2013 (6) TMI 826 - AT - Income Tax

ITAT upholds CIT(A) on disallowance under sec 40A(3) but remands source of tax payment back to AO. (A)

The ITAT upheld the CIT(A)'s decision on the restriction of disallowance under section 40A(3) due to the absence of banking facilities in the villages. ... - Issues involved: The judgment involves issues related to the restriction of disallowance made under section 40A(3) of the Income Tax Act, 1961 and the deletion of addition made on account of disallowance of income tax paid under section 40(a) of the Act.Issue 1 - Restriction of Disallowance u/s 40A(3): The revenue appealed against the CIT(A)'s order restricting the addition of cash payments made by the assessee in violation of section 40A(3) of the Act. The AO disallowed a portion of the cash payment made for land purchases, citing non-compliance with the exceptions to section 40A(3). The CIT(A) allowed part of the claim but upheld the disallowance on the remaining amount, as it was not covered by the exceptions. The ITAT upheld the CIT(A)'s decision, considering the absence of banking facilities in the villages where payments were made as per Rule 6DD(g) of IT Rules.Issue 2 - Deletion of Addition u/s 40(a): The revenue challenged the deletion of an addition made on account of disallowance of income tax paid under section 40(a) of the Act. During a search operation, the assessee surrendered income, including income tax paid. The AO allowed credit for a lesser amount surrendered, leading to a discrepancy. The CIT(A) directed the AO to give credit for the full amount disclosed. However, the source of payment of income tax of a specific amount was not clarified. The ITAT remanded this aspect back to the AO for verification and determination, allowing the revenue's appeal for statistical purposes.In conclusion, the ITAT upheld the CIT(A)'s decision on the restriction of disallowance u/s 40A(3) based on the absence of banking facilities in the villages. However, the ITAT remanded the issue of determining the source of payment of income tax back to the AO for further examination.