Tribunal rules in favor of assessee, disallowance under Income Tax Act not warranted.

The Tribunal allowed the appeal, ruling that the disallowance of ? 81,47,100 under section 40A(3) of the Income Tax Act was not warranted. The Tribunal found the payments genuine, necessary for business operations, and made to identifiable payees. It held that the terms of section 40A(3) are not absolute and genuine transactions are not excluded from its scope, citing relevant judicial pronouncements. The appeal was allowed in favor of the assessee, and the disallowance was deleted.

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Issues Involved:
1. Sustaining addition made by the AO of Rs. 81,47,100 by way of disallowance under section 40A(3) of the Income Tax Act.
2. Applicability of judicial pronouncements relied upon by the appellant, including the judgment of Hon’ble Gujarat High Court in the case of Anupam Tele Services v. ITO.

Issue-wise Detailed Analysis:

1. Sustaining Addition Made by the AO of Rs. 81,47,100 by Way of Disallowance Under Section 40A(3):

The assessee claimed transportation expenses amounting to Rs. 2,63,51,228. The AO issued notices under section 133(6) and found that five parties received cash payments exceeding Rs. 20,000 in a day, aggregating to Rs. 81,47,100. The AO disallowed these payments under section 40A(3) of the Act, arguing that the payments were split to circumvent the provisions of the Act. The AO's position was that irrespective of the number of transactions, if the aggregate amount exceeded the prescribed limit, the disallowance under section 40A(3) was applicable.

The assessee contended that the payments were made to different lorry drivers, not a single person, and were necessary for business operations. The payments were confirmed by the recipients in response to notices under section 133(6), establishing their genuineness and the identity of the payees. The CIT(A) upheld the AO's decision, stating that the payments were not merely journey expenses and that the exception under Rule 6DD(j) was not applicable.

Upon appeal to the Tribunal, it was argued that the payments to each lorry driver were below Rs. 20,000 and were based on business necessity, supported by the ledger accounts and confirmations from the recipients. The Tribunal found that the payments were genuine and made out of disclosed sources, necessitated by the nature of the business. The Tribunal relied on the Supreme Court's ruling in Attar Singh Gurmukh Singh v. ITO, which stated that the terms of section 40A(3) are not absolute and genuine transactions are not excluded from its sweep. The Tribunal concluded that no disallowance under section 40A(3) was warranted, thus allowing the appeal.

2. Applicability of Judicial Pronouncements Relied Upon by the Appellant:

The assessee relied on several judicial pronouncements, including the case of Anupam Tele Services v. ITO, where the Gujarat High Court held that genuine cash payments made for business necessity, confirmed by the recipients, are allowable even if they exceed the limits of section 40A(3). The CIT(A) distinguished this case, stating that the facts were not directly applicable as the assessee in Anupam Tele Services was a distributor of Tata Tele Services, which had issued a circular requiring cash deposits.

The Tribunal, however, found that the genuineness of the payments and the identity of the payees were not in doubt. The Tribunal referred to the Gujarat High Court's judgment, which emphasized that section 40A(3) aims to curb black money transactions and should not restrict genuine business activities. The Tribunal also cited the Punjab & Haryana High Court's ruling in Gurdas Garg v. CIT Bathinda, which held that genuine cash transactions exceeding Rs. 20,000 cannot be disallowed under section 40A(3) if their genuineness is not doubted.

In conclusion, the Tribunal allowed the appeal, finding that the payments were genuine, necessary for business operations, and made to identifiable payees. The disallowance of Rs. 81,47,100 under section 40A(3) was deleted, and the appeal was allowed in favor of the assessee. The order was pronounced in the open Court on 03.02.2020.

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