2018 (3) TMI 429 - AT - Income Tax

Addition u/s 40A(3) -variation in the recording of entries in assessee s ledger - genuineness of the payment by the assessee and identity of the sellers - relationship of a principal and agent - Held that - The provisions of section 40A(3) are not intended to restrict the business activities but to caution that payments exceeding ₹ 20,000/- are made in cheque/draft. The provisions of section 40A(3) of the Act are to be in consonance with business expediency trade practice and other genuine relevant factors. In this present case, the assessee has intimated the circumstances under which the assessee was compelled to make the cash payments and also the genuineness of payment and the identity of the payee is not doubted. Considering business expediency and judicial decisions dealt above, we are of the substantive view that the provisions of section 40A(3) shall not be a hindrance in the business operation of the assessee, who has been following such pattern from earlier years and on the principle of going concern which the revenue has not doubted. - Decided in favour of assessee Levy of penalty u/s 271B - not obtaining the audit report as required under section 44AB - efault committed by the assessee - Held that - As find from the income tax returns for the assessment years 2012-13 and 2013-14 filed by the assessee that the assessee has shown business income from the sale of recharge vouchers and not shown as turnover. Perusal of the order in the case of Anoop Kumar Beri (2004 (7) TMI 305 - ITAT DELHI-F ) find that the assessee was under bonafide belief that receipts from commission were not to be included for the purpose of determining the obligation of audit under section 44AB and same constituted a reasonable cause for not getting the accounts audited. In the present case, the income shown by the assessee is from the commission on sale of recharge vouchers, which alone can be treated as assessee s turnover. Thus the default committed by the assessee in not presenting the audit report is exonorable and we do not find any mala fide on the part of the assessee in this way. Hence, we delete the penalty imposed u/s.271B - Decided in favour of assessee

Summary

Issues Involved:
1. Confirmation of addition under section 40A(3) of the Income Tax Act, 1961.
2. Levy of penalty under section 271B of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Confirmation of Addition under Section 40A(3):

The assessee, involved in the wholesale and retail sale of recharge vouchers, filed a return of income declaring ?1,13,920/-. During scrutiny, the Assessing Officer (AO) found that the assessee made cash payments exceeding ?20,000/- to M/s. Stock Point, Puri, violating section 40A(3) of the Income Tax Act, 1961. The AO recorded statements from both the assessee and the proprietor of M/s. Stock Point, confirming cash transactions totaling ?70,50,839/-. The AO concluded that these payments did not fall under the exceptions provided in Rule 6DD of the I.T. Rules, 1962, and made an addition of ?53,13,007/-.

The assessee argued before the CIT(A) that payments by cheque would delay business operations and that the relationship with the supplier was of a principal and agent, not covered by section 40A(3). The CIT(A) upheld the AO's decision.

On appeal to the Tribunal, the assessee contended that the payments were genuine and necessary for business expediency. The Tribunal noted that section 40A(3) aims to prevent bogus payments, not hinder genuine business transactions. The Tribunal referred to similar cases, including the Cochin Bench's decision in S. Rahumathulla and the Gujarat High Court's decision in Anupam Teleservices, where cash payments in the context of principal-agent relationships were not disallowed. The Tribunal found the payments genuine and necessary for business operations, thus setting aside the CIT(A)'s order and directing the AO to delete the addition.

2. Levy of Penalty under Section 271B:

The AO imposed a penalty on the assessee for failing to obtain the audit report as required under section 44AB within the stipulated time. The assessee argued that the audit report was prepared on 24.9.2011 but was submitted during assessment proceedings due to unavoidable circumstances. The assessee claimed this was a technical breach without malafide intention.

The Tribunal reviewed the case, noting that the audit report was indeed prepared in time and that the delay in submission was due to genuine circumstances. The Tribunal referred to the Delhi Bench's decision in Anoop Kumar Beri, where a bonafide belief constituted a reasonable cause for not getting accounts audited on time. The Tribunal found no malafide intention on the part of the assessee and concluded that the default was exonerable. Consequently, the Tribunal deleted the penalty imposed under section 271B.

Conclusion:

The Tribunal allowed the appeals, setting aside the addition under section 40A(3) and deleting the penalty under section 271B, thus ruling in favor of the assessee. The order was pronounced on 8/02/2018.