Case Law Details
Om Balaji Stores Vs ITO (ITAT Chennai)
Introduction:
In a recent ruling, the Income Tax Appellate Tribunal (ITAT) Chennai delivered its verdict in the case of Om Balaji Stores vs. ITO. The appeal, arising from the assessment for the year 2016-17, contested the disallowance under section 40A(3) concerning cash payments to suppliers exceeding the specified limit.
Detailed Analysis:
The crux of the matter was the alleged violation of Section 40A(3) by Om Balaji Stores, a resident firm engaged in the textile business. The company had made cash payments to various suppliers, attracting disallowance under the mentioned section. However, upon closer scrutiny, the ITAT Chennai found that the payments were not made in cash but were directly deposited into the suppliers’ bank accounts. The company substantiated this claim with bank deposit slips and asserted that this method was adopted as per the suppliers’ request for faster and hassle-free transactions.
Importantly, the genuineness of the payments and the existence of the suppliers were not in doubt. The assessee provided comprehensive details of suppliers, including addresses, bank information, and copies of deposit slips for each payment. The ITAT Chennai, considering these documentary evidences, concluded that the disallowance under Section 40A(3) lacked justification given the facts and circumstances of the case.
Conclusion:
In light of the detailed analysis and the presented documentary evidence, the ITAT Chennai allowed the appeal of Om Balaji Stores. The ruling underscores the significance of documentary support in tax matters and highlights that genuine transactions, even if not in strict compliance with certain sections, should be considered on their merits. This decision sets a precedent for cases where the form of payment is scrutinized, emphasizing the need for a pragmatic approach in assessing the substance of transactions.
ITAT find that that the assessee has not made cash payment directly to the suppliers but deposited the same directly into their bank accounts. In support, the assessee has placed on record bank deposit slips. This is stated to have been done on the request of the suppliers and the suppliers themselves have furnished the bank account details to the assessee to ensure fast receipt of payment without delay. It could be also noted that genuineness of the payment or the existence of the suppliers is not under doubt. The assessee has placed on record complete details of suppliers along with their addresses, bank details with copies of deposits slips for each of payment transferred to them. On the basis of all these documentary evidences, we are of the considered opinion that impugned disallowance under section 40A(3) is not justified on the facts and circumstances.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
1. Aforesaid appeal by assessee for Assessment Year (AY) 2016-17 arises out of the order of learned Commissioner of Income Tax (Appeals), Puducherry [CIT(A)] dated 28.02.2020 in the matter of assessment framed by the Learned Assessing Officer [AO] u/s. 143(3) of the Act on 31.10.2018. The sole grievance of the assessee is disallowance u/s 40A(3) on account of cash payment to various suppliers exceeding specified limit.
2. The Registry has noted delay of 183 days in the appeal, the condonation of which has been sought by the assessee on the strength of affidavit of the partner of the assessee company. The Ld. AR submitted that the impugned order was served on 05.03.2020 and the appeal could not be filed in time due to lockdown situation arising out of Covid-19 Pandemic. Though Ld. DR opposed condonation, however, keeping in view the adverse situation arising out of Covid-19 pandemic, we condone the delay and admit the appeal for adjudication on merits.
3. The Ld. AR assailed the disallowance and submitted that the payment was directly deposited by the assessee into the bank account of the suppliers. The Ld. Sr. DR, on the other hand, submitted the assessee violated the provisions of Sec.40A(3) and none of the exception as enumerated in the provisions was applicable to the case of the assessee. Having heard rival submissions, our adjudication would be as under.
4. The assessee being resident firm is stated to be engaged in the business of textiles. It transpired that the assessee made cash payment of Rs.14,20,377/- to various suppliers in violation of Sec.40A(3). This Section provide that where the assessee incurs any expenditure in respect of a payment or aggregate of payments made to a person in a day otherwise than by an account payee cheque drawn on a bank or account payee bank draft which exceeds twenty thousand rupees, no deduction shall be allowed in respect of such expenditure. During the course of assessment proceedings, the assessee did not file any satisfactory reply and accordingly, this amount was added to the income of the assessee.
5. Upon further appeal, Ld. CIT(A) deleted disallowance of RTGS payment of Rs.1,48,588/- but confirmed the balance disallowance on the ground that the assessee could not prove that the cash payment was due to exceptional or under unavoidable circumstances. The assessee also could not prove that the payments were covered by any of the exceptions as carved out in Rule 6DD of Income Tax Rules. The case laws as relied upon by the assessee were held to be distinguishable on facts. Accordingly, the disallowance of Rs.12,71,789/- was confirmed against which the assessee is in further appeal before us.
6. Upon perusal of documents, we find that that the assessee has not made cash payment directly to the suppliers but deposited the same directly into their bank accounts. In support, the assessee has placed on record bank deposit slips. This is stated to have been done on the request of the suppliers and the suppliers themselves have furnished the bank account details to the assessee to ensure fast receipt of payment without delay. It could be also noted that genuineness of the payment or the existence of the suppliers is not under doubt. The assessee has placed on record complete details of suppliers along with their addresses, bank details with copies of deposits slips for each of payment transferred to them. On the basis of all these documentary evidences, we are of the considered opinion that impugned disallowance is not justified on the facts and circumstances. Hence, by deleting the same, we allow the appeal.
7. The appeal stand allowed in terms of our above order.
Order pronounced on 15th June, 2022.
