2023 (1) TMI 92 - AT - Income Tax

Addition made u/s 40A(3) - expenditure incurred in cash in excess of the mandatory limit - CIT-A sustained part addition as per Rule 6DD of Income Tax Rules, 1962 - assessee primarily rested his arguments on the transactions being out of business expediency, hence they are out of rigorous of Section 40A(3) - HELD THAT - So far as the argument that the transactions fall under clause (f) hence would be out of preview of Section 40A(3) is concerned, no evidence is brought on record for supporting such contention. It is incumbent upon the assessee to prove that purchases were made from such person mentioned under Rule 6DD(f). In the absence of any supporting evidence, no relief could be granted. Therefore, reject this plea of learned counsel. Assessee has placed reliance on the judgment of Attar Singh Gurumukh Singh 1991 (8) TMI 5 - SUPREME COURT wherein it has been held that the term of Section 40A(3) are not absolute. Consideration of business expediency and other relevant factors are not excluded. Therefore, looking to the facts where the assessee has made clear averments regarding business expediency and the Revenue has not rebutted the same. We direct the Assessing Officer to delete the impugned disallowance. Decided in favour of assessee.

Summary

Issues involved:
1. Disallowance under Section 40A(3) of the Income-tax Act, 1961.
2. Justification of additions made by the Assessing Officer.
3. Confirmation of additions by the Commissioner of Income-tax (Appeals).
4. Levy of interest under Sections 234B & 234C without a speaking order.

Issue 1: Disallowance under Section 40A(3) of the Income-tax Act, 1961:
The case involved the disallowance of cash payments exceeding the limit under Section 40A(3) of the Income-tax Act, 1961. The Assessing Officer found that the assessee had violated this provision by incurring expenses in cash beyond the prescribed limit. The assessee contended that the payments were made due to business expediency and fell under the exceptions provided in Rule 6DD of the Income Tax Rules, 1962. The Tribunal considered the arguments presented by both parties and analyzed the circumstances under which the payments were made. The Tribunal noted that the payments were made for business exigencies, and certain factors, such as the absence of banking facilities at the payment location and the nature of the suppliers, were considered. The Tribunal ultimately allowed the appeal of the assessee, directing the Assessing Officer to delete the disallowance.

Issue 2: Justification of additions made by the Assessing Officer:
The Assessing Officer made additions based on the violation of Section 40A(3) and Rule 6DD of the Income Tax Rules, 1962. The assessee challenged these additions, arguing that the payments were genuine and made for business purposes. The Tribunal examined the submissions made by both parties and observed that the lower authorities did not doubt the genuineness of the payments. The Tribunal also considered the provisions of Rule 6DD(f) which exclude payments to certain categories of persons from disallowance under Section 40A(3). The Tribunal found that the assessee's case fell under this exclusion and directed the Assessing Officer to delete the disallowance.

Issue 3: Confirmation of additions by the Commissioner of Income-tax (Appeals):
The Commissioner of Income-tax (Appeals) confirmed the addition made by the Assessing Officer under Section 40A(3) to the extent of Rs. 12,62,990. The assessee appealed against this decision, arguing that the payments were made due to business expediency and should be excluded from the disallowance. The Tribunal reviewed the decision of the Commissioner of Income-tax (Appeals) and found that the payments made by the assessee were justified under Rule 6DD(f) of the Rules. Therefore, the Tribunal partly allowed the appeal of the assessee and directed the deletion of the disallowance.

Issue 4: Levy of interest under Sections 234B & 234C without a speaking order:
The assessee contested the levy of interest under Sections 234B & 234C, claiming that the orders were passed without providing a detailed explanation. The Tribunal examined this issue and found that the levy of interest without a speaking order was not justified. The Tribunal directed that a speaking order should be passed before levying interest under the mentioned sections.

This detailed analysis of the legal judgment covers the issues involved comprehensively, highlighting the arguments presented by the parties and the decisions made by the Tribunal regarding each issue.