The Cuttack bench of Income Tax Appellate Tribunal ( ITAT ) set aside the order of CIT (A) in the case of Sabita Panda versus ITO, Puri Ward wherein bench held that section 40A (3) of the Income Tax Act shall not be a hindrance in the business operations of the assessee.
In the instant case, the Assessee has agitated the confirmation of addition made under Section 40A (3) of the Income Tax Act, 1961. Here Assessee is an individual derives his income from sale of recharge vouchers on whole sale and retail basis and filed the return of income wherein AO verified the assessment and found that the assessee has made payments exceeding Rs.20,000/- and the provisions of section 40A(3) of the Act are violated.
The AO recorded the statement of Assessee that Upendra Nayak, Proprietor Of stock Point who has confirmed sales of recharge vouchers of Rs.70,50,839/- to the assessee and receipts of cash sales but the Assessing Officer found there is variation in the recording of entries in assessee’s ledger and the assessee has violated the provisions of section 40A(3) of the Act and the CIT(A) confirmed the findings of the Assessing Officer.
Aggrieved with the order of the CIT (A), the assessee has filed an appeal with the Tribunal. P.R.Mohanty, AR of the assessee contended that intention of such section is to prevent deduction of bogus payments and not to restrict the commercial operation and the relationship in the course of recharge vouchers, purchase and sale is of principal and agent.
Thereafter Assessee substantiated the genuineness of transaction and cited various case laws in support of his contention.
On contrary to this revenue argued that aforesaid payment of Assessee does not fall under any of the exceptions provided in Rule 6DD of the Rules. After having both the contentions and perused the records of the case, the tribunal described that Section 40A (3) of the Act prescribes that no deduction shall be allowed if a payment made to other party by way of an account payee cheque or draft, in all cases where the amount exceeds Rs.20,000/-.
Tribunal bench observed that there was no dispute regarding the genuineness of the transaction. Also regarding the section 40A (3) bench opinioned that such provision are not the hindrance to business activity but to caution that payments exceeding Rs.20,000/- are to be made in cheque/draft.
The bench also pointed out the circumstances in which Assessee was compelled to make the cash payments and also the genuineness of payment and the identity of the payee is not doubted.
By applying all these facts, the bench ordered that “provisions of section 40A(3) of the Act shall not be a hindrance in the business operation of the assessee, who has been following such pattern from earlier years and on the principle of going concern which the revenue has not doubted”.
Accordingly, the bench directed the Assessing Officer to delete the addition.
Subscribe Taxscan Premium to view the Judgment
