2014 (3) TMI 462 - AT - Income Tax

Tribunal Overturns Cash Payment Disallowance & Personal Use Expenses for Limited Company

The Tribunal allowed the appeals filed by the assessee, overturning the disallowances made by the lower authorities regarding cash payments exceeding the ... Confirmation of addition made u/s 40A(3) of the Act – Payments made does not exceeded the limit – Held that:- The assessee was required to establish satisfaction of the conditions prescribed in Rule 6DD when payments were made in cash at a time in excessive of the amount prescribed u/s. 40A(3) of the Act - when payments were made by the assessee were within the limit specified u/s. 40A(3) of the Act, the genuine business expenditure could not be disallowed by the AO merely because the assessee could not satisfy to the AO about business exigencies for which payments were made in cash – Relying upon CIT vs. Aloo Supply Company [1979 (12) TMI 60 - ORISSA High Court] - where singular payment has not exceeded Rs. 20,000/- the department was not justified in invoking the provisions of section 40A(3) of the Act by aggregating the entire payment made to a party – Decided in favour of Assessee. Disallowance of telephone expenses for personal use – Held that:- The decision in Sayaji Iron and Engineering Co. vs. CIT [2001 (7) TMI 70 - GUJARAT High Court] followed - Once any remuneration was fixed as provided in section 309 it was not possible to state that the assessee incurred the expenditure for the personal use of the directors - Even if there was any personal use by the directors that was as per the terms and conditions of service and, in so far as the assessee was concerned, it was business expenditure and no part of the expenditure could be disallowed – revenue could not controvert the findings of the decision followed – thus, the disallowance made on the ground of personal use of telephones is allowed – Decided in favour of Assessee. Issues:1. Re-assessment u/s. 147 without supplying reasons.2. Addition u/s. 40A(3) for cash payments exceeding limit.3. Disallowance of telephone expenses for personal use by a limited company.Issue 1: The assessee appealed against the re-assessment u/s. 147 without receiving reasons. The assessee withdrew this ground during the hearing, and it was dismissed as not pressed.Issue 2: The AO disallowed cash payments exceeding the limit specified u/s. 40A(3). The CIT(A) upheld the AO's action. However, the Tribunal found that the individual payments were within the prescribed limit. Relying on precedents and the law in force, it was held that genuine business expenditure could not be disallowed merely because the business exigencies for cash payments were not established. Following a previous Tribunal decision, the disallowance was deleted for all years under consideration.Issue 3: The AO disallowed a portion of telephone expenses for personal use by a limited company. The CIT(A) upheld the disallowance based on the absence of personal elements in the use of telephones. The assessee cited relevant High Court decisions to support their claim. Relying on the decisions and the absence of contrary decisions, the Tribunal deleted the disallowance, emphasizing that as a corporate assessee, such disallowances were not justified. Consequently, the appeals filed by the assessee were allowed, and the disallowances were set aside.In conclusion, the Tribunal allowed the appeals filed by the assessee, overturning the disallowances made by the lower authorities regarding cash payments exceeding the limit specified u/s. 40A(3) and telephone expenses for personal use by a limited company. The Tribunal's decisions were based on legal precedents and the specific circumstances of each issue, leading to the deletion of the disallowances in question.