2019 (12) TMI 596 - AT - Income Tax

Disallowance u/s 40A(3) - payments in cash as specified in Rule 6DD - HELD THAT - Nature of expenditure incurred by the assessee under the car hire charges, which is disallowed by the Assessing Officer u/s 40A(3) and sustained by the CIT(Appeals) to the extent of ₹ 1,03,500/- is such that the same is covered by the proviso to section 40A(3) being payment made for plying, hiring or leasing goods carriages and since the payments of such expenditure was made by the assessee in cash not exceeding a sum of ₹ 35,000/-, the disallowance confirmed by the ld. CIT(Appeals) is not sustainable. Delete the said disallowance sustained by the CIT(Appeals) to the extent and allow Ground No. 1 of the assessee s appeal. Disallowance of electricity, power and fuel - as contended that the actual nature of the expenditure is to be seen keeping in view the underlying purpose of incurring such expenditure and not the treatment given in the books of account while booking the said expenditure - HELD THAT - We are unable to accept this contention of the ld. Counsel for the assessee. The relevant proviso to section 40A(3) is applicable only in the case of payment made for plying, hiring or leasing goods carriages and the benefit of the same, in my opinion, cannot be extended to cover the expenditure incurred on power and fuel irrespective of the nature of such expenditure or the nature of the assessee s business. Therefore, find no merit in Ground No. 2 raised by the assessee in this appeal and dismiss the same. Addition u/s 40A(3) - HELD THAT - What is relevant for the purpose of applicability of section 40A(3) is a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a Bank or account payee Bank Draft against any expenditure incurred by the assessee exceeding the specified limit of ₹ 20,000/- as applicable to the year under consideration. In the present case, such payments in cash were made by the assessee in respect of certain expenditure incurred as enumerated by the CIT(Appeals) in his impugned order exceeding the specified limit of ₹ 20,000/- and since the disallowance made by the AO u/s 40A(3) only to the extent of such payment/payments was sustained by the CIT(Appeals), I find no infirmity in the same calling for any interference. - Decided against assessee.

Summary

Issues:
1. Disallowance under section 40A(3) of the Income Tax Act, 1961 for cash payments exceeding specified limits.

Analysis:
The appeal was filed by the assessee against the order of the Commissioner of Income Tax (Appeals) sustaining the disallowance made by the Assessing Officer under section 40A(3) of the Income Tax Act, 1961. The Assessing Officer disallowed payments made in cash by the assessee for various expenditures totaling to &8377; 31,61,637 due to non-compliance with section 40A(3) without exceptional circumstances explained. The Commissioner partly sustained the disallowance for different categories of expenses like car hire charges, electricity, power, fuel, business promotion, and stores & consumables, based on the cash payment limits exceeded. The assessee appealed to the Tribunal on specific grounds challenging the disallowances.

Regarding Ground No. 1, the Tribunal found merit in the contention that car hire charges were covered by the proviso to section 40A(3) as payments were for goods carriages and within the cash limit, thus deleting the disallowance. However, for Ground No. 2, the Tribunal dismissed the appeal as the nature of electricity, power, and fuel expenses did not fall under the proviso applicable to goods carriages, upholding the disallowance. In response to Ground No. 3, the Tribunal held that the disallowance under section 40A(3) is based on payments exceeding the specified limit in a day, not the bill amount, and upheld the Commissioner's decision on the cash payments exceeding &8377; 20,000 for various expenses.

Ultimately, the Tribunal partly allowed the appeal, overturning the disallowance for car hire charges but upholding the disallowance for electricity, power, fuel, business promotion, and stores & consumables expenses. The order was pronounced on October 25, 2019, in the open court.

This detailed analysis of the judgment highlights the issues of disallowance under section 40A(3) for cash payments exceeding specified limits, the arguments presented by the parties, and the Tribunal's decision on each ground of appeal, providing a comprehensive understanding of the case.