Section 40A(3) does not apply to cash payments for stock-in-trade purchases.
Facts and Issue of the case
This appeal by the assessee against the order dated 01-09-2016 passed by the Commissioner of Income Tax (Appeals)-1, Nashik [„CIT(A)‟] for assessment year 2012-13. The assessee raised as many as four grounds amongst which the only issue emanates for our consideration is as to whether the CIT(A) justified in confirming the addition made on account of disallowance u/s. 40A(3) of the Act in the facts and circumstances of the case.
The issue are that the assessee is a company engaged in the business of land dealing and development. The assessee conducts its business under the name and style as Vikrant Happy Homes Pvt. Ltd. The assessee filed return of income declaring a total income of Rs.3,16,20,860/- and the AO completed the assessment by determining the total income at Rs.3,22,91,187/- inter alia making addition u/s. 40A(3) of the Act. The CIT(A) confirmed the same. Aggrieved by which, the assessee is before us by raising above mentioned grounds.
Observation of the court
Heard both the parties and perused the material available on record. As noted above the contention of the ld. AR is that the assessee did not claim the deduction and the provisions u/s. 40A(3) cannot be held to be invoked against such payments exceeding the limit Rs.20,000/-. He also placed on record Agreements at Page Nos. 1 to 20 which are true English translation of Agreements between the assessee and respective payees to show that the payments exceeding Rs.20,000/- totaling to Rs.3,50,000/- were incurred for genuine transaction, the transaction of which identified and acknowledged by the payees. We note that it is settled law as rightly pointed by the ld. AR when there is no deduction no disallowance would follow but however, in the present case, the CIT(A) by placing reliance on the Rule 6DD held the assessee does not fall under any of the exception provided therein. The CIT(A) also affirmed the view of the AO that though non-claiming of deduction the assessee debited the said expenditure involving cash payments exceeding Rs.20,000/- to the profit and loss account, which, in our opinion, the provisions under section could be invoked. Another aspect as raised by the ld. AR is that the said expenditure were incurred for the business exigency though the expenditure debited to profit and loss account which is neutralized by showing the purchase of lands as stock in trade as on 31-03-2012 on credit side. According to him the provisions u/s. 40A(3) is not applicable.
Court notes that the certain High Courts including the Hon‟ble High Court of Gujarat in the case of Anupam Tele Services Vs. ITO reported in (2014) 366 ITR 122 (Guj.) and the Hon‟ble High Court of Rajasthan in the case of Harshila Chordia Vs. ITO reported in (2008) 298 ITR 349 (Raj.) have deleted the disallowance in the cases of genuine business transactions and certain other Hon‟ble High Courts including the Hon‟ble High Court of Bombay in the case of Madhav Govind Dulshete Vs. ITO reported in (2018) 259 Taxman 949 (Bom.), the Hon‟ble High Court of Madras in the case of Vaduganathan Talkies and others Vs. ITO reported in (2020) 428 ITR 224 (Mad.), the Hon‟ble High Court of Karnataka in the case of Nam Estates Pvt. Ltd. Vs. ITO reported in (2020) 428 ITR 186 (Kar.) and the Hon‟ble High Court of Calcutta in the case of Bagmari Tea Company Ltd. Vs. CIT reported in (2001) 251 ITR 640 (Cal.) have confirmed the disallowance where the payment was made in cash exceeding the stipulated amount notwithstanding the genuineness of the transaction. Coming to the facts on hands in the present case the fact remains admitted that the sellers from whom the assessee purchased lands were identified the transaction and also acknowledged the cash payments, thereby, it shows the transaction is genuine, as discussed in the foregoing paragraphs that the assessee treated the said lands as stock-in-trade and no deduction claimed. The ratio laid down of the Hon‟ble High Court of Bombay in the case of Madhav Govind Dulshete (supra) as to whether the disallowance is maintainable even the transaction is genuine, in our opinion, is not applicable to the facts on hand. However, we find merit in the alternative contention of the assessee that the expenditure incurred in cash forming part of the closing stock which means this has not been claimed as deduction while computing the income under the business head, therefore, the question of disallowance u/s. 40A(3) does not arise. Thus, the grounds raised by the assessee in this regard are allowed.
The appeal of assessee was allowed by the courtVikrant-Happy-Homes-Pvt.-Ltd.-Vs-DCIT-ITAT-Pune