ITO Vs Rajpura Properties (ITAT Chandigarh)
Chandigarh ITAT upheld the deletion of a ₹3.18 Crore disallowance under Section 40A(3), ruling that the large cash payment for land purchase was dictated by business expediency due to high mistrust and a prior dispute, despite exceeding the banking limits.
ITAT Upholds Deletion of ₹3.18 Crore Disallowance on Cash Payment for Land
The Income Tax Appellate Tribunal (ITAT), Chandigarh Bench, has dismissed an appeal by the Revenue Department, confirming the deletion of a ₹3,18,40,000 disallowance made under Section 40A(3) of the Income Tax Act, 1961. The Tribunal’s decision reinforces the judicial principle that genuine transactions, even if completed by large cash payments, are exempt from disallowance if dictated by compelling business expediency.
The Dispute Over Cash Payment
The case involved an assessee firm engaged in the sale and purchase of properties. During the Assessment Year 2015-16, the firm completed the purchase of land in Rajpura. The payment structure was unusual: an initial advance of ₹50 lakh was paid via RTGS in February 2011, but the remaining balance of ₹3.184 crore was paid in cash at the time of the sale deed registration in July 2014.
The Assessing Officer (AO) invoked Section 40A(3), which prohibits the deduction of any expenditure exceeding the prescribed limit if paid in cash, and disallowed the entire cash component. The AO rejected the assessee’s explanation of “business expediency,” noting the absence of documentary evidence regarding a dispute during assessment and the firm’s lack of a bank account during the transaction year, suggesting a willful intent to transact in cash.
