2020 (2) TMI 254 - AT - Income Tax

Addition u/s 40A - payment towards electricity charges in cash to the Ajmer Vidyut Nigam Limited (AVVNL) exceeding permissible limits - HELD THAT - There is no dispute regarding the identity of state electricity distribution company (AVVNL), the genuineness of the transaction in terms of electricity bills for consumption of electricity by the assessee, source of cash being the withdrawals from assessee s own bank account and the test of business expediency has also been met as we have noted above. Further, as held by the Hon'ble Rajasthan High Court in case of Smt. Harshila Chordia 2006 (11) TMI 117 - RAJASTHAN HIGH COURT the consequences, which were to befall on account of non- observation of sub-section (3) of section 40A must have nexus to the failure of such object. Therefore the genuineness of the transactions and it being free from vice of any device of evasion of tax is relevant consideration. The intent and the purpose for which section 40A(3) has been brought on the statute books has not been violated in the instant case. Therefore, being a case of genuine business transaction and test of business expediency been satisfied, no disallowance is called for by invoking the provisions of section 40A(3) of the Act. In the result, we hereby direct the deletion of disallowance so sustained by the Ld. CIT (A). - Decided in favour of assessee

Issues Involved:
1. Addition of ?71,55,130/- under Section 40A(3) of the Income Tax Act.
2. Determination of whether AVVNL is considered a government agency under Rule 6DD(b).
3. Applicability of judgments cited by the assessee.

Issue-Wise Detailed Analysis:

1. Addition of ?71,55,130/- under Section 40A(3) of the Income Tax Act:

The assessee, engaged in mining and crushing of stones, filed a return declaring a total income of ?77,93,960/-. During the assessment, an addition of ?71,55,130/- was made under Section 40A(3) for payments made in cash to Ajmer Vidyut Nigam Limited (AVVNL) for electricity charges. The assessee argued that the payments were made in cash due to the practical issues of non-acceptance of outstation cheques by AVVNL and the lack of sufficient bank balance on due dates. The Assessing Officer (AO) rejected these arguments, stating that the assessee should have made timely payments through available banking facilities or opened a local bank account. The AO concluded that the provisions of Section 40A(3) were applicable, and the addition was justified.

2. Determination of whether AVVNL is considered a government agency under Rule 6DD(b):

The assessee contended that AVVNL, being a government body, should be exempt from the provisions of Section 40A(3) under Rule 6DD(b). The AO and CIT(A) disagreed, stating that AVVNL is a separate legal entity established under the Companies Act and cannot be equated with the government for the purposes of Rule 6DD(b). The CIT(A) referenced decisions from the Jaipur Benches, which treated AVVNL as a private entity. The CIT(A) also noted that the assessee failed to establish that its case fell under any of the clauses (a) to (m) of Rule 6DD.

3. Applicability of judgments cited by the assessee:

The assessee cited several judgments to support its case, including decisions from the ITAT Jodhpur Bench and other Coordinate Benches, which allowed cash payments under similar circumstances due to business expediency and practical difficulties. The CIT(A) distinguished these cases, stating that the facts were different and did not apply to the assessee's situation.

Tribunal's Findings:

The Tribunal examined the facts and arguments presented. It acknowledged the practical difficulties faced by the assessee, such as the non-acceptance of outstation cheques by AVVNL and the lack of sufficient bank balance on due dates. The Tribunal emphasized the importance of business expediency and the need to ensure continuous electricity supply for the assessee's business operations. It referred to various judicial precedents, including the Hon'ble Supreme Court's decision in Attar Singh Gurmukh Singh v. ITO, which highlighted that genuine and bona fide transactions should not be disallowed under Section 40A(3) if business expediency is established.

The Tribunal also referred to the Hon'ble Rajasthan High Court's decision in Smt. Harshila Chordia vs. ITO, which emphasized that the genuineness of transactions and their freedom from tax evasion devices are relevant considerations. The Tribunal noted that the payments were made to AVVNL, a state electricity distribution company, and the genuineness of the transactions was not in dispute. The Tribunal concluded that the intent and purpose of Section 40A(3) were not violated in this case, and the test of business expediency was satisfied.

Conclusion:

The Tribunal directed the deletion of the disallowance of ?71,55,130/- under Section 40A(3), allowing the assessee's appeal. The Tribunal's decision was based on the practical difficulties faced by the assessee, the genuineness of the transactions, and the established business expediency. The appeal was allowed in favor of the assessee, and the order was pronounced in the open court on 28/01/2020.

← Previous Next →