Revenue appeals dismissed, CIT(A) order upheld deleting Rs. 1.50 crores under section 40A(3). No evidence of cash payments. (A) (3)

The appeals filed by the revenue were dismissed, and the order of the CIT(A) deleting the addition of Rs. 1.50 crores under section 40A(3) was upheld. The Tribunal found no evidence of cash payments recorded in the books of accounts and agreed with the CIT(A) that the AO's disallowance was not sustainable on facts or law.

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Issues Involved:
1. Validity of the reopening of assessment under section 147 of the I.T. Act.
2. Disallowance under section 40A(3) of the I.T. Act for cash payments exceeding Rs. 20,000.
3. Consideration of the remand report and additional evidence.

Summary:

Issue 1: Validity of Reopening of Assessment under Section 147
The assessee, a company engaged in the development and selling of lands, filed its return of income belatedly. The AO reopened the assessment under section 147 of the I.T. Act, citing reasons that the assessee had taxable income but had not filed its return on time, leading to income escaping assessment. Additionally, the AO received information from the DDIT (Inv.) about the assessee making cash payments exceeding Rs. 20,000, attracting the provisions of section 40A(3). Consequently, notice under section 148 was issued, but the assessee did not respond, leading the AO to complete the assessment under section 144 of the I.T. Act.

Issue 2: Disallowance under Section 40A(3)
The AO made an addition of Rs. 1.50 crores by invoking section 40A(3) based on the sworn statement of the MD of the company, which indicated cash payments. The assessee argued before the CIT(A) that all transactions were genuine and reflected in the financial statements. The CIT(A) deleted the addition, observing that the AO relied solely on a vague statement without proper evidence or inquiries. The CIT(A) noted that the payments were made by cheques and reflected in the books of account. The Tribunal upheld the CIT(A)'s decision, stating that the AO did not bring any material evidence to substantiate the disallowance and that disallowance under section 40A(3) requires cash payments to be recorded in the books, which was not the case here.

Issue 3: Consideration of Remand Report and Additional Evidence
During the remand proceedings, the assessee produced books of accounts showing payments made by cheques. The AO's remand report suggested some site expenses incurred in cash but did not support the disallowance of Rs. 1.50 crores paid to the landlords. The Tribunal agreed with the CIT(A) that the AO's presumption about cash payments was not a valid basis for disallowance. The Tribunal found no infirmity in the CIT(A)'s order, which was based on the remand report and additional evidence provided by the assessee.

Conclusion:
Both appeals filed by the revenue were dismissed, and the order of the CIT(A) deleting the addition of Rs. 1.50 crores under section 40A(3) was upheld. The Tribunal found no evidence of cash payments recorded in the books of accounts and agreed with the CIT(A) that the AO's disallowance was not sustainable on facts or law.

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