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Issues: Alleged error in sustaining addition under s. 40A(3) of the IT Act
Analysis: The appeal arose from the order of the CIT(A)-XII, New Delhi for the assessment year 1992-93. The grounds of appeal challenged the legality and factual basis of the orders by the authorities. Ground No. 2 specifically contested the addition of Rs. 89,023 under section 40A(3) of the Income Tax Act. The Assessing Officer (AO) noted cash payments exceeding Rs. 10,000 made for fuel purchases, which were in violation of the Act. The CIT(A) reduced the disallowance but sustained the addition, leading to the appeal before the Tribunal. Analysis: The CIT(A) justified the reduction in disallowance based on payments below Rs. 10,000 made on specific dates. During the hearing, the authorized representatives of both parties presented arguments. The assessee's representative relied on a letter from Hari Ram Oil Co. stating their cash payment policy due to non-acceptance of cheques. The Departmental Representative dismissed it as self-serving. The assessee referenced a Calcutta High Court case emphasizing genuine transactions for allowable deductions under section 40A(3). The circular by the CBDT was highlighted as illustrative, requiring consideration of surrounding circumstances and business expediency by the AO. The Tribunal concluded that the disallowance was not justified as the case fell under rule 6DD due to the cash payment policy, leading to the deletion of the sustained addition. Analysis: Ultimately, the Tribunal allowed the appeal, overturning the CIT(A)'s decision to sustain the addition under section 40A(3) of the IT Act. The judgment emphasized the importance of genuine transactions and the AO's discretion in assessing each case based on relevant factors, leading to the deletion of the disallowance in this instance.
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