2022 (10) TMI 759 - AT - Income Tax

Disallowance u/s. 40A(3) - addition on account of cash payment in excess of permissible limit - HELD THAT - We find force in the arguments of ld. AR that Rule 6DD is exhaustive and it is open to the assessee the exceptional and unavoidable circumstances which made the assessee to make payment in cash - assessee did not pay cash as already discussed above, the contention of the assessee before the CIT(A) that the sellers demanded the assessee to pay in cash being assessee s share which is part and parcel of total sale consideration. There is no dispute with regard to identification of the sellers as well as their confirmations in respect of payment in cash from the assessee. It is also not disputed that the said cash payment is not part and parcel of total sale consideration which is reflected in all the purchase deed. Further, the sellers also admitted the payment of cash before the registering authority under due process. The contention of ld. AR is that the payment vide cheque or draft is not at all practicable due to circumstances on demand of settlement of purchase consideration in cash from the sellers of the properties. Therefore, the ratio laid down in the case of Attar Singh Gurmukh Singh 1991 (8) TMI 5 - SUPREME COURT is applicable and the disallowance of Rs.21,33,333/- as confirmed by the CIT(A) in the hands of assessee on account of section 40A(3) of the Act is deleted. Thus, grounds raised by the assessee are allowed.

Summary

Issues:
Disallowance under section 40A(3) of the Act.

Analysis:
The case involves an appeal by the assessee against the order passed by the Commissioner of Income Tax (Appeals) for the assessment year 2012-13, focusing on the disallowance of Rs.21,33,333 under section 40A(3) of the Act. The assessee, engaged in the business of buying and selling agricultural land, argued that cash payments were necessitated due to business exigency and genuine circumstances, supported by documentation including identity proofs, affidavits, and purchase deeds.

The assessee, along with co-purchasers, made cash payments for the purchase of land, justifying the necessity due to sellers' lack of bank accounts at the time of sale deed registration. The assessee contended that the cash payments were genuine and integral to the total sale consideration, supported by sellers' acknowledgments and identity proofs. The Tribunal noted that the cash payments were not disputed and were part of the purchase deeds, aligning with the decision in previous cases where genuine transactions did not warrant disallowance under section 40A(3) of the Act.

Referring to the Supreme Court's decision in Attar Singh Gurmukh Singh vs. ITO, the Tribunal emphasized that section 40A(3) should be read in conjunction with Rule 6DD to consider exceptional circumstances for cash payments. The Tribunal highlighted that the cash payments were part of the total sale consideration, acknowledged by the sellers, and not disputed by the authorities, leading to the deletion of the disallowance under section 40A(3) based on precedents and the applicable legal principles.

In conclusion, the Tribunal allowed the appeal of the assessee, emphasizing the genuine nature of the transactions, the necessity of cash payments due to specific circumstances, and the alignment of the case with established legal interpretations and precedents. The decision was based on the principles outlined in relevant legal provisions and previous judicial rulings, ultimately leading to the deletion of the disallowance under section 40A(3) of the Act.