2017 (2) TMI 1387 - AT - Income Tax

Disallowance u/s 40A(3) - payment to Jodhpur Vidyut Vitaran Nigam Ltd. in cash - Difference in opinion - Judicial Member as Third Member appointed - Hon ble Third Member concurred with the findings of the Hon ble Accountant Member - Held that - The nature of business of the assessee is such that assessee is required continuous supply of electricity for which assessee shall have to make payment to Jodhpur Vidyut Vitaran Nigam Ltd. for smooth functioning of the business activity of the assessee. In case no payment is made in cash to the above Nigam then the electricity would have been discontinued. Therefore having regard to the nature of business activity of the assessee and that assessee did not have banking facility where payment of electricity bill is to be made and considering the business expediency and other factors it isof the view the case of the assessee would clearly fall in exception to Rule and no disallowance should be made under section 40A(3) of Income Tax Act. The learned Accountant Member has therefore rightly followed the decision of the coordinate Bench on identical issue in the case of Shri Rahul Pancholi (2015 (10) TMI 2179 - ITAT JAIPUR ) in which on identical facts and issue the departmental appeal was dismissed. Interestingly the learned Judicial Member who has dismissed appeal of the assessee on the same set of facts was the party to the order in the case of Shri Rahul Pancholi (supra). The learned Accountant Member was therefore right in his approach in allowing the appeal o the assessee by following the order of the coordinate Bench rather of the same Bench - Decided in favour of assessee

Summary

Issues: Difference of opinion between members of ITAT Jaipur on disallowance under section 40A(3) of Income Tax Act.

In this case, there was a difference of opinion between the learned Members of the Division Bench of ITAT Jaipur regarding the disallowance under section 40A(3) of the Income Tax Act. The Hon'ble President nominated a Third Member, who concurred with the findings of the Accountant Member. The Third Member considered the nature of the assessee's business, which required a continuous supply of electricity from Jodhpur Vidyut Vitaran Nigam Ltd. The Third Member concluded that no disallowance should be made under section 40A(3) due to the business expediency and the absence of banking facilities for bill payment. The Third Member highlighted that the Tribunal must follow the law passed by the legislator to avoid rendering provisions redundant. The assessee assured to make alternate arrangements for future bill payments to comply with the law.

The Third Member's decision was based on a detailed analysis of the facts and circumstances, concurring with the Accountant Member's view that no disallowance should be made under section 40A(3) in the case. The Third Member emphasized the importance of following the law and avoiding redundancy in the application of provisions. The Third Member disagreed with the Judicial Member's reasoning for dismissing the appeal solely based on the regularity of electricity bill payments, highlighting the need for a broader consideration of business requirements and legal compliance. The Third Member's decision allowed the appeal of the assessee in accordance with the majority view.

In conclusion, the Third Member's analysis focused on the specific circumstances of the case, emphasizing the business necessity for continuous electricity supply and the absence of banking facilities for bill payments. The Third Member's decision highlighted the importance of following legislative provisions and avoiding redundancy in the application of tax laws. The Third Member's detailed reasoning supported the allowance of the assessee's appeal under section 40A(3) of the Income Tax Act.