2019 (4) TMI 2012 - AT - Income Tax

Tribunal Overturns Disallowance under Income Tax Act

Shri Daljit Singh Versus ACIT, Circle-40, Kolkata.

The Tribunal allowed the appeal, deleting the disallowance under Section 40A(3) of the Income Tax Act, 1961. The appellant successfully demonstrated the ... Addition u/s 40A(3) - cash payments under the head ‘electric charges’ made exceeding ₹ 20,000/- in a day on various dates - as pleaded that due to shortage of manpower payments of electricity charges could not be made before due date and that for availing rebate this electricity bill payments were made in cash on the due date - HELD THAT:- As relying on M/S A DAGA ROYAL ARTS VERSUS ITO, WARD-2 (2) , JAIPUR [2018 (6) TMI 1240 - ITAT JAIPUR] we find that there is no doubt that the assessee had consumed electricity and had paid these electrical charges in cash. The circumstances under which they were paid was explained. Just because the recipient of the money is a private company, it does not mean that the payment should be disallowed. As the genuineness of the payments are not denied and as these are exception circumstances, we delete the disallowance.- Decided in favour of assessee. Issues Involved:1. Wrongful addition under Section 40A(3) of the Income Tax Act, 1961.Issue-wise Detailed Analysis:1. Wrongful Addition under Section 40A(3):The primary issue in this case was the disallowance of Rs. 3,20,410/- under Section 40A(3) of the Income Tax Act, 1961, due to cash payments exceeding Rs. 20,000/- made for electricity charges. The appellant contended that these payments were made in cash to avail rebates and due to a shortage of manpower, which prevented timely payments through banking channels.The Commissioner of Income Tax (Appeals) [CIT(A)] held that payments made to CESC Ltd., a private sector company, did not qualify for exemptions under Rule 6DD of the Income Tax Rules, thereby upholding the disallowance.The appellant relied on various precedents, including the decisions of the Jaipur Bench in M/s. A Daga Royal Arts vs. ITO and the Kolkata 'A' Bench in M/s. Excel Engineers vs. JCIT, arguing that genuine payments made under exceptional circumstances should not be disallowed under Section 40A(3).The Tribunal examined the legal framework and judicial precedents concerning Section 40A(3) and Rule 6DD. The key points considered were:- Supreme Court's Interpretation: The Supreme Court in Attar Singh Gurmukh Singh v. ITO emphasized that Section 40A(3) should not be read in isolation but along with Rule 6DD, which provides exemptions for genuine and bona fide transactions made under exceptional circumstances.- Genuineness and Business Expediency: The Tribunal noted that the genuineness of the transactions and the identity of the payee were not in doubt. The appellant had provided sufficient evidence to demonstrate that the payments were made under business exigencies and practical difficulties.- Precedents and Business Expediency: The Tribunal referred to various High Court rulings, including those of the Rajasthan High Court in Smt. Harshila Chordia vs. ITO and the Gujarat High Court in Anupam Tele Services v. ITO, which supported the view that genuine transactions made under business expediency should not attract disallowance under Section 40A(3).- Legislative Intent: The Tribunal highlighted that the primary objective of Section 40A(3) was to curb the use of unaccounted money and not to penalize genuine business transactions. The Tribunal also noted that the legislative intent was to ensure that business transactions are genuine and free from tax evasion devices.- Rule 6DD Interpretation: The Tribunal observed that Rule 6DD should be interpreted liberally to advance the legislative intent and not to frustrate genuine business transactions. It was noted that the rule is not exhaustive and should accommodate exceptional circumstances where banking facilities are not feasible.In conclusion, the Tribunal found that the appellant had satisfactorily demonstrated the genuineness of the payments and the business expediency behind making cash payments. The Tribunal held that just because the recipient was a private company, it did not invalidate the genuineness of the payments. Consequently, the Tribunal deleted the disallowance of Rs. 3,20,410/- under Section 40A(3), allowing the appeal in favor of the appellant.Result:The appeal of the assessee was allowed, and the disallowance under Section 40A(3) was deleted.