Disallowance u/s 40A(3) for cash payments to wife for house purchase deleted by ITAT when plea of the assessee was not disputed
ABCAUS Case Law Citation:
ABCAUS 2545 (2018) 09 ITAT
Important Case Laws Cited/relied upon by the parties:
CIT vs. Crescent Export Syndicate
The case of the appellant was reopened u/s 147 of the Income Tax Act, 1961 (the Act) as the AO was in possession of information that the appellant had paid cash to his wife on different occasions.
The wife was engaged in manufacturing business having similar nature of business as the appellant. The both husband and wife had business transactions in cash exceeding Rs.20,000/- each time.
During the assessment proceedings the appellant stated that the cash was deposited by him from his business sources of manufacturing. He said that the said cash was given for the purchase of a residential flat in the name of his wife.
He further stated that however, the agreement for purchase could not be finalized due to some irregularities and deficiencies in the documents of the flats and the cash received was returned in part and the rest was adjusted against labour charges.
Since the amounts involved was quite large and there was no evidence furnished by the appellant as regards his story of a proposal to purchase a flat, the AO considered these payments as being in violation of section 40A(3) of the Act and disallowed the entire sum.
Before the CIT(A), the appellant’s main contention was that since the genuineness of the deposit was not doubted by the AO there was no question of invocation of section 40A(3) of the Act.
He also stated that the said amount of cash had been already been penalized in the hands of the appellant’s wife through imposition of penalty u/s. 271D of the Act by treating the said amount a cash loan.
The CIT(A) treated the entire payment to wife as a business transaction. However CIT(A) too did not doubted the genuineness of the deposits, but according to him the doubt that was created and which the section 40A(3) seeks to circumvent was with respect to the transactions itself.
CIT(A) opined that once a transaction, especially between such close relations is accepted in cash, there is virtually no control over the genuineness or the quantum of such a transaction since it is very easy to manipulate the transit of cash. It is exactly to circumvent such an eventuality that the embargo u/s 40A(3) has been placed on the statute. As a matter of fact the appellant had nothing on record to suggest that there was any exigency with regard to such payments or that it was covered under any of the exceptions laid out in the rules.
Therefore, the CIT(A) confirmed the addition.
The Tribunal observed that the CIT(A) as well as Assessing Officer did not dispute the assessee’s clinching plea that he had made the cash amount in question for purchasing residential flat in the name of his wife.
The ITAT did not find any reason to agree with disallowance when the facts remained that the the assessee had made payment to his wife for purchasing residential property in the beginning and later it was adjusted as business expenditure for job works.
The Tribunal also noted that un a case where neither the Assessing Officer nor the CIT (Appeal) had disbelieved the genuineness of the transaction, the jurisdictional High Court had deleted the disallowance u/s 40A(3).
Accordingly, the ITAT deleted the addition.
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