2016 (5) TMI 1502 - AT - Income Tax

Addition u/s 40A - cash payments for the purchase of immovable properties (held as stock-in-trade) exceeding limits - HELD THAT - Respectfully following the order of the Hon ble High Court in the assessee s own case for the assessment year 2009-10 2015 (8) TMI 569 - PUNJAB HARYANA HIGH COURT the addition is deleted as held Tribunal has not disbelieved the transactions or the genuineness thereof. Nor has it disbelieved the fact of payments having been made. More important, the reasons furnished by the appellant for having made the cash payments, which we have already adverted to, have not been disbelieved. In our view, assuming these reasons to be correct, they clearly make out a case of business expediency. The order of the ld. CIT(A) is set aside and the grounds raised by the assessee are accepted.

Summary

Issues:
Violation of section 40A(3) of the Income Tax Act, 1961 - Addition of cash payments for purchase of immovable properties - Business exigency as a defense.

Analysis:
The case involved an appeal by the assessee against the order of the CIT(A) confirming the addition of cash payments made for the purchase of immovable properties, considered a violation of section 40A(3) of the Income Tax Act, 1961. The assessee argued that the cash payments were necessitated by business exigency and were genuine and bona fide, corroborated by the Sub-Registrar, Bathinda. The AO, without affording a reasonable opportunity, made an addition of the amount, which was upheld by the CIT(A).

The assessee relied on a previous decision by the Hon'ble High Court of Punjab & Haryana in a similar case for the assessment year 2009-10, where the matter was decided in favor of the assessee. The ld. DR, however, supported the impugned order. The Tribunal considered the arguments and the material on record and noted the CIT(A)'s confirmation of the addition under section 40A(3) of the Act.

The CIT(A) upheld the addition based on the provisions of section 40A(3) and the necessity of cross cheques or drafts for transactions, despite the genuineness and business expediency claimed by the assessee. The Tribunal, following its previous decision for the assessee's case in the assessment year 2009-10, confirmed the addition. However, the Hon'ble High Court in the assessee's own case for the assessment year 2009-10 set aside the Tribunal's order, emphasizing that the reasons for cash payments due to business expediency were valid, and the payments could not be disallowed under section 40A(3) of the Act.

In light of the High Court's decision, the Tribunal deleted the addition, setting aside the CIT(A)'s order and accepting the grounds raised by the assessee. Consequently, the appeal of the assessee was allowed, and the order was pronounced in favor of the assessee on 20/05/2016.