2016 (4) TMI 637 - HC - Income Tax

Addition u/s 40A(3) - Held that - Submission of the Revenue suffers from a fallacy as it does not take into account the fact that the assessment involved in the present matter is for the year 2007-08, whereas sub-section (3) of Section 40A of the Act has undergone an amendment with effect from 01.04.2009, i.e., for the assessment year 2009-10 onwards, under which it is now provided that no deduction shall be allowed in respect of an expenditure incurred by the assessee in which aggregate payment made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds ₹ 20,000/-. Prior to that the provision in existence merely provided for expenditure in respect of which payment exceeding ₹ 20,000/- was made and there was no provision regarding aggregate of payments to a person in a day. It is not in dispute that in the present matter not a single payment has been made through any voucher exceeding ₹ 20,000/-. Thus, it was not open to the Assessing Officer to have aggregated the said payment. Moreover, the extant provision for the said assessment year also had a proviso by which even if the payment in cash exceeded ₹ 20,000/-, then in such cases and under such circumstances as may have been prescribed, having regard to the nature and extent of banking facilities available, considerations of business expediency and other relevant factors, the disallowance may not have been made. In the present matter, the Tribunal and the CIT (Appeals) have also considered the further explanation made by the assessee with regard to multiple payments to the same person, including the fact that subsequent payment in most of the cases was made after mid night of the day but wrongly recorded by the employees of the assessee as the same day since in the course of working day after mid night the lorry has to be loaded and the Tribunal and CIT (Appeals) have accepted the said explanations also. - Decided in favour of assessee

Summary

Issues:
1. Appeal against the order of the Income-tax Appellate Tribunal, Patna Bench, Patna.
2. Disallowance of expenditures by the Assessing Officer for the assessment year 2007-08.
3. Deletion of additions by the Commissioner of Income-tax (Appeals).
4. Applicability of Section 40 A (3) of the Income Tax Act, 1961.
5. Aggregation of payments to a person in a day exceeding Rs. 20,000.
6. Consideration of business expediency and relevant factors for disallowance.
7. Explanation regarding multiple payments to the same person after midnight.
8. Reliance on a Division Bench decision for rejection of books of account.

Analysis:
The case involved an appeal against the order of the Income-tax Appellate Tribunal, Patna Bench, Patna, where the Revenue's appeal was dismissed. The Assessing Officer had disallowed various expenditures for the assessment year 2007-08, which were later deleted by the Commissioner of Income-tax (Appeals). The Revenue appealed, mainly raising issues related to the applicability of Section 40 A (3) of the Income Tax Act, 1961. The Revenue contended that the aggregate payment made on a single day by several vouchers to a person exceeded Rs. 20,000, falling under the said Section. However, the Court noted that the provision underwent an amendment effective from 01.04.2009, and for the assessment year 2007-08, the provision did not consider the aggregate of payments to a person in a day. As no single payment exceeded Rs. 20,000, the Assessing Officer was not justified in aggregating the payments.

Furthermore, the provision for the relevant assessment year included a proviso allowing for exceptions in cases where cash payments exceeded Rs. 20,000 based on prescribed circumstances. The Court observed that the Tribunal and the Commissioner of Income-tax (Appeals) considered the explanations provided by the assessee regarding multiple payments to the same person, including payments made after midnight but recorded on the same day due to operational reasons. These explanations were accepted, indicating a consideration of business expediency and other relevant factors in the decision-making process.

Additionally, the appellant sought reliance on a Division Bench decision for the rejection of books of account. However, the Court found that the cited decision was not relevant to the present matter, as it pertained to the cancellation of registration under specific circumstances. Ultimately, the Court concluded that no substantial question of law arose in the case, particularly concerning the period before the assessment year 2009-10, and dismissed the appeal based on the above analysis.