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Issues: Disallowance under section 40A(3) of the Income-tax Act, 1961
Analysis: The judgment involves the disallowance of Rs. 16,000 under section 40A(3) of the Income-tax Act, 1961. The assessee, a registered firm, engaged in civil work, supply, and installation of Ash Handling Plant, contested the disallowance made by the Income Tax Officer. The disallowance was based on the grounds that the payments made to certain parties were split into smaller amounts to circumvent the provisions of section 40A(3). The Commissioner (Appeals) upheld the disallowance, emphasizing that the application of section 40A(3) cannot be avoided by breaking payments into smaller amounts. The Commissioner also noted the absence of evidence supporting that the recipients insisted on cash payments. The assessee argued that separate vouchers existed for the payments and cited a decision by the Orissa High Court to support their position. However, the Tribunal found that the payments were split to evade the statutory restriction of section 40A(3) and that the assessee failed to establish circumstances justifying cash payments under rule 6DD and CBDT's Circular No. 220. The Tribunal analyzed each payment in detail. For the payments made on the same day to Union Timber Stores, the Tribunal noted continuous voucher numbers indicating simultaneous payments. The absence of evidence showing urgency for cash payments further weakened the assessee's case. Regarding the fourth payment for Tibri sand, the Tribunal acknowledged the principle established by the Orissa High Court but distinguished the case based on the continuous vouchers and receipts. The Tribunal emphasized that while tax planning is permissible, tax evasion is not, and upheld the Commissioner's decision that the payments exceeded Rs. 2,500 and were split to avoid section 40A(3). The Tribunal also agreed with the departmental representative that the burden was on the assessee to prove entitlement to relief under section 40A(3) and rule 6DD. In conclusion, the Tribunal upheld the Commissioner (Appeals)'s decision to disallow the expenses under section 40A(3) as the assessee failed to establish legitimate reasons for the cash payments and did not provide sufficient evidence to support their case. The judgment reaffirmed the importance of complying with tax regulations and preventing tax evasion through improper splitting of payments.
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