Case Law Details
PCIT Vs Sumukha Synthetics (Madras High Court)
The issue under consideration is whether the disallowance under Section 40A(3) of the Act as made by the Assessing Officer is sustainable under Income Tax Act?
High Court states that, in the instant case, banking facility was available but the bank account could not be operated by the very bank themselves because of an order of attachment passed by the ESI Department. M/s.SLM virtually came to the assessee with the begging bowl and requested to effect payment in cash. The assessee has entered into an agreement for coversion on job work basis. The assessee is required to act as a prudent businessman, so that the job work is completed to his satisfaction with optimum quality. This has led the assessee to effect payments in cash. The argument of the revenue is on the ground that in order to avoid the attachment of the bank account the assessee has effected payment in cash. It is to be noted that what is relevant to be seen insofar as Section 40A(3) is the conduct of the assessee and not the payee. The question would be did the assessee have a reasonable cause to effect payment in cash. If the assessee has a reasonable explanation, then the proviso under Section 3A would stand attracted and the assessee would be entitled to relief. It may be true that merely because the payee is identifiable, it will automatically exonerate the assessee. HC are not laying down any such broad principle. The fact that the payee was identifiable and not a fictitious person would go to show the bonafides of the transaction and this is what is required to be considered from the angle of a commercially expedient and prudent business house. Thus, HC find that the Tribunal rightly interfered with the order passed by the Assessing Officer as confirmed by the CIT(A) and granted the relief to the assessee. In the result, the tax case appeal is dismissed and the substantial question of law is answered against the revenue and in favour of the assessee.
FULL TEXT OF THE HIGH COURT ORDER /JUDGEMENT
This appeal by the assessee filed under Section 260A of the Income Tax Act, 1961 (“the Act” for brevity), is directed against the order dated 16.03.2018 in ITA No.1176/Chny/2017 on the file of the Income Tax Appellate Tribunal Chennai ‘C’ Bench for the assessment year 2005-06.
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