2023 (8) TMI 1516 - AT - Income Tax

Cash payments under Rs. 20,000 to collection personnel allowed, family withdrawals deemed sufficient, non-genuine gift addition deleted

Shyamapada Jana Versus ITO, Ward-2 (2) [Now Ward-39 (2) ], Midnapore

ITAT Kolkata ruled in favor of the assessee on multiple grounds. The tribunal held that cash payments below Rs. 20,000 to collection personnel who made ... Addition u/s 40A(3) - cash payments exceeding the ceiling of Rs. 20,000/- - HELD THAT:- We find that the assessee was regular purchaser of goods from Visaka Industries Ltd. and used to make payments in the ordinary course which were below Rs. 20,000/- and thus, there was no violation of provisions of Section 40A(3) of the Act. A perusal of the above certificate of payment reveals that the payments made by the assessee on various dates were below Rs. 20,000/- and it was also stated that the assessee has made payments to the collection personnel of the company and the said personnel has made lumpsum deposit in the supplier’s account. In the present case the genuineness of the expenditure has not been doubted by the authorities below. In our opinion even were the payments exceeding Rs. 20,000/- are made and the genuineness of the expenses are not doubted, in that case the provisions of Section 40A(3) of the Act are not applicable - Decided in favour of assessee. Addition on account of low withdrawal by the assessee - CIT(A) upheld the order of Ld. AO by holding that the assessee has made sufficient withdrawal and also the fact that the assessee has made withdrawals for payment of LIC premium separately which were duly shown in the capital account of the assessee - HELKD THAT:- We find that though the assessee has made withdrawals of Rs. 75,000/- only and paid the LIC premium to the tune of Rs. 1,77,225/- however, we note that both the authorities below have failed to appreciate the facts in correct perspectives. We observe from the copy of balance sheet produced before us which was also furnished before the lower authorities that drawing for personal expenses were Rs. 75,000/- whereas the other drawings were mentioned separately namely repayment of house building loan of Rs. 76,354/-, LIC premium of Rs. 1,77,225/-. We also take note of the fact that the family is situated in Midnapore, West Bengal which a very remote place, where the expenses of the family are also that not much. We also note that the assessee’s wife also withdrawals from her capital account, a copy of which is filed for the backup of the family. Ld. CIT(A) confirmed the addition made by the AO without appreciating the facts on records - FAA has failed to appreciate the fact that withdrawals of Rs. 75,000/- is over and above the LIC premium paid of Rs. 1,77,225/- and that assessee’s wife has also withdrawn Rs. 60,000/- for family expenses - Decided in favour of assessee. Addition on account of non-genuine gift received - HELD THAT:- We find that the donor has sufficient sources to explain the gift of Rs. 10,00,000/- made to her husband. We note that the donor in response to the notice issued u/s 133(6) of the Act has duly replied and also furnished the details of the gift with source, mode of gift and purpose for which the gift was made - Donor was doing independent business and has made a gift out of her own income. AO simply took up the balance sheet to arrive at the conclusion that the donor had source only to the tune of Rs. 5,50,000/- whereas the enough sources were available with her as apparent from cash flow statement. Thus we set aside the order of Ld. CIT(A) and delete the addition made by Ld. AO. The ground no. 1 is allowed. Addition of low withdrawals - HELD THAT:- As we find that the assessee has four members in his family including himself, wife and two children living in the remote village of Midnapore and the assessee has also received income from agriculture. We also note that during the year the assessee’s wife, who also run independent business, has made independent withdrawal as is evident from the balance sheet of the assessee’s wife. Considering the facts on record, the family of the assessee and the cost of living in the remote area, we are of the considered view that the aggregate of withdrawals of the assessee as well his wife of Rs. 1,80,662/-are sufficient to meet the family expenses. Moreover, the AO has not given and substantive basis for making said addition. Thus direct the AO to delete the addition. The ground no. 2 is allowed. Issues Involved:1. Disallowance under Section 40A(3) of the Income Tax Act.2. Addition on account of low withdrawal.3. Addition on account of non-genuine gift received.Issue-wise Detailed Analysis:1. Disallowance under Section 40A(3) of the Income Tax Act:The first issue pertains to the confirmation of disallowance of Rs. 1,11,200/- by the CIT(A) under Section 40A(3) of the Income Tax Act due to cash payments exceeding Rs. 20,000/-. The assessee filed its return on 31.03.2012, and the case was selected for scrutiny. The AO observed that the assessee made cash payments exceeding Rs. 20,000/- to Visaka Industries Ltd., violating Section 40A(3). Despite a show cause notice, the assessee did not comply, leading the AO to add Rs. 1,11,200/- to the total income. The CIT(A) upheld this disallowance. However, the Tribunal found that the payments were made in the ordinary course, each below Rs. 20,000/-, supported by a payment certificate from Visaka Industries Ltd. The Tribunal referred to the Hon'ble Jurisdictional High Court's decision in Girdharilal Goenka Vs. CIT, emphasizing that genuine transactions should not be disallowed under Section 40A(3) merely due to technicalities. The Tribunal concluded that the payments were genuine and directed the AO to delete the disallowance.2. Addition on Account of Low Withdrawal:The second issue involves the confirmation of an addition of Rs. 80,000/- due to low withdrawal by the assessee. The AO noted that the assessee showed personal expense withdrawals of Rs. 75,000/- while paying an LIC premium of Rs. 1,77,225/-. Consequently, the AO added Rs. 80,000/- to the income for low withdrawal. The CIT(A) upheld this addition. However, the Tribunal found that the authorities failed to appreciate the facts correctly. The balance sheet showed separate drawings for personal expenses, house loan repayment, and LIC premium. Additionally, the assessee's wife also made withdrawals for family expenses. Considering these facts, the Tribunal set aside the CIT(A)'s order and directed the AO to delete the disallowance.3. Addition on Account of Non-Genuine Gift Received:The third issue is the confirmation of an addition of Rs. 4,50,000/- due to a non-genuine gift received by the assessee. The assessee received Rs. 10,00,000/- from his wife, Smt. Baisakhi Jana. The AO, after examining the balance sheet, concluded that the wife could only gift Rs. 5,50,000/-, adding Rs. 4,50,000/- to the income. The CIT(A) upheld this addition. However, the Tribunal found that the donor had sufficient sources to explain the gift. The donor responded to the notice and provided details of the gift, including the source and purpose. The Tribunal noted that the donor's cash flow statement showed sufficient funds for the gift. Therefore, the Tribunal set aside the CIT(A)'s order and directed the AO to delete the addition.4. Addition on Account of Low Withdrawal (Second Case):The fourth issue involves the confirmation of an addition of Rs. 90,000/- due to low withdrawal by the assessee in a separate appeal. The AO observed that the assessee's withdrawals of Rs. 56,000/- were too low for personal expenses, adding Rs. 90,000/- to the income. The CIT(A) upheld this addition. However, the Tribunal found that the assessee's family lived in a remote village with low living costs, and the wife also made independent withdrawals. Considering the aggregate withdrawals and the cost of living, the Tribunal concluded that the withdrawals were sufficient for family expenses. The Tribunal set aside the CIT(A)'s order and directed the AO to delete the addition.Conclusion:In conclusion, the Tribunal allowed both appeals filed by the assessee, setting aside the orders of the CIT(A) and directing the AO to delete the disallowances and additions made under various grounds.