2018 (6) TMI 53 - AT - Income Tax

Addition u/s 40A - adjustment by way of book entry - payment to creditors in cash - Held that - As per the assessee s own case 2017 (8) TMI 1377 - ITAT KOLKATA as held assessee has paid to Shivam Enterprises on the instruction of its creditor M/s Charco Electronics Pvt. Ltd. through account payee cheque. There is no cash payment at all. Therefore, we are of the view that addition made needs to be deleted. - thus there is no violation of provisions u/s 40A(3) - Decided in favor of assessee.

Summary

Issues:
- Appeal against the order of Commissioner of Income Tax (Appeals) upholding the addition under Section 40A(3) of the Income Tax Act.
- Interpretation of provisions of Section 40A(3) regarding payments exceeding a specified limit and exceptions under Rule 6DD.
- Disallowance of adjustment by way of book entry and its compliance with Section 40A(3).
- Comparison with a previous decision in a similar case.

Analysis:

1. Issue of Addition under Section 40A(3):
The appeal challenged the decision of the Commissioner of Income Tax (Appeals) upholding the addition of ?54,32,333 under Section 40A(3) of the Income Tax Act. The Assessing Officer disallowed the sum due to an adjustment by way of book entry, which was considered a violation of the provision. The issue raised was whether the adjustment complied with the requirements of Section 40A(3) and if the addition was justified.

2. Interpretation of Section 40A(3) and Rule 6DD:
The case involved interpreting Section 40A(3) which restricts deductions for payments exceeding a specified limit unless made through specified modes. The provision allows exceptions under Rule 6DD, particularly clause (e) which exempts payments made by way of book adjustment to the payee who directly supplied goods or services. The dispute centered on whether the adjustment in question fell within the exceptions provided under Rule 6DD.

3. Disallowance of Book Entry Adjustment:
The Assessing Officer disallowed the adjustment by way of book entry, stating it violated Section 40A(3) as it did not fall under any exception provided in Rule 6DD. The Commissioner of Income Tax (Appeals) upheld this decision, citing a judicial precedent and ruling that the adjustment entries were subject to disallowance under Section 40A(3) due to non-compliance with the rule. The appellant contested this finding, leading to the appeal before the Tribunal.

4. Comparison with Previous Decision:
The Tribunal referred to a previous decision in a similar case involving identical facts where the issue was decided in favor of the assessee. The Tribunal reversed the decision of the Commissioner of Income Tax (Appeals) based on the precedent, ruling that there was no violation of Section 40A(3) as the payment was made through an account payee cheque. Consequently, the addition was deleted, and the appeal was allowed in favor of the assessee.

In conclusion, the Tribunal allowed the appeal, overturning the decision of the Commissioner of Income Tax (Appeals) and directing the Assessing Officer to delete the addition made under Section 40A(3). The judgment highlighted the importance of compliance with the provisions of the Income Tax Act and the significance of judicial precedents in determining tax liabilities.