extra benefit of commission at the rate of 5 per cent for payments made in cash to the newspapers - It can be said that it would generally satisfy the requirements of rule 6DD(j) if a letter to the above effect is produced in respect of each transaction falling within the categories listed above from the seller giving full particulars of his address sales tax number/permanent account number if any for the purposes of proper identification to enable the Income-tax Officer to satisfy himself about the genuineness of the transaction - Assessee acted as an agent but claimed this payment as expenses and these payments are surely covered under section 40A(3) of the Act as expenses claimed by the assessee - The assessee is unable to show that these payments were made in cash at the insistence of BPL there is no exception provided in the Rules that in case the payments are made even during evening hours that will take this payment out of the purview of section 40A(3) of the Act on regularly basis i.e. on daily basis - Decided against the assessee

Summary

Issues Involved:
- Disallowance under section 40A(3) of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Confirmation of Addition under Section 40A(3):
The primary issue in this appeal is the confirmation of the addition of Rs. 3,94,958 to the total income by the CIT(A), which was made by the Assessing Officer (AO) under section 40A(3) of the Income-tax Act, 1961. The assessee argued that the payments made to M/s. Bartaman Pvt. Ltd. (BPL) in cash were not related to expenses for the computation of income under 'Profits and Gains of Business or Profession' and thus should not be disallowed under section 40A(3).

2. Facts and Arguments:
The assessee filed a return of income declaring Rs. 6,61,400 for the assessment year 2004-05. During assessment proceedings, the AO found that the assessee made cash payments to BPL amounting to Rs. 19,74,789, which violated section 40A(3). The AO issued a show cause notice to the assessee, who responded that BPL refused to accept cheques/bank drafts and offered a 5% discount for cash payments. The assessee cited the Supreme Court case of Attar Singh Gurmukh Singh v. ITO and the Punjab & Haryana High Court case of CIT v. Nikko Auto Ltd. to support the claim of business expediency. However, the AO disallowed 20% of the cash payments due to lack of evidence supporting the refusal of cheques by BPL.

3. CIT(A)'s Findings:
The CIT(A) reviewed the submissions and upheld the AO's decision, noting that the assessee's claims were not substantiated by evidence. The CIT(A) emphasized that the payments were routed through the Profit & Loss account as expenses, thus falling under section 40A(3). The CIT(A) found no evidence of banking facilities being unavailable or BPL refusing cheques. The CIT(A) referenced several case laws, including Girdharilal Goenka v. CIT and CIT v. Suresh Kr. Agarwal, to highlight that genuine transactions are not exempt from section 40A(3) unless exceptional circumstances are proven, which was not the case here.

4. Tribunal's Analysis:
The Tribunal examined the facts and arguments, agreeing with the lower authorities. The Tribunal noted that the payments were claimed as expenses and thus fell under section 40A(3). The Tribunal found no evidence supporting the claim of non-availability of banking facilities or refusal of cheques by BPL. The Tribunal highlighted that the amended provisions of section 40A(3) and Rule 6DD did not cover the assessee's case. The Tribunal reiterated that genuine and bona fide payments are not exempt from section 40A(3) unless specific exceptions under Rule 6DD are met, which the assessee failed to demonstrate.

5. Conclusion:
The Tribunal concluded that the assessee's case did not fall under any exceptions provided in the Rules and confirmed the disallowance under section 40A(3). The appeal was dismissed, upholding the orders of the lower authorities.

Result:
The appeal of the assessee was dismissed.