2022 (10) TMI 416 - AT - Income Tax

Disallowance u/s. 40A(3) - business expediency in payment of cash towards genuine transaction - HELD THAT - Rule 6DD is exhaustive and it is open to the assessee the exceptional and unavoidable circumstances which made the assessee to make payment in cash. The contention of the assessee from the day one is that the sellers demanded the assessee to pay in cash which is part and parcel of total sale consideration.There is no dispute with regard to identification of the sellers as well as their confirmations in respect of payment in cash from the assessee. It is also not disputed that the said cash payment is part and parcel of total sale consideration which is reflected in the purchase deed. The sellers also admitted the payment of cash before the registering authority under due process. The contention of ld. AR is that the payment vide cheque or draft is not at all practicable due to circumstances on demand of settlement of purchase consideration in cash from the sellers of the property. Therefore, the ratio laid down in the case of Attar Singh Gurmukh Singh 1991 (8) TMI 5 - SUPREME COURT is applicable and the disallowance as confirmed by the CIT(A) in the hands of assessee on account of section 40A(3) of the Act is deleted. Thus, ground No. 2 raised by the assessee is allowed.

Summary

Issues:
Challenge to disallowance u/s. 40A(3) of the Act based on business expediency in cash payment for genuine transaction.

Detailed Analysis:

Issue 1: Challenge to Disallowance u/s. 40A(3) of the Act
- The appeal filed by the assessee was delayed by 17 days, which was condoned based on a Supreme Court decision.
- Ground No. 1 was dismissed as not pressed by the assessee.
- Ground No. 2 challenged the CIT(A)'s confirmation of disallowance u/s. 40A(3) without considering business expediency in cash payment for a genuine transaction.
- The assessee derived income from land deals and construction, declared total income, and was scrutinized for cash payment exceeding the prescribed limit.
- The AO invoked provisions u/s. 40A(3) and added the cash payment amount to the total income, which was confirmed by the CIT(A).
- The assessee argued that the cash payment was made due to demands by sellers with no other option, part of the sale consideration, and supported by seller confirmations and purchase deed.
- The LD AR cited various legal precedents supporting genuine cash payments under bonafide conditions.
- The DR referred to a Bombay High Court decision upholding disallowance under section 40A(3).
- The Tribunal analyzed the case in light of Supreme Court decisions and Tribunal orders, emphasizing genuine transactions and exceptions under Rule 6DD.
- The Tribunal noted the genuine nature of the transaction, seller identification, and confirmation, concluding that no disallowance u/s. 40A(3) was warranted.
- The Tribunal also referenced a previous Tribunal case and a High Court decision supporting the assessee's arguments.
- The Tribunal highlighted the applicability of Rule 6DD in exceptional circumstances justifying cash payments, ultimately allowing the appeal and deleting the disallowance under section 40A(3).
- Ground No. 3 became infructuous due to the decision on ground No. 2.
- The appeal of the assessee was allowed, and the order was pronounced in open court on 30th August 2022.

This detailed analysis covers the challenge to disallowance under section 40A(3) of the Act, presenting arguments from both parties, legal precedents, and the Tribunal's decision based on the genuineness of the transaction and exceptions under Rule 6DD.