2018 (5) TMI 1000 - AT - Income Tax

Addition made u/s 40A(3) - payment made otherwise than by cheque or crossed demand draft above ₹ 20,000/- - Held that - The said payment has been made by way of bearer cheques before registering authority. Another aspect of the same is that the said payment was made at the instance of sellers as they were reluctant to get the document registered till the amount was received in totality. The assessee has furnished declaration signed by both the parties on which along with signature date mentioned was 12.03.2012. In the entirety of the above said facts and circumstances, where the payment has been (a) made before registering authority; (b) made by way of bearing cheques, since the entries in the bank statement reflects the names of two parties and also because of compelling circumstances of the sellers asking for such payment, then we hold that there is no merit in invoking provisions of section 40A(3)to such transactions. - Decided in favour of assessee.

Summary

Issues:

1. Deletion of addition under section 40A(3) of the Income-tax Act, 1961.

Analysis:

The appeal filed by the Revenue challenged the order of CIT(A)-2, Nashik, regarding the assessment year 2012-13 under section 143(3) of the Act. The primary issue raised was the deletion of an addition of ?39,20,000 made on account of disallowance under section 40A(3) by the Assessing Officer. The Revenue contended that the CIT(A) erred in deleting the addition and sought to cancel the CIT(A)'s order and restore that of the Assessing Officer. The Revenue also sought permission to add, alter, modify, or delete grounds and file additional evidence if necessary.

In the case under consideration, the assessee, engaged in the business of promoters and developers, purchased agricultural land and developed it for sale. The Assessing Officer disallowed ?39,20,000 under section 40A(3) as cash payments were allegedly made to sellers against their consent. The CIT(A) reversed this decision, considering evidence that payments were genuine and made by bearer cheques. The CIT(A) found discrepancies in the Assessing Officer's calculation and deleted the addition. The Revenue argued that since sellers did not insist on cash payments, the plea of the assessee had no merit, while the assessee maintained that payments were made through bearer cheques.

The Tribunal analyzed the provisions of section 40A(3) which disallow expenses not made by cheque or demand draft over ?20,000. It noted that initial payments were made by cheque, and the balance, allegedly paid in cash, was actually made through bearer cheques before the registering authority. The Tribunal found no merit in invoking section 40A(3) due to the circumstances of the case, where payments were made before the authority, by bearer cheques, and at the sellers' insistence. Upholding the CIT(A)'s order, the Tribunal dismissed the Revenue's appeal.

In conclusion, the Tribunal dismissed the Revenue's appeal, emphasizing that the transactions in question did not warrant the application of section 40A(3) of the Income-tax Act, 1961.