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2014 (12) TMI 934 - HC - Income TaxEffect of amendment u/s 40A(3) w.e.f. 1.4.2009 Total cash payments towards expenditure made to a particular person during a day to be aggregated or not - distributors were not ready to give him goods on credit for even one or two days - Held that - The Tribunal rightly relied upon in COMMISSIONER OF INCOME-TAX Versus DALIP CHAND AND SONS 2008 (1) TMI 205 - HIMACHAL PRADESH HIGH COURT - other dealers similarly situated were making payments by crossed cheque in COMMISSIONER OF INCOME-TAX Versus DALIP CHAND AND SONS 2008 (1) TMI 205 - HIMACHAL PRADESH HIGH COURT - transactions themselves were found to be extremely doubtful and appeared to be fraudulent - in terms of the amendment made to Section 40A(3) of the Act, aggregation of the total payments during the day has to be made - the amendment is applicable w.e.f. 1st April, 2009 - assessee had pointed out that he had expanded the ambit and area of business to include sale of mobile phones, mobile phone accessories and recharge coupons - He had made purchases of ₹ 1,38,43,525/- for which payments were made to two parties in cash - there are several mitigating factors to show and establish commercial expediency and reasons for making the purchases thus, the order of the Tribunal is upheld Decided against revenue.
Issues:
- Interpretation of Section 40A(3) of the Income Tax Act, 1961 regarding aggregation of cash payments. - Application of the decision of the Himachal Pradesh High Court in Commissioner of Income Tax versus Dalip Chand and Sons (2008) 301 ITR 276 (HP). - Consideration of amendments to Section 40A(3) effective from 1st April, 2009. - Assessment of commercial expediency and reasons for cash payments made by the assessee. Interpretation of Section 40A(3): The High Court analyzed the interpretation of Section 40A(3) of the Income Tax Act, specifically focusing on the aggregation of total cash payments made to a particular person in a day. The court noted conflicting judgments, including the Himachal Pradesh High Court's decision, emphasizing the need to give effect to the provision even before the 2009 amendment. The court delved into the meaning of the word "sum" in the context of the statute, rejecting the argument that it signifies a total figure and emphasizing its common parlance meaning as an amount of money. The court highlighted the legislative intent behind the provision, aiming to make it workable and enforceable. Application of Himachal Pradesh High Court Decision: The judgment discussed the implications of the Himachal Pradesh High Court's decision in Dalip Chand and Sons case, where the court emphasized aggregating cash payments and dismissed pleas based on business expediency. The court noted the fraudulent nature of transactions in that case and the requirement to aggregate payments under the amended Section 40A(3) from April 1, 2009. The court examined the assessment order for the respondent-assessee for the year 2008-09, where the Assessing Officer accepted the trading results and reasons for a decrease in gross profit rate due to increased turnover. The respondent had expanded business areas, necessitating cash purchases, which the Revenue sought to disallow. Consideration of Amendments and Commercial Reasons: The judgment considered the impact of the 2009 amendment to Section 40A(3) and the respondent's justifications for cash purchases. The respondent's need for cash purchases due to lack of credit from distributors and business expansion was highlighted. The court acknowledged the mitigating factors supporting commercial expediency and reasons for cash transactions, ultimately leading to the dismissal of the Revenue's appeal. In conclusion, the High Court declined to interfere with the Tribunal's order, emphasizing the various facets of the case, including commercial reasons for cash transactions and the respondent's justifications. The appeal by the Revenue was consequently dismissed, maintaining the Tribunal's decision regarding the assessment year 2008-09.
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