Tribunal overturns disallowance under section 40A(3) citing Rule 6DD exceptions

The Tribunal allowed the appeal of the assessee, overturning the disallowance under section 40A(3) of the Act. The Tribunal considered the genuine nature of the transaction, seller confirmation, and exceptions under Rule 6DD, ultimately ruling that no disallowance was warranted. The decision highlighted the applicability of Rule 6DD in exceptional circumstances justifying cash payments, supporting the assessee's arguments and deleting the disallowance.

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Issues:
Challenge to disallowance u/s. 40A(3) of the Act based on business expediency in cash payment for genuine transaction.

Detailed Analysis:

Issue 1: Challenge to Disallowance u/s. 40A(3) of the Act
- The appeal filed by the assessee was delayed by 17 days, which was condoned based on a Supreme Court decision.
- Ground No. 1 was dismissed as not pressed by the assessee.
- Ground No. 2 challenged the CIT(A)'s confirmation of disallowance u/s. 40A(3) without considering business expediency in cash payment for a genuine transaction.
- The assessee derived income from land deals and construction, declared total income, and was scrutinized for cash payment exceeding the prescribed limit.
- The AO invoked provisions u/s. 40A(3) and added the cash payment amount to the total income, which was confirmed by the CIT(A).
- The assessee argued that the cash payment was made due to demands by sellers with no other option, part of the sale consideration, and supported by seller confirmations and purchase deed.
- The LD AR cited various legal precedents supporting genuine cash payments under bonafide conditions.
- The DR referred to a Bombay High Court decision upholding disallowance under section 40A(3).
- The Tribunal analyzed the case in light of Supreme Court decisions and Tribunal orders, emphasizing genuine transactions and exceptions under Rule 6DD.
- The Tribunal noted the genuine nature of the transaction, seller identification, and confirmation, concluding that no disallowance u/s. 40A(3) was warranted.
- The Tribunal also referenced a previous Tribunal case and a High Court decision supporting the assessee's arguments.
- The Tribunal highlighted the applicability of Rule 6DD in exceptional circumstances justifying cash payments, ultimately allowing the appeal and deleting the disallowance under section 40A(3).
- Ground No. 3 became infructuous due to the decision on ground No. 2.
- The appeal of the assessee was allowed, and the order was pronounced in open court on 30th August 2022.

This detailed analysis covers the challenge to disallowance under section 40A(3) of the Act, presenting arguments from both parties, legal precedents, and the Tribunal's decision based on the genuineness of the transaction and exceptions under Rule 6DD.

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