9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2016 (1) TMI 359 - AT - Income TaxDisallowance u/s 40A(3) - Held that - We find that the payments made by cash in violation of section 40A(3) of the Act have been duly acknowledged by the recipient Shri.Amit Dutta who had deposed before the learned AO and confirmed the fact of receipt of monies in cash. Hence the genuinity of payments made by the assessee stands clearly established beyond doubt. Even for the amounts enhanced by Learned CITA in the sum of ₹ 54,01,473/-, the genuineness of the payments and the necessity to incur the said expenditure for the purpose of business of the assessee was never disputed by the Learned CITA. We hold that since the genuinity of the payments made to the parties is not doubted by the revenue, the provisions of section 40A(3) could not be made applicable to the facts of the instant case. It will be pertinent to go into the intention behind introduction of provisions of section 40A(3) of the Act at this juncture. We find that the said provision was inserted by Finance Act 1968 with the object of curbing expenditure in cash and to counter tax evasion. The CBDT Circular No. 6P dated 6.7.1968 reiterates this view that this provision is designed to counter evasion of a tax through claims for expenditure shown to have been incurred in cash with a view to frustrating proper investigation by the department as to the identity of the payee and reasonableness of the payment. - Decided in favour of assessee
Issues Involved:
1. Disallowance under Section 40A(3) of the Income Tax Act, 1961. Issue-wise Detailed Analysis: 1. Disallowance under Section 40A(3): The core issue in this appeal is whether the disallowance under Section 40A(3) of the Income Tax Act, 1961, amounting to Rs. 1,14,52,363/- (Rs. 60,50,890 + Rs. 54,01,473) could be justified. The assessee, a distributor of Hutch Sim Cards, made cash payments exceeding Rs. 20,000/- in a day to the main distributor, Mr. Amit Dutta, in violation of Section 40A(3). Facts and Arguments: - The assessee did not produce the books of account before the AO despite several opportunities. - The AO obtained information from Mr. Amit Dutta, confirming cash payments by the assessee amounting to Rs. 60,50,890/-. - The AO issued a show-cause notice and, after receiving detailed submissions from the assessee, disallowed the amount under Section 40A(3). - On first appeal, the CIT(A) upheld the addition and further disallowed another Rs. 54,01,473/- for cash payments, enhancing the assessment. Assessee's Contention: - The genuineness of the cash payments was not disputed by the revenue. - Payments made to Mr. Amit Dutta should fall under the exception provided in Rule 6DD(k) of the IT Rules. Tribunal's Observations: - The Tribunal acknowledged the genuineness of the payments, confirmed by Mr. Amit Dutta's deposition. - The primary object of Section 40A(3) is to curb tax evasion and inculcate banking habits, not to disallow genuine transactions. - The Tribunal cited several judicial precedents, emphasizing that genuine and bona fide transactions are not intended to be disallowed under Section 40A(3). Key Judicial Precedents: - Attar Singh Gurmukh Singh vs ITO: Section 40A(3) is not arbitrary and does not restrict business activities; genuine transactions are not taken out of the sweep of the section. - CIT vs CPL Tannery: Disallowance under Section 40A(3) is not justified if the genuineness of transactions and business expediency are not disputed. - Anupam Tele Services vs ITO: No disallowance should be made if cash payments are necessary for business operations as insisted by the principal company. - Sri Laxmi Satyanarayana Oil Mill vs CIT: No disallowance if the genuineness of payment is established and the seller insists on cash payments. Conclusion: - The payments made by the assessee were genuine and acknowledged by the recipient. - The exceptions in Rule 6DD should be interpreted liberally. - The Tribunal found no violation of principles of natural justice in the enhancement by the CIT(A). - The Tribunal deleted the additions of Rs. 60,50,890/- and Rs. 54,01,473/- under Section 40A(3), allowing the appeal of the assessee. Result: The appeal of the assessee is allowed, and the disallowances under Section 40A(3) are deleted.
|
