2020 (10) TMI 977 - AT - Income Tax

Tribunal upholds CIT(A)'s decision on cash purchases under Income-tax Act

The Tribunal upheld the CIT(A)'s decision to delete the addition made by the Assessing Officer for cash purchases allegedly violating Section 40A(3) of ... Cash purchases in violation of the provisions of Section 40A(3) - HELD THAT:- Assessee purchases fish from fishermen/farmers and in turn sells the articles for storage of fish (plastic crates), for which the payments are made in cash by the farmers/fishermen, which are promptly deposited by the assessee in the bank account of Sundry debtor, [M/s. Supreme Industries]. Since there is risk in carrying large quantity of cash from the rural areas of Andhra Pradesh to Kolkata while transporting back fish from State of A.P to Kolkata the assessee has consistently adopted this modus of remittance of payment to M/s. Supreme Industries. Since the genuineness of the modus operandi has not be disbelieved/doubted by the AO and the ld. CIT(A) has made a clear finding of genuineness of purchase/payments made in cash, which finding of fact has not been assailed and since the identity of the payee is not doubted and moreover, since the assessee is dealing with fish/fish food as well as for the purpose of storing the fish plastic crates are used/purchased and the CIT(A) placed reliance on the order of this Tribunal in the case of Rampada [2015 (11) TMI 1128 - ITAT KOLKATA] there is no ground for interference as such. We set aside the order of the CIT(A) and remand the impugned issue back to the AO with a direction that no disallowance of expenditure to be resorted to u/s. 40A(3) if the same are found to be genuine and paid to M/s. Supreme Industries. Appeal of revenue is allowed for statistical purpose. Issues Involved:1. Deletion of addition made by the Assessing Officer (AO) for cash purchases in violation of Section 40A(3) of the Income-tax Act, 1961.Issue-Wise Detailed Analysis:Issue 1: Deletion of Addition for Cash Purchases in Violation of Section 40A(3)The primary issue in this appeal is whether the CIT(A) erred in deleting the addition of Rs. 2,07,52,802/- made by the AO for cash purchases from M/s. Supreme Industries Ltd., allegedly in violation of Section 40A(3) of the Income-tax Act, 1961.Facts of the Case:- The assessee, engaged in multiple businesses including trading in fish and plastic crates, made purchases worth Rs. 4,06,44,483/- from M/s. Supreme Industries and paid Rs. 2,07,52,802/- in cash.- The AO disallowed this amount citing a violation of Section 40A(3), which restricts cash payments exceeding Rs. 20,000/-.Arguments by the Revenue:- The Ld. DR contended that the CIT(A) wrongly relied on the Tribunal's decision in the case of Sri Rampada vs. ITO, which involved agricultural produce, unlike the present case.- The Ld. DR argued that there was no urgency for the assessee to make cash payments and that payments could have been made via cheque or bank draft.Arguments by the Assessee:- The Ld. AR explained that the assessee’s business model involved purchasing plastic crates on credit and selling them in rural areas of Andhra Pradesh, where payments were received in cash from farmers.- The cash was then deposited directly into the bank account of M/s. Supreme Industries to mitigate the risk of transporting cash back to Kolkata.- The Ld. AR emphasized that the genuineness of the purchases and payments, as well as the identity of the payee, were not disputed by the AO.CIT(A)’s Findings:- The CIT(A) noted that the AO did not dispute the genuineness of the purchases or payments, nor the identity of the payee.- The CIT(A) relied on the Tribunal's decision in Sri Rampada’s case and deleted the disallowance.Tribunal’s Analysis:- The Tribunal acknowledged the assessee's business model and the practical difficulties in transporting cash from rural Andhra Pradesh to Kolkata.- It was noted that the department had accepted this practice in previous years without questioning the genuineness of the transactions.- The Tribunal referred to its own decision in the assessee’s case for AY 2013-14, where it directed the AO not to disallow payments under Section 40A(3) if they were genuine.- The Tribunal also cited decisions from the Hon'ble Jurisdictional High Court supporting the non-disallowance of genuine cash payments.Conclusion:- The Tribunal found that the CIT(A) correctly deleted the addition as the genuineness of the transactions was not disputed.- However, for statistical purposes, the Tribunal remanded the issue back to the AO to verify the genuineness of the cash payments to M/s. Supreme Industries.- The AO was directed not to disallow the expenditure under Section 40A(3) if the payments were found to be genuine.Final Order:- The appeal of the revenue was allowed for statistical purposes, with the AO instructed to verify the genuineness of the payments and not to disallow them if found genuine.Pronouncement:- The order was pronounced in the open court on 09 Sept. 2020.