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2012 (10) TMI 391 - AT - Income TaxDisallowance of Payments made to Associate Concern in cash - Held that - Payments made in excess of Rs.20,000/- in cash was not a justifiable reason for deleting the disallowance under Section 40A(3) of the Act as payment is made to associate concern. CIT(Appeals) fell in error in deleting the disallowance merely on the submission of the assessee, ignoring the ledger copies annexed to the assessment order by the Assessing Officer himself. The payments were all effected in cash and each of such payment exceeded Rs. 20,000/- the Assessing Officer had rightly made disallowance under Section 40A(3) of the Act - Order of CIT(Appeals)is set aside and order to reinstate the addition made by the A.O. under Section 40A(3) of the Act has been passed - in favour of Revenue.
Issues:
1. Whether the deletion of an addition made under Section 40A(3) by the CIT(Appeals) was justified. 2. Whether payments made to sister concerns can be a reason for deleting a disallowance under Section 40A(3) of the Income-tax Act, 1961. Issue 1 - Deletion of Addition under Section 40A(3) by CIT(Appeals): The Revenue filed an appeal challenging the deletion of an addition of Rs. 29,02,509 made by the Assessing Officer under Section 40A(3) of the Income-tax Act, 1961. The Revenue contended that the word "expenditure" in Section 40A(3) encompassed all outgoings and cited relevant court precedents to support their position. The assessee, a proprietor trading in oil and a director of a company, had made payments exceeding Rs. 20,000 otherwise than by account payee cheques, leading to the proposed disallowance by the Assessing Officer. The CIT(Appeals) deleted the disallowance after considering the argument that the payments were not linked to any specific expenditure. However, the ITAT Chennai held that the CIT(Appeals) erred in deleting the disallowance, as the payments were made in cash and exceeded Rs. 20,000, falling within the ambit of Section 40A(3). The ITAT reinstated the addition made by the Assessing Officer under Section 40A(3), emphasizing that the CIT(Appeals) disregarded the ledger copies annexed to the assessment order. Issue 2 - Payments to Sister Concerns and Disallowance under Section 40A(3): The second issue revolved around whether payments made to sister concerns could justify the deletion of a disallowance under Section 40A(3) of the Act. The assessee argued that the payments were not in relation to any specific expenditure, as evidenced by the running accounts with the sister concerns. The ITAT Chennai, however, emphasized that the payments made to the sister concerns were within the scope of Section 40A(3) since they were made in cash and exceeded the specified limit. Citing court precedents and the wide import of the term "expenditure," the ITAT Chennai held that the payments for purchases fell under the purview of Section 40A(3), irrespective of the relationship with the payee. The ITAT Chennai concluded that the CIT(Appeals) erred in deleting the disallowance based on the submissions of the assessee and reinstated the addition made by the Assessing Officer. In summary, the ITAT Chennai ruled in favor of the Revenue, reinstating the addition made under Section 40A(3) by the Assessing Officer and overturning the decision of the CIT(Appeals) to delete the disallowance. The judgment highlighted the broad interpretation of "expenditure" under Section 40A(3) and emphasized that payments exceeding the specified limit made in cash were subject to disallowance, regardless of the relationship with the payee.
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