Appellate Tribunal grants relief on cash payments under Income Tax Act

Subhash Ghosh Versus ACIT, Circle-38, Midnapore

Subhash Ghosh Versus ACIT, Circle-38, Midnapore - TMI Issues:
1. Disallowance under section 40A(3) of the Income Tax Act, 1961.
2. Disallowance under section 40(a)(ia) of the Income Tax Act, 1961.

Issue 1: Disallowance under section 40A(3) of the Income Tax Act, 1961:
The appeal involved a dispute regarding the disallowance made under section 40A(3) of the Act amounting to Rs. 9,08,882. The Assessing Officer disallowed this amount as the payments for building materials were made in cash in violation of the provisions of section 40A(3). The Appellate Tribunal noted that the genuineness of the expenditure was not in dispute, and the payments were made for business purposes through the agents of suppliers. The Tribunal analyzed the purpose of section 40A(3) to prevent tax evasion and promote banking habits. Referring to legal precedents, the Tribunal concluded that in the peculiar circumstances of the case, where cash payments were necessitated due to business expediency, the disallowance was not justified. Therefore, the Tribunal directed the Assessing Officer to delete the disallowance made under section 40A(3) of the Act.

Issue 2: Disallowance under section 40(a)(ia) of the Income Tax Act, 1961:
The second issue pertained to the disallowance made under section 40(a)(ia) of the Act amounting to Rs. 3,84,922 on account of carriage inwards. The Assessing Officer disallowed this amount as tax deduction at source was not done for payments exceeding Rs. 50,000 to certain parties. The Tribunal noted that the payees had included the receipts in their returns and paid taxes, as confirmed by the Assessing Officer. Considering the retrospective operation of the second proviso to section 40(a)(ia) introduced by the Finance Act 2012, the Tribunal remanded the issue to the Assessing Officer for fresh adjudication. The Tribunal allowed the assessee to provide additional evidence in support of its claim. Consequently, the Tribunal allowed the revised grounds raised by the assessee for statistical purposes.

In conclusion, the Appellate Tribunal, in the cited judgment, addressed two key issues related to disallowances under sections 40A(3) and 40(a)(ia) of the Income Tax Act, 1961. The Tribunal ruled in favor of the assessee on both issues, directing the Assessing Officer to delete the disallowances under section 40A(3) and remanding the issue under section 40(a)(ia) for fresh adjudication. The judgment emphasized the importance of business expediency and compliance with tax provisions in determining the allowability of expenses and tax deductions.