2017 (6) TMI 728 - AT - Income Tax

Tribunal remands case for fresh consideration, directs CIT(A) to assess cash payments for business exigency

Shri. Sharanappa S. Alur Versus Joint Commissioner of Income-tax, Bijapur Range, Bijapur

Shri. Sharanappa S. Alur Versus Joint Commissioner of Income-tax, Bijapur Range, Bijapur - TMI Issues Involved:1. Disallowance under Section 40A(3) of the Income Tax Act.2. Business exigency and practical necessity for cash payments.3. Applicability of Rule 6DD of the IT Rules.4. Examination of cash payments made on holidays.Issue-wise Detailed Analysis:1. Disallowance under Section 40A(3) of the Income Tax Act:The primary issue in this case is the disallowance of Rs. 1,57,44,357/- under Section 40A(3) of the Income Tax Act. The Assessing Officer (AO) noticed that the assessee made cash payments exceeding Rs. 20,000/- in a single day to various parties, which is a violation of Section 40A(3). The AO disallowed the entire amount, which included payments to M/s. Sujal Traders (Rs. 77,23,933), M/s. Sangam Sales Corporation (Rs. 36,79,555), M/s. Patil Petroleum (Rs. 14,80,000), and other expenses (Rs. 28,60,869).2. Business Exigency and Practical Necessity for Cash Payments:The assessee, a civil contractor, argued that the cash payments were made due to business exigencies and practical necessities. The assessee highlighted that the nature of their work, which involved construction projects in various parts of Karnataka, necessitated cash payments for the purchase of cement, diesel, etc. The assessee also argued that the payments were genuine and made in the normal course of business. The lower authorities, however, did not consider these business exigencies and practical necessities.3. Applicability of Rule 6DD of the IT Rules:The assessee contended that their case falls within the scope of commercial expediency under Rule 6DD of the IT Rules, which provides exceptions to the disallowance under Section 40A(3). The assessee relied on various judicial precedents, including the judgment of the Bengaluru Tribunal in the case of M/s. Ranka & Ranka v. JCIT and the Hon’ble Allahabad High Court in CIT v. Chaudhary & Co, to support their claim. The Tribunal noted that the AO did not dispute the genuineness of the transactions or the identity of the payees but only disallowed the deduction due to the cash payments exceeding Rs. 20,000/-.4. Examination of Cash Payments Made on Holidays:The assessee also argued that some of the cash payments were made on weekly offs, Sundays, and Gazetted holidays, which should be allowed under Rule 6DD. The Tribunal directed the CIT(A) to examine the claim of the assessee regarding cash payments made on holidays amounting to Rs. 29,38,968/-. The CIT(A) was instructed to verify if these payments were made due to business exigencies and if they were made on holidays, the deduction should be allowed.Conclusion:The Tribunal remanded the matter back to the CIT(A) to decide the issues afresh. The CIT(A) was directed to seek a remand report from the AO on the documents provided by the assessee and to examine the business exigency for making the cash payments. If it is found that the payments were made due to business exigencies, the deduction should be allowed. Additionally, the CIT(A) was directed to examine the claim of cash payments made on holidays and allow the deduction if it was found that the payments were made due to urgency and business requirements. The appeal of the assessee was allowed for statistical purposes.