2024 (4) TMI 799 - AT - Income Tax

Addition u/s 40A(3) - Cash expenditure - assessee has made payments to the land owners exceeding INR 20,000/- - HELD THAT - Only 20% of the expenditure would be disallowed in the event of any payment of such expenditure made in cash which exceeded INR 20,000/-. The contention of the assessee is that the payments were made out of business expediency, is not supported by any evidences. Therefore, the case laws relied by assessee, do not help him under the facts of the present case. However, we are in agreement with assessee that the expenditure should have been restricted to the extent of 20% in terms of extant provision of section 40A(3) of the Act. We therefore, direct the AO to restrict the disallowance to the extent of 20% of the total expenditure which was incurred in cash and exceeded the prescribed monetary limit i.e. INR 20,000/- of the same. Grounds raised by the assessee are accordingly, partly allowed.

Summary

Issues Involved:
1. Disallowance of expenditure u/s 40A(3) of Income Tax Act, 1961.

Comprehensive details of the judgment for each issue involved:

Issue 1: Disallowance of expenditure u/s 40A(3) of Income Tax Act, 1961
- The appeal was filed against the order disallowing the claim of expenditure of Rs. 53,69,758/- under section 40A(3) for the assessment year 2007-08.
- The Assessing Officer made an addition of INR 53,69,758/- to the income of the assessee, which was later sustained by Ld.CIT(A).
- The assessee contended that the entire disallowance of expenditure was contrary to the law, citing an amendment by the Finance Act, 2007 in section 40A(3) of the Act.
- The Tribunal observed that the assessee made payments exceeding INR 20,000/- to landowners, which contravened section 40A(3) of the Act.
- The Tribunal noted that the assessee did not fall under the exceptions provided in Rule 6DD of the Income Tax Rules, 1962.
- The provision of section 40A(3) was amended w.e.f. 01.04.2008, limiting the disallowance to 20% of the expenditure exceeding INR 20,000/- made in cash.
- The Tribunal directed the Assessing Officer to restrict the disallowance to 20% of the total expenditure exceeding INR 20,000/- made in cash, partially allowing the appeal of the assessee.

This judgment addresses the issue of disallowance of expenditure under section 40A(3) of the Income Tax Act, 1961 for the assessment year 2007-08. The Tribunal found that the assessee's payments to landowners exceeding INR 20,000/- were in contravention of the provision. While the assessee argued for business expediency, the Tribunal emphasized the lack of evidence supporting this claim. The Tribunal upheld the disallowance but directed the restriction of disallowed expenditure to 20% of the total cash expenditure exceeding INR 20,000/-.