2023 (7) TMI 991 - AT - Income Tax

Revision u/s 263 - Disallowance u/s. 40A(3) for payments below Rs. 20,000/- and further the payments had been made towards purchase of cement which did not attract any liability to deduct tax at source - HELD THAT - Section 40A(3) of the Act, as it stood prior to amendment by the Finance Act, 2017, which came into effect from 01.04.2018, specifies that where the assessee had incurred any expenditure in respect of which a payment or aggregate of payments made to a person in a day otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds Rs. 20,000/-, no deduction shall be allowed in respect of such expenditure. From the assessment order, it is very clear that in the present case no payment in cash exceeding Rs. 20,000/- had been made. Therefore, the Assessing Officer has wrongly invoked the provisions of Section 40A(3) of the Act and accordingly, the same cannot be sustained. We set aside the order of the NFAC and direct the Assessing Officer to delete the addition. Decided in favour of assessee

Summary

Issues:
The judgment involves the dismissal of an appeal by the National Faceless Appeal Centre (NFAC) for Assessment Year 2008-09, based on non-compliance by the assessee with submission requirements.

Dismissal of Appeal by NFAC:
- The original assessment order was set aside due to alleged omission in examining payments made in violation of Section 40A(3) of the Income Tax Act, 1961.
- Disallowance of Rs. 3,46,050/- was made on payments for cement to avoid tax liability.
- Assessee's appeal was dismissed by NFAC due to non-compliance with submission requirements.
- Assessee challenged the dismissal, citing errors by NFAC and arbitrary disallowance.
- Authorized Representative argued that payments were below Rs. 20,000/- and not subject to TDS.
- Senior Departmental Representative highlighted non-compliance by the assessee and reliance on Assessing Officer's findings.

Assessment Order and Legal Analysis:
- Assessing Officer disallowed payments below Rs. 20,000/- to avoid TDS liability.
- However, Section 40A(3) of the Act, pre-amendment, required payments exceeding Rs. 20,000/- to disallow deduction.
- As all cash payments were below Rs. 20,000/-, invoking Section 40A(3) was incorrect.
- The Assessing Officer wrongly applied the provision, leading to the appeal being allowed and the addition directed to be deleted.

Conclusion:
The Tribunal allowed the appeal, setting aside the NFAC's order and directing the deletion of the disallowance. The judgment clarifies the incorrect application of Section 40A(3) by the Assessing Officer, leading to the appeal's success.