2018 (2) TMI 1834 - HC - Income Tax

Addition u/s 40A(3) - payment by the assessee in cash to different persons towards payment of purchase price for lands as the assessee is engaged in the business of sale and purchase of lands - Held that - We are not in a position to take any different view than the one taken by the Coordinate Bench in the matter of Assistant Commissioner of Income Tax- Circle- 1(2) vs M/s R.P. Real Estate Pvt. Ltd. 2016 (3) TMI 1303 - CHHATTISGARH HIGH COURT this Court held that once the Appellate Court and the Tribunal have concurrently found that the explanation offered by the assessee as to why the cash payments made to the sellers is acceptable, the same does not involve any substantial question of law as the reasoning assigned and the interpretation applied by the Tribunal and the CIT (Appeals) are duly supported by the judicial precedents. - Decided against revenue

Summary

Issues:
- Appeal against the order passed by the Income Tax Appellate Tribunal dismissing the appeal preferred by the revenue challenging the order passed by the CIT (Appeals) allowing the assessee's appeal against the tax liability imposed by the AO under Section 40A(3) of the Income Tax Act, 1961.

Analysis:
1. The appeal was filed by the revenue against the order of the Income Tax Appellate Tribunal, which upheld the CIT (Appeals) decision in favor of the assessee. The issue revolved around the imposition of tax liability amounting to ?3,41,84,000 under Section 40A(3) of the Income Tax Act, 1961, due to cash payments made by the assessee for the purchase of lands.

2. Section 40A(3) of the Act prohibits deductions for expenditures exceeding ?20,000 made in cash without using specified banking instruments. The Assessing Officer found the explanation for cash payments unsatisfactory under Rule 6DD of the Income Tax Rules, 1962.

3. The CIT (Appeals) allowed the appeal by the assessee, highlighting that the cash payments were made due to the sellers' insistence, with proper identity verification through photographs, addresses, and witnesses. The deal was conducted transparently in the presence of a competent authority, leading to the conclusion that there was no intention to evade tax.

4. The CIT (Appeals) also referenced a previous decision by the Coordinate Bench and held that invoking Section 40A(3) was incorrect in this case. The Tribunal upheld the CIT (Appeals) decision, emphasizing that the explanation provided by the assessee was acceptable, supported by judicial precedents.

5. The High Court, after considering the arguments, referred to relevant case laws and held that the Tribunal and CIT (Appeals) had correctly interpreted the law. The Court found no substantial question of law involved, as the reasoning and interpretation were in line with judicial precedents, leading to the dismissal of the appeal by the revenue.

6. The judgment affirmed the Tribunal's decision, emphasizing that when the explanation for cash payments is acceptable and supported by evidence, there is no substantial question of law. The Court relied on precedents to support the decision, ultimately dismissing the appeal by the revenue.