2014 (1) TMI 643 - AT - Income Tax

Disallowance u/s 40A(3) purchase of bricks for Rs.2,52,000/- though made in cash but each voucher was for below Rs. 20,000/- - Held that - The amendment in section 40A(3) is w.e.f. A.Y. 2009-10 as per C.B.D.T. Circular No.1/2009 dated 27.03.2009 - The amended provisions is not applicable in A.Y. 2008-09 - Following CIT vs. Kothari Sanitation & Tiles (P). Ltd. 2006 (1) TMI 61 - MADRAS High Court The words used are in a sum i.e. single sum, irrespective of any number of transactions where the amount does not exceed the amount in each transaction, section 40A(3) will not apply - Decided in favour of assessee.

Summary

Issues:
1. Disallowance under section 40A(3) for cash payments exceeding Rs. 20,000.
2. Consideration of business expediency for cash payments.
3. Applicability of section 40A(3) for Assessment Year 2008-09.

Issue 1: Disallowance under section 40A(3) for cash payments exceeding Rs. 20,000:
The appeal was against the disallowance of Rs.4,76,000 under section 40A(3) of the Income Tax Act, 1961. The Assessing Officer (A.O.) observed cash payments for bricks and cement exceeding Rs. 20,000. The CIT(A) upheld the A.O.'s decision. The appellant argued that each payment was below Rs. 20,000 and provided evidence to support this claim. The appellant cited the pre-amendment provision of section 40A(3) and relevant case laws. The Tribunal noted that the amendment was applicable from A.Y. 2009-10, and the payments in question were for A.Y. 2008-09. Referring to judicial precedents, the Tribunal held that section 40A(3) did not apply to transactions where each payment was below the threshold amount. Consequently, the addition made by the A.O. was deleted, and the appeal was allowed.

Issue 2: Consideration of business expediency for cash payments:
The appellant argued that the cash payments for bricks and cement were necessitated by exceptional circumstances and business expediency due to civil construction work. The Tribunal, however, based its decision on the applicability of section 40A(3) for the relevant assessment year, rather than considering the business expediency aspect. The Tribunal focused on the legal interpretation of the section and relevant case laws to determine the validity of the disallowance.

Issue 3: Applicability of section 40A(3) for Assessment Year 2008-09:
The key point of contention was the applicability of section 40A(3) for the Assessment Year 2008-09. The appellant successfully argued that the pre-amendment provision of the section, which did not consider transactions below Rs. 20,000, was applicable for the relevant assessment year. By citing specific judicial decisions, the Tribunal supported the appellant's position and concluded that the addition made by the A.O. was not justified under section 40A(3) for A.Y. 2008-09. The Tribunal's decision was based on a strict interpretation of the law and relevant legal precedents.

In conclusion, the Tribunal allowed the appeal, emphasizing the non-applicability of section 40A(3) for the Assessment Year 2008-09 due to the specific threshold amounts set forth in the pre-amendment provision. The decision was supported by legal interpretations and case laws that clarified the scope of the section in question.