2022 (3) TMI 1126 - AT - Income Tax

Addition u/s 40A(3) - cash purchases of petrol - HELD THAT - It is an admitted fact that the Assessee had made a payment of ₹ 76,50,000/- in cash against the purchase of petrol through two different dealers. The learned CIT(A) has discussed that there was no extraordinary circumstances that forced the Assessee to make payment in cash. He also discussed that the case-law relied upon by the Assessee was not relevant to the facts of this case. The learned CIT(A) also mentioned that these two dealers were regular vendors of the Assessee and that the Assessee was having a running account with each one of them. The learned CIT(A) has further observed that the Assessee was in the habit of purchasing petrol regularly and was subsequently making lumpsum payments in cash periodically and accordingly the transactions were entered in the account books. Assessee has not produced any documentary evidences to substantiate that these payments were required to be made in order of the business expediency or emergencies or that of an exceptional circumstance as provided in Rule 6DD of the Income Tax Rules, 1962 is rebuttal to the findings of the learned CIT(A) towards the disputed purchases being added to the income of the Assessee by invoking the provision of Section 40A(3) We do not find any merit in the submissions of the learned Counsel for the Assessee on the issue of addition made u/s. 40A(3) of the Act, on account of the cash purchases by the Assessee. Accordingly, the order of the CIT(A) on this issue is confirmed. Addition on account of business promotion - HELD THAT - CIT(A) has categorically held that this expenditure was disallowed for the reason that no documentary evidences was submitted during the appeal proceedings, before him - AR has failed to submit any documentary evidences before us, except stating that the same has been incurred as cheque and through credit card. Since, the Authorized Representative has failed to explain the reason for incurring the disputed business promotion expenses and also the nature of the disputed business promotion activity, we hold that the learned CIT(A) was justified in confirming the said addition claimed to be incurred towards business promotion expenses, so claimed.This ground of appeal pertaining to the addition incurred towards business promotion expenses is rejected accordingly. Appeal of the Assessee is dismissed.

Summary

Issues Involved:
1. Confirmation of the addition of ?76,50,000/- under Section 40A(3) of the Income Tax Act, 1961.
2. Addition of ?3,04,687/- on account of business promotion expenses.

Issue-Wise Detailed Analysis:

1. Confirmation of the addition of ?76,50,000/- under Section 40A(3) of the Income Tax Act, 1961:

The Assessee, a proprietor of M/s. Sri Krishna Enterprises and M/s. Sri Krishna Transport, made cash purchases of petrol amounting to ?76,50,000/- from various agencies. The Assessing Officer (AO) noted that these purchases were in contravention of Section 40A(3) of the Income Tax Act, 1961, which disallows expenditure incurred in cash exceeding ?20,000/- to a single person in a day. The AO issued a show-cause notice, and upon not being satisfied with the Assessee's explanation, disallowed the expenditure and added it to the Assessee's income.

The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, observing that the Assessee had regular transactions with the vendors and the bills were structured to avoid crossing the prescribed limits, indicating an attempt to circumvent Section 40A(3). The CIT(A) noted that there were no extraordinary circumstances justifying cash payments, and the Assessee's reliance on case laws pertaining to emergency situations was not applicable.

Before the Tribunal, the Assessee's counsel argued that the payments were made by lorry drivers at fuel stations and were below ?20,000/-. However, no documentary evidence was provided to substantiate the claim of business expediency or emergencies as per Rule 6DD of the Income Tax Rules, 1962. The Tribunal referred to the Madras High Court's decision in "N. Mohammed Ali Vs. Income Tax Officer," which emphasized that the Assessee must prove the necessity of cash payments due to lack of banking facilities, business expediency, or other relevant factors. The Tribunal found no merit in the Assessee's submissions and confirmed the addition of ?76,50,000/-.

2. Addition of ?3,04,687/- on account of business promotion expenses:

The second issue involved the disallowance of ?3,04,687/- claimed as business promotion expenses. The CIT(A) disallowed this expenditure due to the lack of documentary evidence provided during the appeal proceedings. The Assessee's representative failed to submit any evidence before the Tribunal, merely stating that the expenses were incurred via cheque and credit card. The Tribunal upheld the CIT(A)'s decision, noting the failure to explain the nature and necessity of the business promotion expenses.

Conclusion:

The Tribunal dismissed the Assessee's appeal, confirming the addition of ?76,50,000/- under Section 40A(3) for cash purchases and the disallowance of ?3,04,687/- for business promotion expenses, due to lack of sufficient evidence and justification. The order was pronounced on 9th March 2022 at Chennai.