Case Law Details
Smt. Shashikala Ram Kumar Vs ACIT (Hyderabad)
Assesee disputed additions made u/s40(a)(ia) & 40A(3) before the CIT (A) and produced certificates under proviso to section 201(1) whereby CIT(A) deleted the 40(a)(ia) addition but confirmed the addition u/s40A(3). On further appeal before the the Tribunal Revenue contended that unless the assessee proves the circumstances under rule 6DD, he cannot claim any exception to sec 40A(3).
Assessee produced a certificate issued by payee stating that they refused to entertain cheques since cheques issued by the assessee were bounced on account of attachment of the bank accounts by various Govt agencies. Assessee produced the copies of such attachments u/s 226(3) issued by the IT Dept & prohibitory order by the EPF Organization.
Assessee relied upon the observations of the Hon’ble Apex Court in the case of Attar Singh Gurmukh Singh vs. ITO [1991] 59 Taxman 11 (SC) to the effect that the terms of sec 40A(3) are not absolute; that consideration of business expediency and other relevant factors are not excluded; that the genuine and bona fide transactions are not taken out of the sweep of the section; that is open to the assessee to furnish to the satisfaction of the AO, the circumstances under which the payment in the manner prescribed in sec 40A(3) was not practicable or would have caused genuine difficulty to the payee; and that it is also open to the assessee to identify the person who has received the cash payment.
Reliance was also placed on PCIT vs. Sumukha Synthetics [2020] 119 taxmann.com 234 (Madras), wherein it is held that if any payment is made in cash on account of the bank account of the company was freezed, by order of attachment passed by Govt dept, assessee is entitled for exemption under rule 6DD and, therefore, no disallowance under 40A(3) was called for.
Tribunal noted that the substance of the judicial opinion is that the terms of sec 40A(3) are not absolute and though certain circumstances are contemplated under rule 6DD, they are not exhaustive. One such exception approved by the Hon’ble Madras High Court is the incapacity of the assessee to make the payment through banking channel due to freezing of the bank account by order of Govt agency, in that case, the ESI dept. Tribunal held that the decisions are applicable to the facts of the case & held that addition u/s 40A(3) is not sustainable.
FULL TEXT OF THE ORDER OF ITAT HYDERABAD
Aggrieved by the order dated 11/09/2018 passed by the learned Commissioner of Income Tax (Appeals)-1, Hyderabad (“Ld. CIT(A)”), in the case of Smt. Shashikala Ramkumar (“the assessee”) for the assessment year 2014-15, assessee preferred this appeal.
2. Two additions, namely, Rs. 47,60,415/- and Rs. 2,63,06,238/- made under section 40(a)(ia) and 40A(3) of the Income Tax Act, 1961 (for short “the Act”) are challenged in this appeal by the assessee. Relevant facts are that the assessee, carrying on business in the name of M/s. Ganesh Travels, filed her return of income on 31/12/2014 for the assessment year 201415, declaring total income at Rs. 42,88,720/-. Learned Assessing Officer concluded the assessment by making disallowance of Rs. 63,65,549/-under section 40(a)(ia) of the Act for not affecting TDS in respect of interest and financial charges, and Rs. 2,62,06,238/- under section 40A(3) of the Act for making cash payments in excess of Rs. 20,000/- in contravention of the provisions of law.
3. In appeal, assessee produced certificates relevant under proviso to section 201(1) of the Act to the tune of Rs. 18,30,101/- and learned CIT(A) accepted the same and granted relief to that extent. Learned CIT(A), however, confirmed the addition of Rs. 2,62,06,238/- under section 40A(3) of the Act stating that no ledger account regarding such expense was produced and the certificate issued by Santosh Service Station is not an authenticated one.
4. Assessee is therefore before us in this appeal stating that subsequent to the first appellate proceedings, the assessee could secure the relevant certificates from M/s. Tata Motors, L&T Finance Ltd., and BMW Finance, to the tune of Rs. 26,84,153/-, but in respect of others, the assessee produced the letters of request to furnish similar certificate, but they could not secure the same due to long lapse of time. In respect of the other addition of Rs. 2,62,06,238/- under section 40A(3) of the Act, assessee produced a certificate issued by Santosh Service Station, stating that they refused to entertain the cheques issued by the assessee since cheques issued by the assessee were bounced on account of attachment of the bank accounts by various Governmental agencies. He placed reliance on the decisions reported in Attar Singh Gurmukh Singh vs. ITO [1991] 59 Taxman 11 (SC), PCIT vs. Sumukha Synthetics [2020] 119 taxmann.com 234 (Madras) and other decisions of the Co-ordinate Benches of the Tribunal.
5. Per contra, learned DR contended that without complying with the proviso to section 201(1) of the Act, the assessee is not entitled to seek deletion of the amount added under section 40(a)(ia) of the Act. Likewise, unless the assessee proves the circumstances under rule 6DD of the Income Tax Rules, 1962 (Rules), the assessee cannot claim any exception to section 40A(3) of the Act. On this premise, he justified the action of the authorities below.
6. We have gone through the record in the light of the submissions made on either side. Coming to the addition under section 40(a)(ia) of the Act, before us, the assessee produced the relevant certificate, covering a sum of Rs. 26,84,153/-, and there is no dispute as on this aspect. We, therefore, modify the order of learned CIT(A) and direct the learned Assessing Officer to delete the amount of Rs. 26,84,153/-. In respect of the other sums, in the absence of any further evidence, we find it difficult to disturb the findings of the authorities below.
7. As far as the other addition of Rs. 2,62,06,238/- under section 40A(3) of the Act is concerned, assessee relied upon the observations of the Hon’ble Apex Court in the case of Attar Singh Gurmukh Singh (supra) to the effect that the terms of section 40A(3) of the Act are not absolute; that consideration of business expediency and other relevant factors are not excluded; that the genuine and bona fide transactions are not taken out of the sweep of the section; that is open to the assessee to furnish to the satisfaction of the learned Assessing Officer, the circumstances under which the payment in the manner prescribed in section 40A(3) of the Act was not practicable or would have caused genuine difficulty to the payee; and that it is also open to the assessee to identify the person who has received the cash payment.
8. Further reliance is made on the decision reported in Sumukha Synthetics (supra), wherein it is held that if any payment is made in cash on account of the bank account of the company was freezed, by order of attachment passed by Government department, assessee is entitled for exemption under rule 6DD of the Rules and, therefore, no disallowance under section 40A(3) of the Act was called for. The substance of the judicial opinion is that the terms of section 40A(3) of the Act are not absolute and though certain circumstances are contemplated under rule 6DD of the Rules, they are not exhaustive. One such exception approved by the Hon’ble Madras High Court is the incapacity of the assessee to make the payment through banking channel due to freezing of the bank account by order of Governmental agency, in that case, the ESI department.
9. Assessee produced the copies of such attachments issued by the Income Tax Department by way of notice dated 12/08/2013, under section 226(3) of the Act and prohibitory order dated 25/11/2013 by the Employee Provident Fund Organization. The view taken by the Hon’ble Apex Court and the Hon’ble Madras High Court in the cases referred to above is applicable to the facts of the case. In these circumstances, we are of the considered opinion that the addition under section 40A(3) of the Act is not sustainable. Consequently, we direct the learned Assessing Officer to delete the same.
10. In the result, appeal of the assessee is allowed in part.
Order pronounced in the open court on this the 8th day of September, 2023.
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