Disallowance 40A3-two proprietorship concerns of same assessee. In the absence of alleged tax evasion, additions for cash purchases not warranted-ITAT
ABCAUS Case Law Citation:
949 2016 (06) ITAT
Important Case Laws/Judgments Cited:
Hasanand Pinjomal Vs. CIT 112 ITR 134 Gujarat High Court
Smt. Ch. Mangayamma Vs. Union of India (1999) 239 ITR 687 Andhra Pradesh High Court
Walford Transport (Estern India) Vs. CIT 240 ITR 902 (Gau.)
Attar Singh Gurumukh Vs. ITO 191 ITR 667 (SC)
J.B. Boda & Co. Pvt. Ltd. Vs. CBDT 223 ITR 271 (SC)
Brief Facts of the Case:
The assessee was proprietor of two concerns say “AE” and “SE”. During the course of assessment proceedings, the assessing officer observed that one of the assessee’s proprietary concern AE had made purchases from assessee’s another proprietary concern SE in cash exceeding Rs. twenty thousand on various occasions. When asked to show cause as to why they should not be treated as payment in violation of provisions of section 40A(3), the assessee contended that these concerns come under the ownership of only one assessee. Therefore, the inter-se payments belong to only one assessee and not with other person and payment from one concern to another concern owned by one assessee amounts to payment to same person. Section 40A(3) is attracted where the assessee incurs any expenditure in respect of which a payment or aggregate of payments made to another person in a day otherwise than by an account payee cheque amounting to Rs. 20,000/- or more. The assessee maintained that the section 40A(3) was not applicable to assessee’s case inasmuch as the assessee had not made any payment of expenditure to another person but to his own entity. Further, section 40A(3) had been incorporated by the legislature to curb the tendency of black money or unaccounted money by way of cash payments, therefore, the fact of the matter is that cash payment is not to another person in these facts. Besides every thing is recorded in books which are , audited and accepted by assessing officer as genuine. Assessing officer, however, did not accept the assessee’s version and made the addition amounting to Rs. 30,63,087/-.
Aggrieved with the additions, assessee preferred first appeal. CIT(A), however, confirmed the additions made.
Aggrieved with the order of CIT(A), the assessee approavhed to the Tribunal and contended that Assessing officer had neither disputed the genuineness of purchases and transfer of the goods from one unit to another nor the interse transactions have been doubted. Also that a plain reading of Section 40A(3) contemplates presence of two parties i.e. assessee and another person which is not the case.
Important Excerpts from ITAT Judgment:
…… Section 40A(3) has been reproduced above, which in clear terms postulates that where the assessee incurs any expenditure by making cash payment to a person. This definitely presuppose a transaction with another person and not the assessee himself. Thus, for invoking section 40A(3), the existence of cash payment to another person (not the assessee himself) is a sine qua non. In this case admittedly the payment is between the two proprietorship concerns owned by the same assessee. Thus payment by one concern to another concern, which are both owned by the same assessee, cannot be termed to be a payment to another person. In our considered view Section 40A(3) is not attracted.
Besides, on merits also, Hon’ble Gujarat High Court in the case of Hansanand Pinjomal (supra), the intent object of the introduction of section 40A(3) has been held to check the tax evasion and to easily ascertain the transaction. It is not a case where any admitted tax evasion has been alleged. In case of Walford Transport, also it has been held that purpose of section 40A(3) is not to penalize the parties but to prevent and check tax evasion and flow of unaccounted money and to avoid fictitious transactions, which is not alleged in this case. In the case of Attar Singh Gurumukh (supra) the Hon’ble Supreme Court has held that Section 40A(3) enables the assessing officer to ascertain whether the payment is genuine and not from unaccounted money. Similarly, in case of J.B. Boda & Co. Pvt. Ltd. (supra), also the Hon’ble Supreme Court has held that nature and genuineness of the transaction and intention of the parties is to be considered.