2019 (10) TMI 1409 - AT - Income Tax

Disallowance u/s 40A(3) - HELD THAT - We examine the issue in controversy in the light of the CBDT Circular No. 6-P dated 06.07.1968 and Circular No.1/2009 dated 27.03.2009, it is apparently clear that this provision has been incorporated to counter evasion of tax for claim of expenditure shown to have been incurred in cash with a view to frustrate proper investigation by the Department as to the identity of the payee and the reasonableness of the payment. In the instant case, when the identity of the parties who have made the payment have been proved and genuineness of the transaction is also not in dispute, mechanically invoking the provisions contained u/s 40A(3) is not permissible. Moreover, all the payments in question have been duly recorded in the books of account and there is no question of claiming for any expenditure. So, following the decision rendered in Smt. Harshila Chordia 2006 (11) TMI 117 - RAJASTHAN HIGH COURT and coordinate Bench of the Tribunal in Lord Krishna Dwellers (P) Ltd. 2019 (2) TMI 1053 - ITAT DELHI , we are of the considered view that ld. CIT (A) has erred in disallowing the purchases from M/s. Sumit Enterprises and M/s. Paras Enterprises respectively and as such, the disallowance made is not sustainable, hence ordered to be deleted. - Decided in favour of assessee.

Summary

Issues:
Disallowance of purchases from specific enterprises under section 69 of the Income-tax Act, 1961.
Applicability of section 40A(3) regarding payments made by self cheque to certain enterprises.

Analysis:
1. The appellant, a civil contractor, contested the disallowance of purchases totaling ?19,30,605 from M/s. Sumit Enterprises and ?16,27,004 from M/s. Paras Enterprises for the assessment year 2008-09.
2. The appellant chose not to press additional grounds during the proceedings.
3. The Assessing Officer (AO) raised concerns about the genuineness of purchases based on computerized bills prepared for the mentioned enterprises, leading to an addition of ?39,04,809 as unexplained expenditure under section 69 of the Act.
4. The appellant appealed to the Commissioner of Income-tax (Appeals) who partially allowed the appeal, prompting the appellant to approach the Tribunal.
5. The Tribunal reviewed the submissions and documents presented by both parties and the orders of the revenue authorities.
6. The appellant successfully demonstrated the genuineness of transactions and payments before the Commissioner of Income-tax (Appeals), who, however, made additions under section 40A(3) due to payments made by self cheque to the enterprises.
7. The appellant argued that the provisions of section 40A(3) were not applicable since the parties' identity and transaction genuineness were proven, citing relevant CBDT Circulars and judicial precedents.
8. The Revenue's representative contended that non-demonstration of reasons for cash payments justified the disallowance under section 40A(3), referencing various court judgments and Tribunal decisions.
9. The Tribunal referred to a Rajasthan High Court case and a Tribunal decision, emphasizing the acceptance of payments made through self cheque based on the genuineness of transactions and parties' identities.
10. Relying on the CBDT Circulars, the Tribunal concluded that mechanically invoking section 40A(3) without questioning the genuineness of payments and parties' identities was impermissible.
11. Consequently, the Tribunal found in favor of the appellant, deeming the disallowance unsustainable and ordering its deletion, as per the decisions cited and the specific circumstances of the case.

This detailed analysis of the judgment provides a comprehensive overview of the issues involved and the Tribunal's reasoning in arriving at its decision.