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2021 (10) TMI 547 - AT - Income TaxDisallowance u/s 40A(3) - cash payments made by the assessee above ₹ 20,000/- in a single day - assessee had not made any vouchers related to cash payments on different dates - HELD THAT - The assessee, for the sake of its convenience, has mentioned on the bills to separate figures of below ₹ 20000/-. The ld Counsel has argued before the Bench that old ornaments are sold in dire need and necessity. We note that when old ornaments are sold in dire need then why an unknown person (customer) will keep his money with the assessee, as the assessee makes payment in cash to the same customer on next day, (against the old ornaments purchased by the assessee). Further, it is beyond imagination that so many persons will behave in this manner on so many different dates. Thus, we note that arguments made by the ld Counsel is an attempt to avoid the disallowance. We note that no convincing reply has been put forward by ld Counsel and we also observe that arguments made by the ld Counsel is certainly not based on exception given in rule 6DD of the Rules. The argument of ld Counsel is not acceptable in so far, bill no.2608 amounting to ₹ 68,625/- , is concerned, as the same was not included in the total amount of ₹ 22,92,113/-, as noted by the assessing officer The payments to the extent of ₹ 23,22,676/- was made beyond the limit prescribed u/s 40A(3) of the Act and the assessee's case are not covered in the exceptions mentioned under rule 6DD of the Income Tax Rules. Besides, the judgments, cited by the ld Counsel have been distinguished by the ld CIT(A) in his findings, as noted by us in above para, hence we observe that none of the judgment is favoring to the assessee s case. We are therefore of the considered view that the plea of the ld Counsel does not merit legal acceptance, thus, we sincerely believe that the plea of the ld Counsel must be rejected - Decided against assessee.
Issues Involved:
1. Disallowance under Section 40A(3) of the Income Tax Act, 1961. Detailed Analysis: 1. Disallowance under Section 40A(3) of the Income Tax Act, 1961: The primary issue in this case is the disallowance of ?23,22,676 under Section 40A(3) of the Income Tax Act, 1961, which pertains to cash payments exceeding ?20,000 in a single day. The assessee contended that no single payment exceeded ?20,000 in a day and that the nature of their business necessitated cash payments for the purchase of used ornaments. They argued that the payments were split into amounts below ?20,000 on different dates to avoid the provisions of Section 40A(3). Furthermore, the assessee claimed that the entries in the cash book showing single entries of cash payments were errors of record rather than errors of transaction. The Assessing Officer (AO) observed numerous instances where cash payments exceeded ?20,000 against purchases of old gold jewelry, which violated Section 40A(3). The AO noted that the assessee made cash payments above ?20,000 in various cases and intentionally split the amounts on the bills to circumvent the provisions of the Income Tax Act. The AO issued a show-cause notice, and upon the assessee's response, rejected their contention and disallowed the sum of ?23,22,676. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, noting that the assessee's practice of splitting payments on the same bill to amounts below ?20,000 was deliberate and intended to avoid the provisions of Section 40A(3). The CIT(A) emphasized that the cash book entries showed single transactions exceeding ?20,000, which contradicted the assessee's claim of splitting payments. During the tribunal hearing, the assessee reiterated their arguments, stating that the cash payments were necessary due to the nature of their business and that customers often refused cheques as they did not have bank accounts. The assessee also argued that the payments were made in pressing circumstances, such as emergencies, and thus should not attract disallowance under Section 40A(3). The Revenue's representative countered that the assessee did not provide vouchers for cash payments on different dates and that the cash book entries showed single transactions exceeding ?20,000. The representative argued that the assessee's practice of splitting amounts on bills was an attempt to defraud the revenue. After considering both parties' submissions, the tribunal found merit in the Revenue's arguments. The tribunal noted that the cash book is a prime part of the books of account and reflects the true affairs. The tribunal observed that the assessee's practice of splitting amounts on bills to avoid Section 40A(3) was not convincing and lacked a valid explanation. The tribunal also noted that the assessee's case did not fall under the exceptions provided in Rule 6DD of the Income Tax Rules. The tribunal upheld the CIT(A)'s decision, confirming the disallowance of ?23,22,676 under Section 40A(3). The tribunal concluded that the assessee's practice of splitting payments was a deliberate attempt to avoid disallowance and that the arguments presented by the assessee did not merit legal acceptance. Conclusion: The tribunal dismissed the appeal filed by the assessee, confirming the disallowance of ?23,22,676 under Section 40A(3) of the Income Tax Act, 1961. The tribunal emphasized that the assessee's practice of splitting payments was deliberate and intended to circumvent the provisions of the Act, and their case did not fall under the exceptions provided in Rule 6DD of the Income Tax Rules. The order was pronounced on 25/08/2021 by placing the result on the notice board.
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