Yash Infratech Vs ACIT (ITAT Lucknow)
Section 40A(3) Not Absolute – Business Expediency Justifies Cash Payments- Tribunal Cites SC & HC Precedents to Delete Addition
Assessee, engaged in real estate business, had purchased three properties worth Rs. 27,34,800/- during the year, making payments in cash. AO disallowed the entire amount u/s 40A(3) holding that cash payments above prescribed limits were impermissible. CIT(A) confirmed the disallowance.
Before Tribunal, Assessee contended that the purchases formed part of closing stock & no deduction was claimed, hence s.40A(3) could not be invoked. It was further argued that payments were made in cash due to business expediency, as sellers insisted on cash & the payments were sourced from same-day bank withdrawals, duly evidenced in registered sale deeds. Reliance was placed on SC in Attar Singh Gurmukh Singh Vs. ITO (191 ITR 667), Allahabad HC in CIT Vs. Suresh Kumar Agarwal (249 ITR 113), ITAT Pune in Vikrant Happy Homes Pvt. Ltd. Vs. DCIT (138 taxmann.com 559), ITAT Jaipur in Vijayeta Buildcon Pvt. Ltd. Vs. ACIT (123 taxmann.com 133) & CBDT Circular No. 220 dated 31.05.1977, which clarify that s.40A(3) is not absolute & exceptions under Rule 6DD apply in genuine cases of business necessity.
Tribunal observed that Assessee had proved identity of sellers, explained source of funds & established that cash payments were made due to genuine business compulsions. It reiterated that s.40A(3) cannot be applied in isolation, but must be read with Rule 6DD, which permits exceptions where transactions are genuine & supported by evidence. Tribunal held that AO failed to disprove Assessee’s explanation & that disallowance was not sustainable. Accordingly, it directed AO to delete addition of Rs. 27,34,800/-. Thus, the appeal was partly allowed in favour of the Assessee.
