2021 (3) TMI 350 - AT - Income Tax

Tribunal remands case for Sunday payment necessity proof under section 40A(3)

Star Realcon Pvt. Ltd. Versus ITO Ward-24 (2), New Delhi

The Tribunal remanded the case back to the Assessing Officer for the appellant to establish the necessity of Sunday payments and why section 40A(3) does ... Disallowance on account of cash payment towards purchase of land at Ghaziabad, UP under the provisions of Section 40A(3) - HELD THAT:- From the perusal of the assessment order as well as the CIT(A) both the Revenue Authorities have not given any reason as to why Section 40A(3) will be applicable along with Rule 6D (J). In-fact, both the Revenue Authorities have not disputed the identity of the sellers as well as the purchase /sale deed between the parties and the assessee, but whether the payments were bonafide and the consideration of a genuine transaction was properly disclose by the assessee during the assessment proceedings as well as the appellate proceedings is also not specified in both the Revenue Authorities orders. The submissions of the Ld. AR that the cash payments were made on Sunday’s which is a non-banking day but the assessee from the records has not shown as to what was the necessity to make payment on Sundays. Revenue Authorities as well as the assessee has not clearly stated their respective cases u/s 40A(3) read with Rule 6DD(J), it will be appropriate to remand back this matter to the file of the AO for allowing the assessee to establish as to why the payments were made on Sundays and why the applicability of Section 40A(3) does not arise in assessee’s case when land shown in non current investment in the audited financial statements which is not claimed as expenditure in P & L account. Appeal of the assessee is partly allowed for statistical purpose. Issues Involved:1. Disallowance of cash payments for land purchase under section 40A(3) of the Income Tax Act.2. Disallowance of expenses under section 14A of the Act.Analysis:Issue 1: Disallowance of cash payments for land purchase under section 40A(3) of the Income Tax Act:The appeal was filed against the order passed by CIT(A)-XXV, New Delhi for Assessment Year 2013-14. The Assessing Officer disallowed cash payments for land purchase under section 40A(3) amounting to Rs. 20 lacs. The appellant, a private limited company engaged in construction business, argued that the disallowance was unjustified as the land was shown as non-current investment in audited financial statements and not claimed as expenditure in the profit and loss account. The appellant further contended that the cash payments made on Sundays should be exempt under Rule 6DD of the Income Tax Rules, 1962. However, both the Revenue Authorities failed to provide reasons for the application of section 40A(3) and did not dispute the genuineness of the transactions. The Tribunal held that the case should be remanded back to the Assessing Officer for the appellant to establish the necessity of Sunday payments and why section 40A(3) does not apply, ensuring the principles of natural justice are followed. The appeal was partly allowed for statistical purposes.Issue 2: Disallowance of expenses under section 14A of the Act:The Assessing Officer also disallowed Rs. 2,88,072 under section 14A of the Act. However, the judgment primarily focused on the disallowance of cash payments under section 40A(3), and the decision to remand the matter back to the Assessing Officer for further clarification. No specific details regarding the disallowance under section 14A were discussed in the judgment.In conclusion, the Tribunal's decision highlighted the need for clarity on the application of section 40A(3) regarding cash payments for land purchase, emphasizing the importance of allowing the appellant to present their case effectively before reaching a final decision.