The Raipur bench of Income Tax Appellate Tribunal (ITAT) has held that there is no disallowance under Section 40A (3) of Income Tax Act, 1961 on payment made towards purchase of beer from state government.
The Assessee Harshdeep Singh Juneja is an individual holding FL-2 license on behalf of his partnership firm viz. Juneja Ventures, which is engaged in the business of running a restaurant under the name and style of “Mocha.”
After filing the income tax return, the assessee’s income was processed by the Central Processing Center, Bengaluru under Section 143(1) of the Income Tax Act after making a disallowance under Section 40A (3) of the Income Tax Act. The income was determined at Rs.64,85,460/-.
Aggrieved by the order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals)[CITA)], who dismissed the appeal. Thereafter, the assessee filed a second appeal before tribunal against the order of Commissioner of Income tax (Appeals).
Praveen Khandelwal, the counsel for the assessee submitted that the expenditure incurred was towards purchase of beer from shops run by the State Government of Chhattisgarh, which did not receive payment in any mode other than cash, therefore, the payment towards purchases consideration were made in cash.
Piyush Tripathi, the counsel for the revenue submitted that assessee’s auditor had clearly qualified in his audit report that the assessee had incurred an expenditure of Rs.57,62,920 in violation of the provisions of Section 40A (3) of the Income Tax Act, therefore, the CPC, Bengaluru had rightly disallowed the amount and made a consequential adjustment in the hands of the assessee under section 143(1)(a) of Income Tax Act.
It was observed by the tribunal that the CPC made the disallowance without considering the Response of assessee for making proposed adjustment in return of income in “2nd proviso” to Section 143(1)(a) of Income Tax.
Further, the ITAT observed that payments were made towards purchase of liquor from the State Government undertaking which did not receive the payment in any mode other than cash, therefore, no disallowance under Section 40A (3) of the Income Tax Act with respect to the payment in question was called for in his hands.
The two member bench of Ravish Sood (Judicial Member) and Arun Khodpia (Accountant Member) restored the matter to the file of AO and set aside the order of disallowance regarding the payment made towards purchase of beer from state government .
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