2019 (11) TMI 1236 - AT - Income Tax

Revision u/s 263 - Addition u/s 40A(3) - Cash payment against purchases - HELD THAT - As seen from the assessment order, the assessee also filed affidavit from land owners insisting the payments in cash. AO did not believe the contention of the assessee and brushed aside the submissions merely because of the endorsements on the reverse side of the agreement acknowledging the receipt of cash payment. There is no dispute that the land owners have given endorsement to the effect that they had received the cash on various dates. As per the affidavit, land owners have insisted for cash payments and Shri G.V.K.Chowdary has acted as an agent and the firm has given the cash to Shri G.V.K.Chowdary who in turn made the disbursements to the land owners. Merely because of endorsement made on agreement it does not conclusively prove that the assessee made cash payment directly to the land owners. Though Shri G.V.K.Chowdary has given the affidavit, the AO has simply brushed aside the agreement without making any enquiry. AO without examining either Shri G.V.K.Chowdary or the land owners has come to a conclusion that the documents were created to strengthen the assessee s case which is based on surmises without having any evidence. Any conclusion has to be drawn only after verification of the facts. AO ought to have examined Shri G.V.K.Chowdary and the land owners to ascertain the fact regarding the payments, made directly or through the agent. The fact that the land owners were agriculturists and small farmers, insisted the cash payment was supported by the affidavits given by the land owners as seen from the assessment order. There is no reason to disbelieve the submission of the assessee that the payment was made through the agent to the farmers, hence, there is no case for application of section 40A(3). Apart from the above, all the recipients are identifiable and the payments were genuine. The department also did not dispute the genuineness of payment. Since the assessee has furnished the evidences supporting it s contentions, we hold that the case law relied upon by the assessee in the case of Sri K.Phani Kumar cited supra squarely applicable to assessee s case. There is no reason to make the disallowance u/s 40A(3) and accordingly, we set aside the order of the CIT(A) and allow the appeal of the assessee.

Summary

Issues:
Appeal against addition made under Section 40A(3) of the Income Tax Act, 1961 for Assessment Year 2005-06.

Analysis:
1. The appeal was filed against the addition made under Section 40A(3) of the Income Tax Act, 1961. The Commissioner of Income Tax (Appeals) set aside the original assessment and directed the Assessing Officer to re-examine the case under Section 263. The appellant explained that payments were made through agents to landowners who were agriculturists without bank accounts, some payments made on holidays. The Commissioner directed to verify the agricultural status of landowners, agreements, applicability of Sec.6DD, and agreements between agents and landowners.

2. The Assessing Officer re-examined the case and found the explanations unreliable, making an addition of ?10,27,400 under Section 40A(3) of the Act. The Commissioner (Appeals) upheld this decision.

3. The appellant argued before the Tribunal that payments were made through an agent to small farmers without bank accounts, supported by affidavits and passbooks. Citing a previous Tribunal decision, the appellant requested the order to be set aside. The Department supported the lower authorities' decisions.

4. The Tribunal noted that payments were made through an agent to farmers, supported by affidavits and passbooks. The Assessing Officer did not verify facts or examine the agent and landowners, leading to a baseless conclusion. The Tribunal found no reason for disallowance under Section 40A(3), as all recipients were identifiable, payments were genuine, and evidence supported the appellant's contentions. Relying on precedent, the Tribunal allowed the appeal, setting aside the Commissioner's order.

In conclusion, the Tribunal allowed the appellant's appeal, setting aside the addition made under Section 40A(3) of the Income Tax Act, 1961 for the Assessment Year 2005-06.