2020 (9) TMI 492 - HC - Income Tax

Tribunal upholds disallowance of cash payments under Income Tax Act due to lack of proof

M/s. NAM ESTATES PVT. LTD. Versus THE INCOME TAX OFFICER

M/s. NAM ESTATES PVT. LTD. Versus THE INCOME TAX OFFICER - [2020] 428 ITR 186 (Kar) Issues Involved:1. Applicability of Section 40A(3) of the Income Tax Act, 1961.2. Genuineness of cash payments made by the assessee.3. Business expediency and exceptions under Rule 6DD of the Income Tax Rules.Detailed Analysis:1. Applicability of Section 40A(3) of the Income Tax Act, 1961:The primary issue revolves around whether the Tribunal was correct in applying Section 40A(3) to the cash payments made by the assessee for the purchase of land. Section 40A(3) mandates that any expenditure incurred in cash exceeding Rs. 20,000/- is not deductible unless it falls under the exceptions provided in Rule 6DD. The Tribunal upheld the disallowance made by the Assessing Officer, who had found that the payments exceeded the prescribed limit and did not meet the exceptions under Rule 6DD.2. Genuineness of Cash Payments Made by the Assessee:The assessee argued that the identity of the parties and the genuineness of the transactions were not in question, and thus, Section 40A(3) should not be invoked. However, the Assessing Officer, Commissioner of Income Tax (Appeals), and the Tribunal found that the assessee failed to prove the genuineness of the transactions. The Tribunal noted that the assessee’s representative initially claimed that the payments were made in areas without banking facilities, which was later found to be untrue as the transactions occurred in Devenahalli Taluk, an area with ample banking facilities. The Tribunal concluded that the assessee's claim was not supported by evidence, and the transactions were indeed hit by Section 40A(3).3. Business Expediency and Exceptions Under Rule 6DD of the Income Tax Rules:The assessee contended that the cash payments were made due to business expediency, which should exempt them from the applicability of Section 40A(3) under the second proviso to the section. The Tribunal, however, found that the assessee did not provide sufficient evidence to demonstrate business expediency or any other valid reason that would justify the cash payments under Rule 6DD. The Tribunal emphasized that Rule 6DD allows for exemptions only under specific circumstances, such as payments made to the government, payments in villages without banking facilities, or payments for certain agricultural produce. The assessee failed to prove that their case fell under any of these exceptions.Conclusion:The Tribunal’s judgment was based on a meticulous appreciation of evidence, and the assessee could not demonstrate that the cash payments were made under circumstances that would exempt them from the provisions of Section 40A(3). The substantial question of law was answered in the negative, and the appeal was dismissed. The findings of fact by the lower authorities were upheld, as the assessee did not show that material evidence was ignored or that wrong inferences were drawn from the facts. The court reiterated that genuine and bona fide transactions must be substantiated with cogent evidence to claim exemptions under Section 40A(3) read with Rule 6DD.