Disallowance u/s 40A(3) for cash payment to agents for onward disbursement towards various expenses set aside. ITAT remands case for verification
ABCAUS Case Law Citation:
ABCAUS 2959 (2019) (05) ITAT
The appellant assessee was aggrieved by the decision rendered by CIT(A) confirming the addition made by the AO u/s 40A(3) of the Income Tax Act, 1961 (the Act).
The assessee was a PWD contractor. The original assessment was completed u/s 143(3) of the Act for the year under consideration. Subsequently, the CIT revised the assessment order u/s 263 of the Act for examining the issue of disallowance u/s 40A(3) of the Act for cash payments.
Consequent thereto, the present assessment order was passed by the AO in which he made a disallowance u/s 40A(3) of the Act, since the assessee did not respond to the notices issued by AO.
Before the CIT(A), the assessee contended that the payments were made in cash to the agents of the assessee, who in turn, has disbursed the same to various persons towards wages/salaries, purchase of materials etc.
It was submitted that those expenses did not exceed the threshold limit of Rs. 20,000/- and accordingly contended that the disallowance u/s 40A(3) was not called for. The assessee also furnished affidavits in support its contentions that the payees have acted as agents on behalf of the assessee.
The CIT(A) was not convinced with the contentions of the assessee and further did not accept the affidavits filed. Accordingly he confirmed the disallowance made u/s 40A(3) of the Act.
The Tribunal observed that the assessee had claimed that the payments had been made to its agents for onward disbursement towards various expenses.
The Tribunal also noted that the assessee had furnished affidavits to support its contentions and also he submitted the details of disbursements made by each of the agents.
The Tribunal opined that the affidavits furnished by the agents were supported by the accounts and expenses incurred by the assessee, therefore the CIT(A) was not justified in rejecting the contentions of the assessee.
The Tribunal set aside the order passed by CIT(A) and restored the impugned issue to the file of the assessing officer for examining the same afresh.