Income Tax Appellate Tribunal

Shashikala Ram Kumar vs. Asst. Commissioner Of Income Tax

MANU/IH/0215/2023

08.09.2023

Direct Taxation

Assessee is entitled to exemption under Section 40A(3) of IT Act, if the assessee is not able to make the payment through banking channel due to freezing of the bank account

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 (IT Act) are challenged in present appeal by the assessee. The assessee, carrying on business in the name of Ganesh Travels, filed her return of income for the assessment year 2014- 15, 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.

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.

With regard to the addition under Section 40(a)(ia) of the Act, the assessee produced the relevant certificate, covering a sum of Rs. 26,84,153, and there is no dispute as on this aspect. Present Tribunal, 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 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 vs. ITO 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.

In PCIT vs. Sumukha Synthetics, 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 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.

Assessee produced the copies of such attachments issued by the Income Tax Department by way of notice, under Section 226(3) of the Act and prohibitory order by the Employee Provident Fund Organization. The view taken by the Apex Court and the Madras High Court is applicable to the facts of the case. The addition under Section 40A(3) of the Act is not sustainable. Consequently, the learned Assessing Officer is directed to delete the same. Appeal of the assessee is allowed in part.

Tags : Assessment Exemption Entitlement

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