2014 (1) TMI 1847 - HC - Income Tax

Addition u/s 40A - cash transaction exceeding permissible limit - Held that - Considering the magnitude of the transactions of cash amount exceeding ₹ 20,000/-, both the authorities rightly observed verification was neither practicable nor was done by the Assessing Officer in each and every case. Being satisfied that substantiating the claim, cogent evidences were relied upon by both the authorities to conclude that the purchases were made from agriculturists as also through common agents, we hold that the case of respondent was correctly held to be falling under exception provided under clause (e) and (k) of Rule 6DD of Income Tax Rules. The assessee had disclosed additional income on account of violation of section 40A(3) and addition of ₹ 15 lacs has already therefore been retained in view of the statement made before the authority, we see no reason to interfere in absence of any question of law much less substantial question of law arising in these Tax Appeals.

Summary

Issues:
1. Interpretation of section 40A(3) of the Income Tax Act regarding disallowance of expenditure exceeding a certain amount.
2. Application of exceptions under Rule 6DD for purchases of agricultural or forest produce or through agents required to pay in cash.
3. Assessment of evidence and factual findings by lower authorities in determining tax liability.

Analysis:

1. The judgment concerns the interpretation of section 40A(3) of the Income Tax Act, which disallows deductions for expenditures exceeding a specified amount unless paid by account payee cheque/draft. The case involved a taxpayer engaged in trading cotton-related products, where the Assessing Officer made additions due to contravention of section 40A(3) for cash payments exceeding the limit. The CIT (Appeals) sought a report and concluded that exemptions were applicable for purchases of agricultural produce, which was confirmed after detailed examination and verification of evidence.

2. The application of exceptions under Rule 6DD was crucial in this case. The Tribunal partially upheld the CIT (Appeals) decision, reducing the addition based on the assesse's admission of additional income due to section 40A(3) violation. The Tribunal considered the practicality of verifying each cash transaction exceeding the limit and found that the assesse's purchases through commission agents were within the exceptions provided under Rule 6DD, leading to a reduction in the additional income added to the tax liability.

3. The judgment emphasized the importance of factual findings and assessment of evidence by the lower authorities. Both the CIT (Appeals) and the Tribunal extensively reviewed the material on record, including the assesse's disclosures and the nature of transactions, to determine the tax liability accurately. The courts found that the assesse's case fell within the exceptions provided under Rule 6DD, and no substantial question of law arose from the factual matrix presented. Consequently, the Tax Appeals were dismissed based on the concurrent findings of the authorities in favor of the assesse.