2016 (8) TMI 568 - HC - Income Tax

Disallowance invoking section 40A(3)- AO assessed a sum being the amount appearing in credit side of the suspense account because the assessee had not given any cogent reason for explaining the same - Held that - When the Assessing Officer is assessing the amount written back as income of the assessee, which pertained to the earlier year, the expenditure should be allowed as a deduction either as an expenditure of this year or as an adjustment against the amount written back. The CIT (A), therefore, was justified in allowing the claim of the assessee - Decided in favour of the assessee

Summary

Issues involved:
Challenge to tribunal's order on disallowance under Section 40A(3) of the Income Tax Act.

Detailed Analysis:

Issue 1: Disallowance under Section 40A(3)
- The appellant challenged the tribunal's order confirming the CIT (A)'s decision to delete the disallowance made under Section 40A(3) of the Income Tax Act.
- The AO disallowed payments exceeding ?2500 made in cash, invoking Section 40A(3), resulting in a disallowance of ?1,42,17,740.
- The CIT (A) reversed the AO's decision, citing reasons such as the general practice in the transport business where payments in cash to drivers are common and covered under Rule 6DD(j).
- The tribunal upheld the CIT (A)'s decision, referring to past judgments and the nature of the appellant's business requiring cash payments to transporters.
- The appellant contended that the tribunal erred in confirming the CIT (A)'s order and reversing the AO's decision, emphasizing the material considered by the AO during assessment.
- The tribunal justified its decision by citing precedents and the practicality of cash payments in certain business scenarios, ultimately ruling in favor of the assessee and against the department.
- The High Court dismissed the tax appeal, upholding the tribunal's decision and confirming that the issue was correctly decided in favor of the assessee.

This comprehensive analysis covers the challenge to the tribunal's order regarding the disallowance under Section 40A(3) of the Income Tax Act, detailing the arguments presented, the reasoning behind the decisions, and the final outcome of the case.