2017 (10) TMI 1492 - AT - Income Tax

Addition u/s.40A(3) - cash payment exceeding permissible limits - HELD THAT - There is no finding of the AO in the assessment order that the payments made are not genuine. Further, it is not in dispute that the sale deeds for purchase of land were registered with the revenue department of the Government. Therefore, the decision of this Bench of the Tribunal in the case of Subhashree Enterprises 2017 (10) TMI 1491 - ITAT CUTTACK squarely applies to the facts of the assessee s case. Hence, we set aside the orders of the lower authorities and delete the disallowance made u/s. 40A(3) and allow the grounds of appeal of the assessee.

Summary

Issues Involved:
1. Addition under Section 40A(3) of the Income Tax Act.
2. Genuineness of cash payments exceeding ?20,000.

Detailed Analysis:

Issue 1: Addition under Section 40A(3) of the Income Tax Act

The primary issue in this case is the addition of ?1,67,69,200/- made by the Assessing Officer (AO) under Section 40A(3) of the Income Tax Act. The AO observed that the assessee made payments exceeding ?20,000/- in cash for the purchase of land, which is in violation of Section 40A(3), leading to the addition of the same amount to the assessee's income.

Upon appeal, the assessee argued that the payments were genuine, reflected in the cash book, and made out of business expediency. It was further contended that the payments were made on bank holidays and the sellers insisted on cash payments, thus falling under the exceptions provided in Rule 6DD(j) of the Income Tax Rules.

However, the Commissioner of Income Tax (Appeals) [CIT(A)] was not convinced and upheld the AO's decision, referencing a similar case, M/s. Shine Infra Marketing Pvt Ltd vs JCIT, where such additions were confirmed.

Issue 2: Genuineness of Cash Payments Exceeding ?20,000

Before the Tribunal, the assessee's representative argued that the land purchases were part of the stock in trade and no amount was debited in the profit and loss account, thus no disallowance under Section 40A(3) was warranted. Reliance was placed on the Rajasthan High Court decision in CIT vs Motilal Khatri and the Visakhapatnam Bench of the Tribunal in Ch Hanumantha Rao vs ITO, which held that no disallowance under Section 40A(3) is warranted if the land is held as stock in trade.

The Tribunal, after hearing both parties, noted that the AO did not find the payments to be non-genuine. The Tribunal referenced its own decision in Subhashree Enterprises vs ACIT, where under similar circumstances, the disallowance under Section 40A(3) was deleted because the payments were genuine. It also cited the Amritsar Bench decision in Rakesh Kumar vs ACIT and the Punjab & Haryana High Court decision in Gurdas Garg vs CIT, which held that disallowance under Section 40A(3) cannot be made if the genuineness of transactions is not disbelieved.

The Tribunal concluded that since the genuineness of the payments was not doubted and the sale deeds were registered with the revenue department, the disallowance under Section 40A(3) was not justified. Consequently, the Tribunal set aside the orders of the lower authorities and deleted the disallowance of ?1,67,69,200/-.

Conclusion:

The Tribunal allowed the appeal partly, deleting the addition made under Section 40A(3) of the Income Tax Act, as the genuineness of the payments was not disputed and the transactions were found to be genuine. Other grounds raised by the assessee were dismissed as not pressed. The order was pronounced in the open court on 12/10/2017.