2017 (7) TMI 203 - AT - Income Tax

Tribunal rules in favor of assessee in cash payment dispute, citing business necessity and exceptional circumstances.

Shri Swaran Singh, Prop. M/s Swaran Singh Versus The ITO, Ward 4, Ambala

Shri Swaran Singh, Prop. M/s Swaran Singh Versus The ITO, Ward 4, Ambala - Tmi Issues Involved:1. Disallowance of Rs. 30,37,000/- under Section 40A(3) of the Income Tax Act, 1961.2. Business expediency and genuineness of cash payments.3. Compliance with judicial precedents and binding judgments.Detailed Analysis:1. Disallowance of Rs. 30,37,000/- under Section 40A(3):The primary issue revolves around the disallowance of Rs. 30,37,000/- made by the Assessing Officer (AO) under Section 40A(3) of the Income Tax Act, 1961. The AO noted that the assessee made purchases exceeding Rs. 20,000/- in cash, which contravenes the provisions of Section 40A(3). Despite the assessee's claim that payments were made on bank holidays and due to the absence of a bank account, the AO disallowed the amount, concluding that both parties had banking facilities and could have utilized e-banking.2. Business Expediency and Genuineness of Cash Payments:The assessee argued that the cash payments were made out of business necessity and expediency. The purchases were genuine, reflected in the books of accounts, and sanctioned by the Excise Department. The CIT(A) dismissed this argument, stating that the assessee's claim of not having a bank account was factually incorrect. However, the assessee clarified that the bank account mentioned in the return belonged to a partnership firm, not the individual business. The Tribunal found that the payments were genuine and made for business expediency, aligning with the judgement in the case of Gurdas Garg Vs CIT, which held that genuine transactions made out of business necessity should not be disallowed under Section 40A(3).3. Compliance with Judicial Precedents and Binding Judgments:The assessee contended that the CIT(A) failed to follow binding judicial precedents, specifically the decisions of the ITAT Chandigarh Bench in M/s Dhuri Wine Vs DCIT and the Punjab & Haryana High Court in Gurdas Garg Vs CIT. The Tribunal agreed, emphasizing that the CIT(A) is bound to follow the decisions of the jurisdictional High Court and Tribunal. The Tribunal reiterated that the genuineness of the transactions and business expediency were established, and thus, the payments should not be disallowed under Section 40A(3).Conclusion:The Tribunal concluded that the assessee had successfully demonstrated that the cash payments were made due to exceptional and unavoidable circumstances and for business expediency. The payments were genuine and recorded in the books of accounts, and the assessee did not maintain a bank account for the liquor trade. Consequently, the Tribunal set aside the orders of the lower authorities and deleted the entire addition of Rs. 30,37,000/-, allowing the appeal in favor of the assessee.