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2018 (5) TMI 899 - AT - Income TaxAddition u/s 40A(3) - payments of expenditure in cash exceeding permeable limits - as argued that the payments to statutory bodies do not attract the provisions of section 40A(3) and the payments were made in cash as per the demand of BSNL - proof of business expediency - Held that - As payments made to BSNL were not doubted by the Revenue and it is proved that BSNL is a State within Article 12 of the Constitution of India and moreover as per Demand Note issued by BSNL, payments were made in cash for the business expediency of the assessee and as per requirement specified by BSNL. Under these circumstances, even if the assessee does not fall in any of the clause of Rule 6DD, invoking the provisions of section 40A(3) can be dispensed with. In view of the above discussion, we set aside the order of the ld. CIT(A) and delete the addition made under section 40A(3) of the Act. - Decided in favour of assessee.
Issues:
Confirmation of addition under section 40A(3) of the Act. Analysis: The appeal involved the confirmation of an addition of ?4,14,00,108 under section 40A(3) of the Act. The assessee, engaged in the business of SIM cards and recharge vouchers, contested the addition made by the Assessing Officer. The assessee argued before the ld. CIT(A) that section 40A(3) aims to prevent tax evasion and accommodation payments, but genuine transactions should be exempt. The assessee highlighted that payments to statutory bodies are not covered by section 40A(3) and that the cash payments to BSNL were due to business expediency. The ld. CIT(A) upheld the addition, prompting the assessee to appeal before the Tribunal. The Tribunal considered the arguments presented. The assessee emphasized that BSNL is a State under Article 12 of the Constitution of India, citing the Demand Note issued by BSNL and relevant legal precedents. Referring to a Pune Tribunal order, it was established that BSNL qualifies as a State entity. The Chandigarh Tribunal's decision was also cited to support the claim that cash payments can be justified under business expediency. The Tribunal noted that the genuineness of the transactions was never in question, and the payments were made as required by BSNL. After analyzing the facts and legal interpretations, the Tribunal concluded that BSNL is considered a State entity under Article 12 of the Constitution. Given the business expediency and BSNL's requirement for cash payments, the Tribunal ruled in favor of the assessee. The order of the ld. CIT(A) was set aside, and the addition under section 40A(3) was deleted. The appeal of the assessee was allowed, emphasizing the justifiability of the cash payments in the given circumstances. In conclusion, the Tribunal's detailed analysis focused on establishing BSNL's status as a State entity under the Constitution and the validity of cash payments based on business expediency and legal precedents. The decision highlighted the importance of genuine transactions and the specific circumstances surrounding the cash payments to BSNL.
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