2015 (8) TMI 1213 - HC - Income Tax

Dis-allowance of insurance claim written off - Held that - It appears that theft was committed on 10th of September, 1989. Insurance was claimed by the assessee which was rejected by the insurance company in the next year mainly for the reason that there was no theft of plant and machinery or the raw materials. This amount was written off in the year 1993-94. Thus, in the assessment year 1993-94 no theft was committed, but, it was in the year 1989 and, therefore, rightly A.O. as well as the Commissioner (Appeals) have dis-allowed the insurance claim written off. ITAT has failed to appreciate that the theft was committed in the year 1989, whereas, the claim was written off in the assessment year 1993-94, despite the claim was rejected by the insurance company in the very next year of the theft and, therefore, such amount of insurance claim ought to be added in the income of the assessee. - Decided in favor of revenue. Additions made u/s 40A(3) - ITAT upholding the order of the CIT(A) in restricting the additions made u/s 40A(3) to 20% of the cash purchases in excess of ₹ 10,000/- Held that - In the facts of the present case, 175 vouchers were also fabricated, because no vouchers were signed for the receipts of such cash. Moreover, Section 40A(3) of the Income Tax Act, 1961 imposes a limit of 20% of disallowance of the total cash transaction which was brought into effect from 1st of April, 1996, whereas, prior thereto, there were no such limit of 20%. The present matter is pertaining to assessment year 1993-94 and, hence, the 20% limit which was brought into force from 1st of April, 1996 is not applicable. These aspects of the matter have not been properly appreciated by the Commissioner (Appeals), nor by ITAT, nor even exception/conditions referred to in Rule 6DD of the Income Tax Rules 1962 have been proved by the respondent-assessee. - Decided in favor of revenue.

Summary

Issues:
1. Disallowance of insurance claim written off for an earlier year.
2. Restriction on cash transactions under Section 40A(3) of the Income Tax Act, 1961.

Analysis:

Issue 1: Disallowance of insurance claim written off for an earlier year
The appellant challenged the ITAT's decision to allow the insurance claim written off by the assessee for an earlier year, not the assessment year in question. The appellant argued that the theft occurred in 1989, and the insurance claim was rejected in the subsequent year. The A.O. disallowed the insurance claim written off for the assessment year 1993-94, as there was no theft in that year. The Commissioner (Appeals) also upheld this decision. The ITAT, however, failed to appreciate the timeline of events, leading to the disallowance being justified. The judgment highlighted the discrepancy between the year of the theft and the year the claim was written off, concluding that the insurance claim amount should be added to the assessee's income.

Issue 2: Restriction on cash transactions under Section 40A(3) of the Income Tax Act, 1961
Regarding cash transactions, the appellant contested the disallowance of 20% of the total cash transactions under Section 40A(3) for the assessment year 1993-94. The A.O. identified multiple cash transactions in violation of the Act, including payments to M/s. Puja Industries exceeding specified limits and lacking proper documentation. The Commissioner (Appeals) and ITAT upheld the disallowance, citing the amended 20% limit effective from April 1, 1996. However, the judgment emphasized that the assessment year in question was 1993-94, rendering the 20% limit inapplicable. Rule 6DD exceptions were not substantiated by the assessee, further supporting the disallowance of cash transactions. The judgment differentiated the present case from a cited decision, underscoring the lack of compliance with Section 40A(3) and Rule 6DD conditions.

In conclusion, the judgment allowed the appeal, addressing both substantial questions of law raised by the appellant. The disallowance of the insurance claim written off and the restriction on cash transactions were upheld, emphasizing the correct application of the Income Tax Act provisions for the respective assessment year.