2020 (9) TMI 492 - HC - Income Tax

Addition u/s 40A(3) - cash payments made by the assessee to the agriculturists/farmers for purchase of land - HELD THAT - It is evident that the assessee's authorized representative in his written submission had disclosed the reason for payment in cash on the ground that the payments were made at place which was not served with any banking facility. AO has found that the place at which the payment was made had banking facility and therefore, has held that the assessee failed to prove that it was covered in the exception clause as provided under Section 40A(3) read with Rule 6DD. CIT-A have also found that the assessee has failed to prove the stand taken by him that the transaction took place at the place where there were no banking facilities. The aforesaid finding has been affirmed by Tribunal. Therefore, the contention of the appellant that it had taken a defence before the authorities that the parties were identifiable and the transactions were genuine cannot be accepted, as the aforesaid contention is being raised for the first time in this appeal, which even otherwise is contrary to the material on record, which has already been referred. The aforesaid findings are findings of fact and this court as a general rule would not interfere except in cases where the parties have ignored material evidence or have acted on no evidence, or have drawn wrong inference from proved facts by applying the law erroneously. The assessee has not been able to show that its case falls in any of the aforesaid categories. - Decided against assessee.

Summary

Issues Involved:
1. Applicability of Section 40A(3) of the Income Tax Act, 1961.
2. Genuineness of cash payments made by the assessee.
3. Business expediency and exceptions under Rule 6DD of the Income Tax Rules.

Detailed Analysis:

1. Applicability of Section 40A(3) of the Income Tax Act, 1961:
The primary issue revolves around whether the Tribunal was correct in applying Section 40A(3) to the cash payments made by the assessee for the purchase of land. Section 40A(3) mandates that any expenditure incurred in cash exceeding ?20,000/- is not deductible unless it falls under the exceptions provided in Rule 6DD. The Tribunal upheld the disallowance made by the Assessing Officer, who had found that the payments exceeded the prescribed limit and did not meet the exceptions under Rule 6DD.

2. Genuineness of Cash Payments Made by the Assessee:
The assessee argued that the identity of the parties and the genuineness of the transactions were not in question, and thus, Section 40A(3) should not be invoked. However, the Assessing Officer, Commissioner of Income Tax (Appeals), and the Tribunal found that the assessee failed to prove the genuineness of the transactions. The Tribunal noted that the assessee’s representative initially claimed that the payments were made in areas without banking facilities, which was later found to be untrue as the transactions occurred in Devenahalli Taluk, an area with ample banking facilities. The Tribunal concluded that the assessee's claim was not supported by evidence, and the transactions were indeed hit by Section 40A(3).

3. Business Expediency and Exceptions Under Rule 6DD of the Income Tax Rules:
The assessee contended that the cash payments were made due to business expediency, which should exempt them from the applicability of Section 40A(3) under the second proviso to the section. The Tribunal, however, found that the assessee did not provide sufficient evidence to demonstrate business expediency or any other valid reason that would justify the cash payments under Rule 6DD. The Tribunal emphasized that Rule 6DD allows for exemptions only under specific circumstances, such as payments made to the government, payments in villages without banking facilities, or payments for certain agricultural produce. The assessee failed to prove that their case fell under any of these exceptions.

Conclusion:
The Tribunal’s judgment was based on a meticulous appreciation of evidence, and the assessee could not demonstrate that the cash payments were made under circumstances that would exempt them from the provisions of Section 40A(3). The substantial question of law was answered in the negative, and the appeal was dismissed. The findings of fact by the lower authorities were upheld, as the assessee did not show that material evidence was ignored or that wrong inferences were drawn from the facts. The court reiterated that genuine and bona fide transactions must be substantiated with cogent evidence to claim exemptions under Section 40A(3) read with Rule 6DD.