2019 (3) TMI 1574 - HC - Income Tax

Disallowance u/s 40A(3) - payments made in Cash - whether cash payments were necessitated by a written contract and therefore, should be allowed on consideration of business necessity? - HELD THAT - Assessee has not been able to bring his case under anyone of the conditions stipulated in the said Rule and therefore, confirmed the disallowance made by the Assessing Officer. The correctness of the order passed by the CIT(A) was contested before the Tribunal. The Tribunal after re-examining the factual position held that the assessee has not been able to substantiate the existence of any circumstance which would call for application of Rule 6DD(j) and therefore, confirmed the order passed by the CIT(A). On going through the factual position, we find that the assessee himself admitted the cash payment and pleaded that there was business necessity warranting cash payment. Unfortunately, the Statute does not provide for any relief to such an assessee and if at all, the assessee should escape from the rigour of Section 40A(3), then he should bring his case within the ambit of Rule 6DD(j), which assessee was miserably failed. No substantial question of law.

Summary

Issues:
1. Interpretation of Section 40A(3) of the Income Tax Act, 1961 regarding disallowance of cash payments.
2. Application of Rule 6DD(j) of the Income Tax Rules, 1962 in justifying cash payments under commercial expediency.

Analysis:
1. The appeal was filed against the Income Tax Appellate Tribunal's order disallowing cash payments under Section 40A(3) of the Income Tax Act, 1961. The appellant argued that the payments were made as per commercial expediency. The appellant's counsel faced issues in contacting the client, leading to the court proceeding without the appellant's instructions. The Assessing Officer estimated profits based on previous years for a concern where books were not produced, leading to the disallowance of cash payments exceeding a certain limit as per Section 40A(3).

2. The Commissioner of Income Tax (Appeals) and subsequently the Tribunal upheld the disallowance, stating that the appellant failed to meet the conditions specified in Rule 6DD(j) of the Income Tax Rules, 1962. The appellant contended that the cash payments were for business purposes and not personal reasons, citing a written contract as justification. However, the court found that the appellant could not substantiate circumstances warranting an exception under Rule 6DD(j).

3. The High Court observed that the appellant admitted to the cash payments but failed to meet the requirements of Rule 6DD(j) to escape the disallowance under Section 40A(3). The court emphasized that the statute did not offer relief to the appellant in this scenario. As the appellant did not establish grounds for exemption under Rule 6DD(j), the court concluded that no substantial question of law arose in the appeal, leading to its dismissal without costs.