2013 (2) TMI 151 - HC - Income Tax

Addition u/s 40(A)(3) - the appellant is said to have purchased wheat from Shri Sai Baba Rice Traders & the payment of Rs.30,80,746/- was made by assessee otherwise by account payee cheque - Held that - Perusal of the documents produced by the appellant does not prove the payments as alleged. Certificate given by Shri Sai Baba Rice Traders in respect of receipts of six cheques from M/s Shri Ganesh Trading Co. However, the statement of account from the ledger of assessee shows that the account produced is of Ram Nath Ramesh Chand of whom the appellant is the proprietor. There is no endorsement in the said account that the cheques in the sum of Rs.30,80,746/- has been issued to Shri Sai Baba Rice Traders for and on behalf of the appellant or that the said cheques were ever issued to Shri Sai Baba Rice Traders. In view of the said fact, no substantial question of law arises for consideration - additions confirmed. Additions being hypothetical interest on the purchase advance - Held that - Even if the agreement to sell was oral, the account books of the appellant should have contain an entry of payment of Rs.6 lacs for the purchase of petrol pump. Since, there is no such entry, the findings of fact recorded by the authorities under the Act cannot be said to be unjustified - additions confirmed. Addition of higher rate of interest - 18.5% paid by the appellant to his mother as against the market rate of 15% - Held that - Tribunal has returned a finding that the AO has considered the rate of interest paid by the appellant as higher in comparison to prevalent market rate of interest. The transaction in question is not a genuine and bona fide transaction is again the finding of fact. No substantial question of law arises for consideration - appeal rejected.

Summary

Issues involved:
1. Interpretation of Section 40(A)(3) of the Income Tax Act, 1961 regarding disallowance of expenses.
2. Treatment of advance payment for purchase of a petrol pump.
3. Addition of interest paid on a loan at a higher rate than the market rate.

Detailed Analysis:
1. The first issue revolves around the interpretation of Section 40(A)(3) of the Income Tax Act, 1961, regarding the disallowance of expenses. The appellant contested the addition of Rs.6,16,150/- by invoking this provision due to alleged violations related to payments made for purchasing wheat. The Assessing Officer found discrepancies in the payment method, leading to the disallowance. The appellant argued that the payments were made through a trading firm's account, not directly by the appellant. However, the court noted that the appellant failed to provide sufficient evidence to support this claim, and the documents produced did not conclusively prove the payments as alleged. Consequently, the court found no substantial question of law in this regard.

2. The second issue pertains to an advance payment of Rs.6 lakhs made by the appellant for the purchase of a petrol pump. The appellant claimed that the payment was in line with an oral agreement to sell, but the absence of a corresponding entry in the account books raised doubts. The court emphasized that even if the agreement was oral, proper documentation of the payment should have been maintained. Since no such entry was found, the court upheld the authorities' findings as justified, indicating no legal issue for consideration.

3. The final issue involves the addition of Rs.18,002/- as interest paid on a loan at a higher rate than the market rate. The appellant argued that the interest rate paid was justified, citing a specific court judgment. However, the tribunal found the transaction to be non-genuine, rendering the reference judgment inapplicable. As the tribunal's decision was based on factual findings, the court concluded that no substantial legal question arose for consideration in this matter. Consequently, the court dismissed the appeal, affirming the lower authorities' decisions.