2019 (9) TMI 721 - AT - Income Tax

Appeal Allowed: Addition under Income Tax Act Section 40A(3) Set Aside

The Tribunal allowed the assessee's appeal, setting aside the lower authorities' decision to sustain the addition of Rs. 3,70,11,381 under section 40A(3) ... Addition u/s 40A(3) - excess cash payments - Business urgency to make cash expenditure exceeding permissible limits - HELD THAT:- Considerable cogency in the contention of the assessee that before the lower authorities the assessee has submitted that the factum of genuineness of payment where payee to whom payment made by assessee in prohibited made u/s. 40A(3), is also assessed with ACIT, Circle-2, Meerut where assessee is also assessed at Meerut itself, where there is no doubt on payment being received by identified seller which stands thoroughly uncontroverted. The sale deed are registered which evidences and confirms beyond pale of doubt the genuineness of payment aspect. Once the genuineness of payment is not in dispute and payee is identifiable from where payment is duly confirmed, rigors of section 40A(3) stands discharged. The authorities below have not doubted the identity of the payee and the genuineness of the transaction in the matter. Therefore, the decision of ITAT, Delhi Bench in the case of ACIT, Central Circle-2, Faridabad vs. M/s. Marigold Merchandise (P) Ltd. [2017 (9) TMI 1633 - ITAT DELHI] is squarely applicable to the facts of the case, wherein the Tribunal has dismissed the Departmental Appeal - Decided in favour of assessee. Issues Involved:1. Sustaining the addition of Rs. 3,70,11,381/- made by AO on account of disallowance of expenditure under section 40A(3) of the Income Tax Act, 1961.Issue-Wise Detailed Analysis:1. Sustaining the Addition of Rs. 3,70,11,381/- under Section 40A(3):Facts of the Case:The assessee filed its return of income for the assessment year 2013-2014, declaring a total income of Rs. 40,75,330/-. The case was selected for scrutiny, and notices under sections 143(2) and 142(1) of the Income Tax Act, 1961, were issued. The assessee, a Private Limited company engaged in the business of building, did not produce the books of accounts when called for. The AO disallowed the expenditure of Rs. 3,70,11,381/- incurred in the purchase of land under section 40A(3) due to the absence of exceptional circumstances justifying the cash payment exceeding Rs. 20,000/-. The assessee appealed before the CIT(A), who affirmed the AO's action.Assessee's Argument:The assessee's counsel argued that the genuineness of the payment was not in dispute, as the payee was identifiable and assessed under the same jurisdiction. The sale deeds were registered, confirming the genuineness of the payment. The counsel cited various decisions of the ITAT and High Courts where similar issues were adjudicated in favor of the assessee, emphasizing that once the genuineness of the payment and the identity of the payee are established, the rigors of section 40A(3) stand discharged.Revenue's Argument:The Revenue's representative highlighted the amendment of Rule 6DD(j), stating that 20% of cash expenditure made in violation of section 40A(3) would be disallowed, irrespective of the circumstances.Tribunal's Findings:The Tribunal considered the rival submissions and the decisions relied upon by the assessee's counsel. It found that the authorities below did not doubt the identity of the payee or the genuineness of the transaction. The Tribunal referred to the decision of the ITAT, Delhi Bench in the case of ACIT vs. M/s. Marigold Merchandise (P) Ltd., where similar additions were deleted. The Tribunal also considered the decision of the ITAT, Kolkata in the case of Sri Manoranjan Raha vs. ITO, which emphasized that the genuineness of the payment and the identity of the payee are crucial factors in applying section 40A(3). The Tribunal noted that the primary object of section 40A(3) is to curb tax evasion and ensure the genuineness of transactions.Conclusion:The Tribunal concluded that the facts and circumstances of the present case were similar to the cited precedents. It held that the authorities below erred in sustaining the addition under section 40A(3), as the genuineness of the payment and the identity of the payee were established. The Tribunal set aside the orders of the lower authorities and deleted the addition of Rs. 3,70,11,381/-, allowing the assessee's appeal.Order Pronounced:The appeal of the assessee was allowed, and the order was pronounced on 31-07-2019.