2007 (6) TMI 252 - AT - Income Tax

Summary

Issues Involved:

1. Addition of Rs. 1,67,245 u/s 40A(3) for AY 1992-93.
2. Addition of Rs. 4,40,181 u/s 40A(3) for AY 1991-92.

Summary:

Issue 1: Addition of Rs. 1,67,245 u/s 40A(3) for AY 1992-93

The assessee challenged the addition of Rs. 1,67,245 made u/s 40A(3) of the IT Act, 1961. The AO disallowed payments to various parties, asserting no exceptional circumstances justified cash payments. The CIT(A) confirmed the addition, leading to the appeal.

The assessee argued that s. 40A(3) provides exceptions for cash payments under exceptional circumstances, supported by Circular No. 220, dt. 31st May, 1997. The assessee claimed that the parties did not have bank accounts at Baheri and insisted on cash or bearer cheques due to clearing delays. The payments were made under exceptional circumstances, including after banking hours.

The Tribunal noted that the AO did not doubt the genuineness of transactions. The payments were made under exceptional circumstances as per r. 6DD(j) and CBDT Circular No. 220. The Supreme Court in Attar Singh Gurmukh Singh vs. ITO emphasized that genuine transactions should not be disallowed. Consequently, the Tribunal deleted the addition of Rs. 1,68,245.

Issue 2: Addition of Rs. 4,40,181 u/s 40A(3) for AY 1991-92

The assessee challenged the addition of Rs. 4,40,181 made u/s 40A(3) of the IT Act, 1961. The AO made two separate additions of Rs. 1,71,631 and Rs. 2,66,550 for payments made in cash to various parties. The CIT(A) confirmed the additions.

The assessee argued that the payments were made under exceptional circumstances, supported by certificates from the parties indicating no bank accounts at Baheri. The payments were made through bearer cheques due to clearing delays. The Tribunal noted that the AO did not doubt the genuineness of transactions. The payments were made under exceptional circumstances as per r. 6DD(j) and CBDT Circular No. 220. The Tribunal referred to the Calcutta High Court's decision in Giridharilal Goenka vs. CIT, which emphasized allowing deductions for genuine transactions. Consequently, the Tribunal deleted the additions of Rs. 1,71,631 and Rs. 2,66,550.

Conclusion:

Both appeals were allowed, and the additions made by the AO and confirmed by CIT(A) were deleted.