In a recent ruling, the Mumbai bench of the Income Tax Appellate Tribunal observed that the cash payments made to the whole sale vendors because of business exigencies cannot be disallowed by invoking section 40(3) of the Income Tax Act, 1961. In the opinion of the Tribunal, application of s.40(3) is subject to the peculiarity of Business and the genuineness of the transaction.
In the instant case, the assessing officer disallowed the cash payments made by the assessee to the wholesale vendors. It was found that, the assessee is engaged in the business of selling wines and alcoholic beverages across the counter. The assessee purchase goods form the wholesale vendors, and usually, the payments are made through cheques. In relevant assessment year, the assessing officer found that certain payments were made through cash. The assessee maintained that the same was due to business exigencies. However, both the lower authorities rejected this contention and passed order making additions to the total income of the assessee.
When the matter was brought before the Tribunal through second appeal, the tribunal accepted these contentions and found that the assessee made this transaction in order to ensure the regular supply of certain brands having higher demand among the consumers. A deep study of the facts further transpired that the transactions were genuine. It was also found that all these payments were made on Saturday and Sunday when the banks were closed.The Tribunal opined that merely because entry in the books were shown in the next date, fact of payment having been made on Saturday and Sunday when the banks remain closed, cannot be denied.
In the light of various judicial pronouncements, the Tribunal deleted the additions made by the lower authorities by holding that the impugned orders are not sustainable in view of the peculiarity of the business and the genuineness of the payments.
Read the full text of the order below.
