2019 (5) TMI 1692 - AT - Income Tax

Tribunal Overturns Disallowance, Supports Assessee's Business Needs Citing Genuine Transactions Under Tax Law.

The Tribunal set aside the CIT(A)'s order, allowing the assessee's appeal against the disallowance of Rs. 3,33,720 under section 40A(3) of the Act. It ... Addition u/s 40A(3) - AO observed that certain payments exceeding ₹ 20,000/- were made in cash to certain parties from whom the assessee purchased his trading goods - HELD THAT:- Assessee’s claim is not covered by any of the exceptions provided under Rule 6DD. However, the first proviso below Section 40A(3) clearly takes into consideration the nature of expenses, banking facilities, consideration of business expediency and other relevant factors. Rule 6DD in intent and purpose takes into consideration all these aspects for prescribing various exceptional circumstances. Therefore, Rule 6DD cannot be mechanically applied and I have to consider the overall explanation of the assessee having regard to the business consideration. The assessee’s explanation is that assessee had to make payment in business exigency as during the month of February, 2012, generally marriages takes place and during odd hours, the assessee made transactions and in some cases seller was insisting for cash payments. The payments had been made to the seller because of that reason. The genuineness of purchases had not been doubted by the AO. In this case, there is no dispute to the fact that the genuineness of the transaction and the payment and identity of the receiver are established. This view is supported by the decision of in the case of Gurdas Garg [2015 (8) TMI 569 - PUNJAB & HARYANA HIGH COURT] and also the decision of Hon’ble Supreme Court in the case of Attar Singh Gurmukh Singh [1991 (8) TMI 5 - SUPREME COURT]. Under such circumstances, disallowance of these expenses by applying to section 40A(3) would not be justified. Accordingly, set aside the order of ld CIT(A) on this count and allow the grounds of appeal of the assessee. Appeal of the assessee is allowed. Issues:1. Justification of confirming the addition made by the Assessing Officer under section 40A(3) of the Act by the Commissioner of Income Tax(Appeals), Cuttack.Analysis:The appeal filed by the assessee was against the order of the Commissioner of Income Tax(Appeals)- Cuttack regarding the addition of Rs. 3,33,700 made by the Assessing Officer under section 40A(3) of the Act for the assessment year 2012-13. The grounds of appeal raised by the assessee challenged the justness and correctness of the impugned order and additions made therein, seeking deletion in the interest of justice. The main contention revolved around the confirmation of the addition by the Commissioner of Income Tax(Appeals) under section 40A(3) of the Act.The brief facts of the case revealed that the assessee, a firm engaged in trading jewellery, had made cash payments exceeding Rs. 20,000 to certain parties during the assessment proceedings. The Assessing Officer disallowed Rs. 3,33,720 under section 40A(3) of the Act, citing violation as the payments did not fall under any exceptions prescribed under Rule 6DD of the IT Rule, 1962. On appeal, the CIT(A) upheld the disallowance, noting that most payments were made on working days, not on holidays, which could have allowed banking transactions.During the proceedings, the assessee argued that the cash payments were necessitated by business exigencies and exceptional circumstances, especially during peak marriage season in February 2012. The assessee contended that the disallowance should be deleted considering the business expediency and compelling demand. Reference was made to a Tribunal decision and the judgment of the Hon’ble P&H High Court and the Hon’ble Supreme Court to support the argument.After considering the submissions and examining the record, the Tribunal found that the genuineness of the transactions, payments, and the identity of the receiver were established. The Tribunal emphasized that Rule 6DD should not be mechanically applied, and the overall explanation of the assessee, considering business considerations, should be taken into account. Given the circumstances and precedents cited, the Tribunal concluded that the disallowance under section 40A(3) was not justified. Consequently, the Tribunal set aside the order of the CIT(A) and allowed the grounds of appeal raised by the assessee.In conclusion, the appeal of the assessee was allowed, and the order was pronounced on 13/05/2019.