2012 (9) TMI 120 - AT - Income Tax

Disallowance u/s. 40A(3) - multiple cash payments are made to same party on a single day - Held that - As none of the payments to the same party in each instance was more than Rs. 20, 000/- although the aggregate of the payments to the same party on the same day is more than Rs. 20, 000/- therefore respectfully following the decision in the case of CIT Versus Ashok Iron and Steel Rolling Mills (2009 (10) TMI 414 - ALLAHABAD HIGH COURT) no disallowance u/s.40A(3) in the impugned case can be made. Since the amendment to section 40A(3) was brought to the statute book by the Finance Act 2008 w.e.f. 01-04-2009 wherein the words aggregate of payments made to a person in a day was inserted therefore same in our opinion being not retrospective in nature cannot be applicable to assessment year 2006-07 i.e. year for which the assessee is in appeal before us - in favour of assessee.

Summary

Issues:
1. Disallowance under section 40A(3) of the I.T. Act for multiple cash payments to the same party on a single day.
2. Disallowance of payment of license fee towards renewal of license.

Issue 1: Disallowance under section 40A(3) of the I.T. Act for multiple cash payments to the same party on a single day:

The appeal was against the CIT(A)'s order confirming the disallowance of Rs. 8,26,460 made by the AO under section 40A(3) of the I.T. Act for multiple cash payments exceeding Rs. 20,000 to the same party on the same day. The AO observed that although individual purchases were below Rs. 20,000, the aggregate payments to one party on the same day exceeded Rs. 20,000. The assessee argued that section 40A(3) applied to single transactions only, not the sum of various transactions on a particular day. The AO disallowed the amount, citing the Himachal Pradesh High Court's decision in CIT Vs. Dalip Chand and Sons. The CIT(A) upheld the addition, stating that Rule 6DD(j) did not provide for exceptional circumstances for payments. The assessee appealed, citing various decisions to support that section 40A(3) did not apply to multiple cash payments on a single day.

The Tribunal noted that the Finance Act 2008 introduced the provision for "aggregate of payments made to a person in a day," which was not present during the assessment year 2006-07. Citing the Allahabad High Court's decision in CIT Vs. Ashok Iron and Steel Rolling Mills, it held that no disallowance under section 40A(3) could be made in this case. The amendment was not retrospective, and conflicting decisions favored the assessee. Therefore, the Tribunal allowed the appeal on this ground.

Issue 2: Disallowance of payment of license fee towards renewal of license:

The assessee challenged the disallowance of Rs. 1,02,625 for the payment of license fee towards license renewal. During the hearing, the counsel did not press this ground seriously, leading to its dismissal as not pressed. Consequently, the appeal was partly allowed.

In conclusion, the Tribunal ruled in favor of the assessee regarding the disallowance under section 40A(3) for multiple cash payments to the same party on a single day, citing the non-retrospective nature of the amendment. The ground related to the disallowance of license fee payment was dismissed as not pressed, resulting in the partial allowance of the appeal.