TaxTMI 
TaxTMI 
2018 (2) TMI 1206
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.... to the extent of disallowance u/s. 40A(3). 3. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of the AO in making disallowance of a sum of Rs. 28,29,600/- being finance charges on loan taken from parent company. 4. That in any case and in any view of the matter, Ld. CIT(A) has erred in confirming the action of the AO in making the impugned disallowances and framing the impugned assessment order which is contrary to law and facts, void ab initio, beyond jurisdiction, and without giving adequate opportunity of hearing, by recording incorrect facts and findings and the same is not sustainable on various legal and factual grounds. 5. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in not reversing the action of AO in charging interest u/s. 234B of the I.T. Act, 1961. 6. That the appellant craves the leave to add, modify, amend or delete any of the grounds of appeal at the time of hearing and all the above grounds are without prejudice to each other. 2. The brief facts of the case are that a search operation u/s. 132 of the Income Tax Act, 19....
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....of ACIT vs. Marigold Merchandise (P) Ltd. - ITAT, 'C' Bench, New Delhi decision dated 15.09.2017 passed in ITA No. 5293/Del/2013 & 3029/Del/2014 (Ayrs. 2006-07 & 2007-08) in the case of M/s Galaxy Dwellers (P) Ltd. vs. DCIT. 5. On the contrary, Ld. CIT(DR) in support of her contention has filed a Paper Book containing pages 1 to 26, 1A to 8A attaching therewith the copy of written submission of Revenue; copy of Panchnama; Warrant of Authorisation u/s. 132 (Annexure-A) and Short note on grounds of appeal of AO (Annexure -B and stated that addition can be made even in the absence of incriminating material. She relied upon detailed findings of the Ld. CIT(A) and requested for upholding the same. 6. We have heard both the parties and perused the records especially the case laws cited by Ld. Counsel of the assessee and the Paper Book filed by the Ld. CIT(DR) as well as impugned order. We find that Ld. CIT(DR) has filed the paper Book, as aforesaid and discussed the whole matter on the assumption of jurisdiction u/s. 153A of the Act and no contrary decision has been placed before us on the merit of the case by the Ld. CIT(DR). However, we find that assessee's counsel has relied upon ....
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.... an incriminating material qua that assessment year which would justify such an addition. Therefore, the mere fact there may have been documents pertaining to the above assessment years does not satisfy the requirement of law that there must be incriminating material. In any event, the aforementioned documents i.e., A1, A3, A4 and A5 pertain to only some of the AYs with which we are concerned i.e., assessment years 2003-04, and 2004-05. The Court is unable to accept the submissions of Mr. Manchanda that there was incriminating material other than what has been discussed in the orders of the Assessing Officer, CIT (Appeals) and the ITAT for the assessment years in question. " 10. In the above said judgment, Hon'ble Delhi High Court has given these observations after considering law in detail in this regard and judgments relied upon by the learned CIT-DR have also been considered. 11. No contrary judgment has been placed before us by the revenue. Thus, we are bound by the decision of the Hon'ble jurisdictional High Court. Thus, the law that emerges before us is that no disallowance could have been made u/s 40A(3) in absence of any incriminating material discovered during the cour....
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....ts and the necessity to incur the said expenditure for the purpose of business of the assessee was never disputed by the Learned CIT(A). We hold that since the genuinity of the payments made to the parties is not doubted by the revenue, the provisions of section 40A(3) could not be made applicable to the facts of the instant case. It will be pertinent to go into the intention behind introduction of provisions of section 40A(3) of the Act at this juncture. We find that the said provision was inserted by Finance Act 1968 with the object of curbing expenditure in cash and to counter tax evasion. The CBDT Circular No. 6P dated 6.7.1968 reiterates this view that "this provision is designed to counter evasion of a tax through claims for expenditure shown to have been incurred in cash with a view to frustrating proper investigation by the department as to the identity of the payee and reasonableness of the payment." 4.4. In this regard, it is pertinent to get into the following decisions on the impugned subject :- Attar Singh Gurmukh Singh vs ITO reported in (1991) 191 ITR 667 (SC) "Section 40A(3) of the Income-tax Act, 1961, which provides that expenditure in excess of Rs. 2,500 (Rs.....
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.... 20% of the payments made u/s 40A(3) in the process of assessment. We, therefore, delete the addition of Rs. 17,90,571/and ground no.1 is decided in favour of the assessee. CIT vs Crescent Export Syndicate in ITA No. 202 of 2008 dated 30.7.2008 - Jurisdictional High Court decision "It also appears that the purchases have been held to be genuine by the learned CIT(Appeal) but the learned CIT(Appeal) has invoked Section 40A(3) for payment exceeding Rs. 20,000/- since it is not made by crossed cheque or bank draft but by hearer cheques and has computed the payments falling under provisions to Section 40A(3) for Rs. 78,45,580/- and disallowed @20% thereon Rs. 15,69,116/-. It is also made clear that without the payment being made by bearer cheque these goods could not have been procured and it would have hampered the supply of goods within the stipulated time. Therefore, the genuineness of the purchase has been accepted by the ld. CIT (Appeal) which has also not been disputed by the department as it appears from the order so passed by the learned Tribunal. It further appears from the assessment order that neither the Assessing Officer nor the CIT(Appeal) has disbelieved the genuinenes....
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....o inculcate the banking habits amongst the business community. Apparently, this provision was directly related to curb the evasion of tax and inculcating the banking habits. Therefore, the consequence, which were to befall on account of non- observation of section 40A(3) must have nexus to the failure of such object. Therefore, the genuineness of the transactions it being free from vice of any device of evasion of tax is relevant consideration. 4.6. The Hon'ble Apex Court in the case of CTO vs Swastik Roadways reported in (2004) 3 SCC 640 had held that the consequences of non-compliance of Madhyapradesh Sales Tax Act , which were intended to check the evasion and avoidance of sales tax were significantly harsh. The court whileupholding the constitutional validity negated the existence of a mensrea as a condition necessary for levy of penalty for non-compliance with such technical provisions required held that "in the consequence to follow there must be nexus between the consequence that befall for non- compliance with such provisions intended for preventing the tax evasion with the object of provision before the consequence can be inflicted upon the defaulter." The Supreme Co....
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...., same cannot be disallowed under Section 40A(3). Thus, on this ground also, we find that disallowance made by Assessing Officer under section 40A(3) is not sustainable. 15. Therefore, keeping in view both the aspects as discussed above, the disallowance made by the Assessing Officer is not sustainable and wrongly confirmed by the learned CIT (Appeals) and, therefore, we direct the Assessing Officer to delete the same. 16. As a result, appeal of the assessee is allowed. 6.1 We further note that ITAT, Jaipur 'A' Bench vide its decision dated 12.08.2011 passed in ITA No. 79/JP/2011 (AY 2007-08) in the case of M/s Ace India Abodes Ltd. vs. ACIT has held in para no. 15 & 16 at page no. 12 & 13 as under- "15. We further noted that the Board had occasion to deal with several representations from various Chambers of Commerce, trade associations and businessmen regarding the scope of provisions of section 40A(3) of the IT Act, 1961, and Rule 6DD of IT Rules, 1962. Since many of the points raised therein were of an important nature, the clarifications thereon was issued by the Board by Circular No. 33 dated 29.12.1969 wherein it was clarified that the provisions of section 40A(3)....