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2023 (1) TMI 200 - AT - Income TaxDisallowance u/s. 40A (3) - assessee could not reduce any compelling reason for making cash payment - HELD THAT - The proviso to section 40A(3) states that for the purpose of making disallowance under the said section should be done having regard to the considerations of business expediency and other relevant factors. The assessee in the affidavit claims that the suppliers insisted for payments in cash which is a reason enough for making the payments in cash. The facts stated in the affidavit needs to be verified to confirm whether making the payment in cash is done for business expediency as claimed by the assessee. AR submission that the in the case M/s. Spectra Pipes Private Limited, the cash is directly deposited in the bank account of the supplier also needs to be verified on merits. Considering that the assessee s claims stated above needs verification basis which the allowability of the expenses need to be decided, we are remitting the case back to the AO. The AO is directed to look at the facts afresh in the light of the affidavit filed by the assessee after giving reasonable opportunity of being heard to the assessee. Appeal of the assessee is allowed for statistical purposes.
Issues:
1. Disallowance u/s. 40A(3) of the Income Tax Act for cash payments exceeding Rs. 20,000 to suppliers. 2. Conversion of case from limited scrutiny to complete scrutiny by the assessing officer. 3. Violation of government instructions by the assessing officer. 4. Justification of disallowance of expenditure for cash payments to suppliers. 5. Verification of business expediency for cash payments. Analysis: 1. The appeal involved a challenge against the disallowance made u/s. 40A(3) of the Income Tax Act for cash payments exceeding Rs. 20,000 to suppliers. The assessing officer disallowed the payments made in cash to M/s. Arihant Irrigation and M/s. Spectra Pipes Private Limited for purchase of stock, citing lack of compelling reasons. The CIT (A) upheld the disallowance, leading to the appeal before the Tribunal. The assessee argued that the cash payments were genuine, made due to business expediency, and insisted by the suppliers' sales executives. The Tribunal found discrepancies in the assessing officer's statements and directed a fresh verification of facts by the AO based on the affidavit filed by the assessee. 2. The additional issue raised was the conversion of the case from limited scrutiny to complete scrutiny by the assessing officer. The assessee contended that this conversion was unjustified, alleging a violation of government instructions. However, the Tribunal did not delve into this issue as the primary focus was on the disallowance of cash payments. 3. Regarding the violation of government instructions, the Tribunal did not provide a detailed analysis as it was not the primary issue in the appeal. The Tribunal's decision was centered on the disallowance of expenditure for cash payments and the need for verifying business expediency. 4. The Tribunal emphasized the importance of verifying the business expediency claimed by the assessee for making cash payments to suppliers. The affidavit filed by the assessee highlighted reasons such as convenience, settlement of accounts, and insistence from suppliers. The Tribunal acknowledged the need for a thorough examination of these claims to determine the allowability of expenses. 5. In conclusion, the Tribunal allowed the appeal for statistical purposes, remitting the case back to the AO for a fresh assessment based on the affidavit filed by the assessee. The decision highlighted the significance of verifying the business expediency and other relevant factors behind the cash payments to suppliers before making any disallowances under section 40A(3) of the Income Tax Act.
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