2007 (8) TMI 70 - HC - Income Tax

Business expenditure AO made addition of an amount of Rs 5,34,323 in the income of the assessee on the ground of the assessee made payment in cash more than the prescribed limit u/s 40A(3) Held addition is justified

Summary

Issues: Challenge to order of Income-tax Appellate Tribunal regarding addition of income due to cash payments exceeding Rs. 10,000, interpretation of Section 40A(3) and Rule 6DD(j) of Income-tax Rules, reliance on precedents for exceptions to disallowance under Section 40A(3), justification for cash payments despite banking facilities availability.

Analysis:
1. Challenge to Tribunal's Order: The petitioner sought to challenge the order of the Income-tax Appellate Tribunal which restored the Assessing Officer's decision to add an amount to the appellant-assessee's income for the assessment year 1992-93. The issue revolved around cash payments exceeding Rs. 10,000 made to contractors, triggering the application of Section 40A(3) of the Income-tax Act.

2. Interpretation of Section 40A(3) and Rule 6DD(j): Section 40A(3) mandates payments exceeding Rs. 10,000 to be made by cheques, with exceptions provided under Rule 6DD(j) of the Income-tax Rules, 1962. The Assessing Officer's decision to disallow such payments was based on this provision, raising questions about the applicability of the rule in the present case.

3. Reliance on Precedents: The appellant's counsel relied on two key judgments to support their case. Firstly, the apex court's decision in Attar Singh Gurmukh Singh v. ITO highlighted that the terms of Section 40A(3) are not absolute. Secondly, a Division Bench ruling in CIT v. Chaudhary and Co. emphasized the importance of sufficient explanation for solitary payments to avoid being hit by Section 40A(3).

4. Justification for Cash Payments: The Division Bench of the court noted that in the present case, cash payments had been made to contractors in Mathura for over 15 years despite the availability of banking facilities. The court emphasized that regular payments in cash in such circumstances were necessary to prevent rendering Section 40A(3) redundant.

5. Judgment and Dismissal of Appeal: The court, in its opinion, agreed with the Tribunal's decision to restore the Assessing Officer's order. Finding no reason to interfere, the court dismissed the appeal, upholding the addition of income due to cash payments exceeding the prescribed limit. The judgment underscored the importance of adherence to statutory provisions and the significance of justifying payment modes in line with legal requirements.