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TMI Blog2021 (12) TMI 875X X X X Extracts X X X X X X X X Extracts X X X X ..... or disallowance u/s. 40A(3) of the Act. To sum up, all payments made by the assessee for purchase of materials in excess of prescribed limit provided u/s. 40A(3) of the Act cannot be disallowed. Hence, we direct the AO to delete the additions made towards disallowance of cash payments u/s. 40A(3) Additions towards unsecured loans received by the assessee u/s. 68 - assessee has failed to prove identity, genuineness of transaction and credit worthiness of the parties - HELD THAT:- Assessee has filed necessary evidences to prove identity, genuineness of transactions and creditworthiness of parties - once assessee discharges its burden, then the AO cannot make additions towards unsecured loans u/s. 68 of the Act as unexplained credit, unless he proves otherwise - it is a matter of fact that such unsecured loans has been treated as cessation of liability and offered to tax u/s. 41(1) of the Act for the assessment year 2014-15. This fact has not been disputed by the AO. Therefore, once a particular sum is considered for taxation in subsequent years then, said loan cannot be once again treated as income of the assessee for the impugned assessment year - AO has completely erred in mak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l, the Hon'ble ITAT may be pleased to set aside the order of the CIT-(A) dated 25.10.2017 and thus render justice. 3. The brief facts of the case are that the assessee company is engaged in the business of civil construction, filed its return of income for all these assessment years u/s. 139 of the Income Tax Act, 1961 (herein after 'the Act'). A search and seizure action u/s. 132 of the Act, was carried out at the business premises of the assessee on 17.07.2014. Consequent to search, the assessments have been completed u/s. 143(3) r.w. 153A of the Act on 19.12.2016, where the AO has made additions towards disallowance of cash payments in excess of prescribed limit u/s. 40A(3) of the Act. The AO had also made additions towards unsecured loans received by the assessee u/s. 68 of the Act for ₹ 50 lakhs on the ground that the assessee has failed to prove identity, genuineness of transaction and credit worthiness of the parties. 4. Being aggrieved by the assessment order, the assessee preferred an appeal before the Ld. CIT(A). Before the Ld. CIT(A), the assessee has challenged additions made by the AO towards disallowance of cash payments u/s. 40A(3) of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to why cash payments made in contravention of provisions of section 40A(3) r.w.r. 6DD of Income Tax Rules, 1962 cannot be disallowed. In response, the assessee submitted that it is common in any construction business that the payments for sand, bricks, blue material and other materials sourced in place of work are generally purchased by cash, because of various reasons, including insistence of cash by the trader, non availability of banking facilities and also emergency situation which warrant payment of cash. Therefore, justified payment of cash in excess of prescribed limit on the ground that all the payments made for purchase of materials in excess of prescribed limit are genuine expenditure which are supported by necessary evidences and further all payments are either made on Saturday/Sunday when the banks was closed and also where the places are not served by banking facilities. The AO, however was not convinced with explanation furnished by the assessee and according to him even genuineness of payments are not in doubt, the payments in excess of prescribed limit cannot be allowed unless such payments are covered under Rule 6DD of I.T. Rules, 1962. 7. The Ld. AR for the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut aid of power in cottage industry to the producer of such product. If you examine facts of the present case, in light of provisions of section 40A(3) of the Act r.w.r 6DD, we find that the AO has not doubted genuineness of payments made by the assessee in cash for purchase of materials. We further, noted that out of total payments made by the assessee, most of the payments are made on Saturday/Sunday in a village or town, which on the date of said payments is not served by any bank. Further, certain payments made for purchase of materials like river sand from a village which was not served by any banking facilities. Therefore, those payments, i.e., payments made on holidays being Saturday/Sunday, and on the date of such payment, place is not served by any bank, are covered under rule 6DD of IT Rules, 1962 and thus, same is outside the scope of provisions of section 40A(3) of the Act. In case of payments made for purchase of river sand in a village, it was an explanation of the assessee that said payments is made for purchase of product manufactured or processed without aid of power. Since, the processing of river sand is without aid of power and further such industry is in the na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AR further submitted that even otherwise, the assessee has treated said unsecured loan as cessation of liability and has offered the same for tax u/s. 41(1) of the Act for the assessment year 2014-15, where the AO has considered the issue and has accepted the income offered by the assessee. Therefore, once again addition cannot be made for the impugned loan for the current financial year. 12. The Ld. DR, on the other hand submitted that for the year under consideration sum received from creditor was unexplained, because the assessee has not filed necessary evidence to establish identity, genuineness of transaction and creditworthiness of the parties. 13. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. The assessee has filed confirmation letter from the creditor to prove identity, genuineness of transactions and creditworthiness of parties. The assessee had also filed ledger extract to prove that said loan was received by cheque. The assessee had also filed data of creditor company available in the website, of Ministry of Corporate Affairs, Government of India, as per which said company was in active stat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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