The Income Tax Appellate Tribunal (ITAT), Pune Bench held that the Overwhelming Genuine Business Transactions cannot be Disallowed under section 40(3) Income Tax Act 1961 where the overwhelming genuineness of assesse is proved.
The appeal was filed by assesse Mr.vind Ramprashad Baheti engaged in sale of agricultural products, challenging the action of CIT(A) in confirming the disallowance u/s. 40A (3) of the Act for transactions out of business expediency an amount of 50,000 and 4,85000 to twin payee who run similar agricultural business. These amounts were added to the income from profit and gains of business of assesse by AO and same was approved under s.263 procedure by CIT impugning under S. 40(3) of Income Tax Act 1961.
The A R Shri Sanjeev Kumar Kabra for assesse contented that the deposition of cash to others account could hardly be termed as violation of section 40A (3). as well as these parties were carrying out similar business activities and majority of the customers were not having bank accounts since they reside in remote areas, the disallowance could be made only after considering the business expediency , and unavailability of banking facilities. The D R Shri M. G Jasnai for CIT held that assesse was not able to prove the overwhelming exigencies specified in Rule 6DD of the Income Tax Rules, 1962, and S.40(3) income tax act. And also referred landmark decision in Attar Singh Gurmukh Singh vs. ITO that the purpose of this Section is to prevent flow of unaccounted money in business activities.
The Tribunal comprising of Shri S. S. Godra (Judicial member) and Shri G. D. Padmahshali, (Accountant member) noticed the decision of, high court in Tele Services vs. ITO [2014] 366 ITR 122 (Guj.) which held that the overwhelming genuine business transactions are nowhere sought to be covered u/s 40A (3) of the Act. The Tribunal also found that the transactions made by the assesse are genuine, the identity of the receiver is established beyond doubt and the payment is made in the bank account of the payee carrying similar agricultural product selling business and overwhelming business expediency. According to the Tribunal, since the genuineness of the seller is not doubted, the provisions of section 40A (3) could not be made applicable to the facts of the instant case.
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