2020 (12) TMI 1061 - AT - Income Tax

Tribunal Upholds Deletion of Income Tax Additions

ITO, Ward-52 (1), New Delhi Versus M/s. Suresh Kumar

The Tribunal upheld the deletion of additions made under Section 40A(3) of the Income Tax Act totaling Rs. 2,25,40,000/- and Rs. 4,47,483/-, respectively. ... Additions u/s 40A(3) - Purchase payments in cash in contravention to the provisions of section 40 A(3) - CIT (A) deleted the addition holding that the provisions of Section 40 A(3) are not attracted where the parties are identified and there is no material on record to doubt the genuineness of the payment. - HELD THAT:- The circular and judgments unequivocally intend at allowing the expenses owing to genuineness of the payment and contingency of the business. Hence, keeping in view the provisions of the Act, Rules and the judgments and having examined the issue and the peculiar facts and circumstances of the case, on finding that the assessee is merely facilitator and intermediary in the transaction and his receipts assessable to tax constitute the margin between the price obtained and further paid but not the entire receipts which stands further passed on to the two ticketing agencies, we hereby hold that the provisions u/ s 40A(3 ) are not attracted. - Decided against revenue. Issues Involved:1. Deletion of addition of Rs. 2,25,40,000/- made by AO under Section 40A(3) of the Income Tax Act.2. Deletion of addition of Rs. 4,47,483/- made by AO under Section 40A(3) of the Income Tax Act.Issue-wise Detailed Analysis:1. Deletion of Addition of Rs. 2,25,40,000/- under Section 40A(3):During the assessment proceedings, the Assessing Officer (AO) observed that the assessee, a travel agency, made purchases exceeding Rs. 20,000/- in cash, violating Section 40A(3) of the Income Tax Act, amounting to Rs. 2,25,40,000/-. The payments were made to Indraprashta Travels Pvt. Ltd. and Oasis Travels India Pvt. Ltd. for purchasing flight tickets.The CIT (A) deleted the addition, holding that the provisions of Section 40A(3) are not applicable where the parties are identified, and there is no material to doubt the genuineness of the payments. The AO did not express doubts regarding the payments made. The CIT (A) argued that invoking Section 40A(3) mechanically disregards the hardship that would have been caused if the payments were not made in cash.The revenue appealed, relying on the AO's order and the provisions of Section 40A(3) and Rule 8DD, along with CBDT Circular No. 220 dated 31.05.1997.The Tribunal examined the facts and various judgments on the issue. Section 40A(3) and Rule 6DD(j) were analyzed, which provide exceptions to the disallowance under certain circumstances, such as business expediency or lack of banking facilities.The Tribunal found that the assessee paid for flight tickets for clients, and the ticketing agencies insisted on cash payments. This constituted a business contingency. The AO did not question the genuineness of the payments or the credentials of the receivers. The scrutiny assessment did not doubt the transactions with Indraprashta Travels Pvt. Ltd. and Oasis Travels India Pvt. Ltd. The Tribunal concluded that invoking Section 40A(3) itself proves the genuineness of the payments.The Tribunal referred to various judgments and CBDT Circular No. 220, which provided guidelines for allowing cash payments under exceptional circumstances. The Tribunal noted that the revenue accepted the judgments of various courts, which emphasized the genuineness of the transactions and business expediency.The Tribunal concluded that the assessee, being a facilitator and intermediary, was not subject to the provisions of Section 40A(3). Therefore, the deletion of the addition of Rs. 2,25,40,000/- was upheld.2. Deletion of Addition of Rs. 4,47,483/- under Section 40A(3):The AO also made an addition of Rs. 4,47,483/- for reimbursement of expenses, alleging a violation of Section 40A(3). The CIT (A) deleted this addition as well, following the same reasoning applied to the Rs. 2,25,40,000/- addition.The Tribunal, considering the facts and circumstances, upheld the deletion of this addition as well. The Tribunal reiterated that the genuineness of the payments and the business contingency justified the cash payments, and the provisions of Section 40A(3) were not attracted.Conclusion:The Tribunal dismissed the revenue's appeal on all grounds, upholding the deletion of the additions made under Section 40A(3) of the Income Tax Act. The Tribunal emphasized the genuineness of the payments, business expediency, and the role of the assessee as a facilitator and intermediary in the transactions. The order was pronounced in the open court on 09/12/2020.