2019 (12) TMI 1684 - AT - Income Tax

Disallowance u/s 40A(3) - cash payments - payments were made on the last date of the month, which happened to be a Sunday - assessee failed to submit reason as to why payment had to be made on Sunday, and as to why cheque payment could not be made even if it was a holiday - HELD THAT - Hon ble Kerala High Court in the case of M.K. Agrotech P. Ltd. 2019 (1) TMI 37 - KARNATAKA HIGH COURT took the view that the explanation of assessee that DDs were not crossed because the suppliers wanted quick realisation was an acceptable explanation and there is a valid justification for not invoking the provisions of section 40A(3) of the Act. In our view the aforesaid decision of the Hon ble Karnataka High Court will not support the plea of assessee in the present case. The assessee in the present case except making a statement that cash payments were made on the last day of the month and cash payments were made keeping in view the business exigencies is not supported by any evidence as to whether the last day of the month is the last day for payment and the assessee would suffer any other consequences if the payment is not made beyond the last date of the month. The assessee has not made out any valid justification for not making the payments of sums of above Rs.20,000 in the manner required by the provisions of section 40A(3) - therefore do not find any grounds to interfere with the order of CIT(Appeals). Appeal of the assessee are dismissed.

Summary

Issues involved: Appeal filed belatedly, Disallowance under section 40A(3) of the Income Tax Act, 1961.

Issue 1: Appeal filed belatedly
The appeal was filed by the assessee against the order of the CIT(Appeals) relating to the assessment year 2013-14. The registry initially raised an objection that the appeal was filed two days late. However, the assessee clarified that the appeal was filed within time, explaining that the last day to file the appeal fell on a Sunday, which was a holiday. The appeal was then considered to be filed within the stipulated time.

Issue 2: Disallowance under section 40A(3) of the Income Tax Act, 1961
The AO disallowed a sum of 3,47,717 under section 40A(3) of the Act, as the assessee had made cash payments to certain parties and claimed them as expenditure. The assessee contended that the payments were made on a Sunday, a holiday, due to business exigency. Both the AO and CIT(Appeals) rejected this explanation, upholding the disallowance. The Tribunal, after hearing the submissions, noted that the assessee failed to provide evidence supporting the business exigency for making cash payments on the last day of the month. Citing a decision of the Hon'ble Karnataka High Court, the Tribunal found no valid justification for not complying with the provisions of section 40A(3) of the Act. Consequently, the appeal of the assessee was dismissed, affirming the order of the CIT(Appeals).