2022 (9) TMI 713 - AT - Income Tax

Disallowance u/s 40A(3) - payment in excess of 20,000/- - HELD THAT - Gross Profit ratio and the Net Profit ratio after taking into account the impugned expenditure shown by the assessee during the year under consideration as compared to that of immediate preceding year shows that there is substantial increase in those margins. It is not the case of the Revenue that the expenses are not genuine or are bogus and have been booked for the purpose of inflating expenditure and thereby reducing the profits. We further find that Hon ble Apex Court in the case of Attar Singh Gurmukh Singh 1991 (8) TMI 5 - SUPREME COURT has held that provision of Section 40A(3) are not intended to restrict the business activities and insistence of payment by crossed cheque or crossed bank draft is insisted so as to enable the assessing authority to ascertain whether the payment is genuine or whether it is out of the income from disclosed sources. As further held that the terms of Section 40A(3) are not absolute. Consideration of business expediency and other relevant factors are not excluded. The genuine and bona fide transactions are not taken out of the sweep of the Section and it is open to the assessee to furnish to the satisfaction of AO the circumstances under which the payment in the manner prescribed u/s 40A(3) was not practicable or would have caused genuine difficulty to the payee. Disallowance u/s 40A(3) of the Act is not justified in present case. We therefore direct the deletion of addition made by AO and upheld by CIT(A). Thus, the ground of assessee is allowed.

Summary

Issues:
Disallowance u/s 40A(3) of the Income Tax Act for cash payments exceeding Rs. 20,000.

Analysis:

Issue: Disallowance u/s 40A(3) of the Act

The case involved the disallowance of cash payments exceeding Rs. 20,000 by the assessee under Section 40A(3) of the Income Tax Act. The Assessing Officer (AO) disallowed a total amount of Rs. 45,63,767 made in cash by the assessee for grit purchases and carriage. The AO concluded that the assessee failed to provide necessary details and produce books of accounts to substantiate the claim, leading to the disallowance. The Commissioner of Income Tax (Appeals) partially upheld the disallowance, granting relief only for the payment made by cheque to a specific party. The assessee contested this decision, arguing that most payments were made to individuals supplying grit in remote locations like Bikaner and Jaisalmer, who were illiterate and lacked PAN cards. The assessee also highlighted the increase in profit ratios, indicating the genuineness of the expenses. The Tribunal considered the business expediency and relevant factors, citing the Supreme Court's decision that Section 40A(3) is not absolute and genuine transactions should not be excluded. Ultimately, the Tribunal found the disallowance unjustified, directing the deletion of the addition made by the AO and upheld by the CIT(A).

This detailed analysis covers the issue of disallowance under Section 40A(3) of the Income Tax Act, highlighting the arguments presented by the assessee, the decisions of the lower authorities, and the Tribunal's final judgment based on relevant legal principles and case law.

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