2021 (12) TMI 875 - AT - Income Tax

Tribunal Allows Appeals on Cash Payments & Unsecured Loans: Exception Rule Applies

M/s Popular Foundations Pvt. Ltd. Versus Assistant Commissioner of Income Tax, Central Circle 3 (4) Chennai

M/s Popular Foundations Pvt. Ltd. Versus Assistant Commissioner of Income Tax, Central Circle 3 (4) Chennai - TMI Issues Involved:1. Disallowance of cash payments under Section 40A(3) of the Income Tax Act, 1961.2. Additions towards unsecured loans under Section 68 of the Income Tax Act, 1961.3. Charging of interest under Sections 234A, 234B, and 234C of the Income Tax Act, 1961.Issue-wise Detailed Analysis:1. Disallowance of Cash Payments under Section 40A(3):The assessee, engaged in civil construction, was subject to a search and seizure operation, leading to assessments under Section 143(3) read with Section 153A. The Assessing Officer (AO) disallowed cash payments exceeding the prescribed limit under Section 40A(3), arguing that such payments did not fall under any exceptions provided by Rule 6DD of the Income Tax Rules, 1962. The assessee contended that the payments were made on Saturdays/Sundays or in areas without banking facilities, thus justifying the cash transactions. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO’s decision, stating that the payments violated Rule 6DD and hence were disallowed despite their genuineness.Upon appeal, the Tribunal noted that the AO did not doubt the genuineness of the payments. It was observed that many payments were made on weekends or in areas without banking facilities, which are exceptions under Rule 6DD. Furthermore, payments for river sand, processed without aid of power, also fell under another exception. The Tribunal concluded that these payments should not be disallowed under Section 40A(3) due to the peculiar nature of the assessee's business. Thus, the Tribunal directed the AO to delete the disallowance of cash payments.2. Additions towards Unsecured Loans under Section 68:The AO added Rs. 50 lakhs as unexplained credit under Section 68, arguing that the assessee failed to prove the identity, genuineness, and creditworthiness of the creditor, M/s. Park Field Developers & Builders Pvt. Ltd. The assessee provided a confirmation letter and other evidence, including the creditor's details from the Ministry of Corporate Affairs, showing the company was active. The CIT(A) upheld the AO’s addition.The Tribunal found that the assessee had provided sufficient evidence to prove the identity, genuineness, and creditworthiness of the creditor. Additionally, the loan was treated as cessation of liability and offered for tax under Section 41(1) in a subsequent assessment year, which the AO accepted. Therefore, the Tribunal held that the AO erred in making the addition under Section 68 for the impugned year and directed the deletion of the addition.3. Charging of Interest under Sections 234A, 234B, and 234C:The assessee challenged the charging of interest under Sections 234A, 234B, and 234C as part of the grounds of appeal. However, the Tribunal's order primarily focused on the disallowance of cash payments and the addition of unsecured loans. Since the disallowances and additions were directed to be deleted, the consequential interest charges under these sections would also be impacted accordingly.Conclusion:The Tribunal allowed the appeals filed by the assessee for all the assessment years, directing the AO to delete the disallowance of cash payments under Section 40A(3) and the addition of unsecured loans under Section 68. The order was pronounced on 08th December 2021 at Chennai.