2016 (8) TMI 71 - AT - Income Tax

Disallowance of cash payment u/s 40A(3) - Held that - Genuineness of the payment has not been doubted by the lower authorities and various courts have held the same issue in favour of the assessee, where genuineness of the parties to whom payment in cash was not subject matter of the dispute. We find in the similar facts and circumstances where the genuineness has not been doubted, the Hon ble jurisdictional High Court in the case of Girdharilal Goenka vs. Commissioner of Income Tax (1988 (12) TMI 59 - CALCUTTA High Court ) wherein held where the assessee has satisfied the Assessing Officer as to the genuineness of the payment and the identity of the payee, and that payee insisted on cash payment the circumstance that there was a delay in making payment of the bills by itself would not take the case out of the ambit of exceptional or unavoidable circumstances referred to in r. 6DD(j). - Decided in favour of assessee Disallowance on account of short drawings - Held that - The drawings is very law comparing to the status of the assessee as he was owing a multi-storey building, car etc. The drawings were utilised towards municipal tax liability, the electricity expenses, household expenses, using motor car running expenses, road tax, car insurance and maintenance, expenses towards social obligation, daughter s education expenses. Accordingly, additions correctly made. - Decided against assessee

Summary

Issues:
1. Disallowance of cash payment under Section 40A(3) of the Act.
2. Disallowance of drawings of the assessee.

Issue 1: Disallowance of Cash Payment under Section 40A(3) of the Act:
The assessee, engaged in a lottery business, made cash payments exceeding ?20,000 to suppliers for purchases of tickets. The AO disallowed ?26,05,178 under Section 40A(3) due to lack of adjustment entries in the books. The ld. CIT(A) upheld the disallowance, stating Rule 6DD(d) applies to mutual adjustments, not multilateral. The assessee contended that the payments were genuine, covered under Rule 6DD(k), and should be allowed based on business expediency. Citing the Hon’ble Supreme Court judgment in Attar Singh Gurmukh Singh case, the assessee sought deletion of the addition. The Tribunal noted the genuineness of payments was not in question, referencing Girdharilal Goenka case, allowing deductions for genuine transactions with cash payments. The Tribunal set aside lower authorities' orders, directing allowance of the cash payments.

Issue 2: Disallowance of Drawings of the Assessee:
The AO disallowed ?60,000 towards the assessee's low drawings of ?30,000, considering the assessee's status and expenses. The ld. CIT(A) upheld the addition, deeming it moderate for the financial year. The assessee appealed, but the Tribunal found no grounds to interfere, as the ld. AR failed to provide contrary evidence. Consequently, the Tribunal upheld the lower authorities' decision on the disallowance of drawings.

In conclusion, the Tribunal partially allowed the assessee's appeal, directing the allowance of the disallowed cash payments under Section 40A(3) while upholding the disallowance of the drawings. The judgment was pronounced on 15/07/2016 by the Appellate Tribunal ITAT Kolkata.