2019 (4) TMI 2130 - AT - Income Tax

Disallowance u/s 40A(3) - payment for expenditure in cash exceeding Rs. 20,000/- - As pleaded before us that the seller Smt. Anar Bai was not having a bank account on the date of receiving cash and subsequently when the account was opened the consideration was paid in various instalments by account payee cheques - HELD THAT - This fact that Smt. Anar Bai was not having the bank account at the initial date of receiving the consideration in cash has not been disputed by the revenue authorities. The said cash payment was made by assessee for business expediency in order to confirm the purchase deal. Therefore looking to the given facts and circumstances of the case the alleged cash payment of Rs. 5,40,000/- comes under the exceptions provided in Rule 6DD of the IT Rules and thus both the lower authorities were not justified in sustaining the disallowance u/s 40A(3) of the Act and the same deserves to be deleted. We accordingly order so and allow Ground No. 1 2 raised by the assessee.

Summary

Issues involved:
1. Disallowance of cash payment under section 40A(3) of the Income Tax Act, 1961.

Detailed Analysis:
The appeal pertains to the Assessment Year 2010-11 and challenges the order of the Ld. Commissioner of Income Tax (Appeals) confirming the addition of Rs. 5,40,000 to the total income of the appellant under section 40A(3) of the Income Tax Act, 1961. The appellant, engaged in civil construction business, paid a cash sum of Rs. 5,40,000 to a seller for land purchase. The assessing officer disallowed this amount as it exceeded Rs. 20,000 in cash without any justifiable circumstances under Rule 6DD of the IT Rules. The Ld. CIT(A) upheld the disallowance citing lack of documentary evidence supporting exceptional circumstances for cash payment. The appellant contended that the seller initially refused cheque payment, but later accepted it, and the land was part of stock in trade, hence not affecting net profit. The Tribunal was now tasked with reviewing this disallowance.

The Tribunal observed that the appellant, involved in land purchase and civil construction, paid Rs. 6,20,000 in cash for a total consideration of Rs. 36,00,000 to the seller. The disputed amount of Rs. 5,40,000 was part of this cash payment. The sale deed and affidavit confirmed the cash and cheque payments, ensuring the genuineness of the transaction. It was argued that the initial cash payment was due to the seller not having a bank account, and subsequent payments were made through cheques. This fact was undisputed by the revenue authorities, indicating a business expediency in confirming the purchase deal. The Tribunal concluded that the cash payment fell under the exceptions provided in Rule 6DD of the IT Rules, thus the disallowance under section 40A(3) was unjustified and ordered its deletion, allowing the appellant's appeal.

Regarding the plea that the disallowance was not claimed as an expenditure during the year, the Tribunal deemed it irrelevant since the disallowance under section 40A(3) was already deleted. Therefore, the appeal of the assessee was allowed, and the disallowance of Rs. 5,40,000 under section 40A(3) was set aside.