2018 (3) TMI 1459 - AT - Income Tax

Disallowance u/s 40A(3) - payment to suppliers in cash - Held that - The assessee had produced all the bills, cash memos and money receipts of the payees before the lower authorities. Though the assessee had not established the circumstances which warranted it to pay the suppliers in cash by any cogent evidence, it had filed an affidavit duly notarized and signed by the partner of the assessee firm clearly deposing that the cash payments had to be made on the insistence of the suppliers and their refusal to accept the cheques. It was also pleaded that all the suppliers are duly registered with sales tax authorities and having PAN. This affidavit has been filed by the assessee only before us for the first time. The contents of the affidavit requires examination by the lower authorities and hence in the interest of justice and fairplay, we deem it fit and appropriate, to remand this issue to the file of the ld AO to decided it afresh - Decided in favour of assessee for statistical purposes.

Summary

Issues:
1. Disallowance made u/s 40A(3) of the Income Tax Act, 1961.

Analysis:
The appeal by the assessee challenged the disallowance made under section 40A(3) of the Income Tax Act, 1961. The primary issue revolved around whether the disallowance of ?16,12,738/- upheld by the Commissioner of Income Tax (Appeals) was justified in the given circumstances. The assessee, a partnership firm engaged in the jewelry business, had made cash payments exceeding ?20,000 to various parties, leading to the disallowance. The Assessing Officer (AO) observed discrepancies in the cash payments and proceeded to disallow the amount under section 40A(3) of the Act.

The assessee contended that the provisions of section 40A(3) were not absolute and argued for the genuineness of the transactions, emphasizing the business expediency and the circumstances under which the payments were made. The Commissioner of Income Tax Appeals (CITA) upheld part of the disallowance while deleting a portion made by cheque. The CITA found discrepancies in the cash memos and upheld the disallowance based on the assessment order's reasoning.

During the appeal, the assessee presented various arguments to establish the necessity of cash payments, including an affidavit supporting the claim that suppliers insisted on cash payments. The appellant cited the CBDT Circular No. 6-P to explain the purpose behind section 40A(3) and emphasized the genuine nature of the transactions. The Revenue contended that the commercial expediency was not proven and raised doubts about the veracity of the affidavit.

The Tribunal found that while the genuineness of the transactions was not disputed, the circumstances necessitating cash payments were not adequately proven by the assessee. Considering the affidavit and the need for further examination, the Tribunal remanded the issue back to the AO for detailed scrutiny of the suppliers' insistence on cash payments. The Tribunal directed the AO to examine the suppliers to ascertain the veracity of the claims made in the affidavit and make a decision accordingly.

In conclusion, the Tribunal partially allowed the appeal for statistical purposes and remanded the issue back to the AO for further examination and decision based on the directions provided. The assessee was granted the opportunity to rebut any findings resulting from the examination of the suppliers, ensuring a fair and just resolution of the matter.