The Delhi Bench of the Income Tax Appellate Tribunal (ITAT)has held that payment for Grit purchases and carriage made through cash excess can be allowable u/s 40A(3) of the Income Tax Act,1961 based on the nature of business.
Mana Ram Ganpat Ram & Co., Praveen Aggarwal & Co., the assessee is a partnership firm engaged in the business of Contract works. Assessee electronically filed its return of income for A.Y. 2015-16 on 10.09.2015 declaring net taxable income of Rs.10,56,220/-. The assessment was framed u/s 143(3) of the Act vide order dated 28.12.2017 and the total income was determined at Rs.1,50,30,000/-. CIT(A) vide order dated 28.06.2019 granted partial relief to the assessee.
On perusing the details of Grit purchases and carriage, AO noticed that the assessee on the aforesaid account had made payment of cash aggregating to Rs.45,63,767/- and added to the income u/s 40A(3) of the Act because payments have been made in cash.
It was contended that if the nature of work undertaken by the assessee, the location where the work is undertaken and the parties to whom the assessee has made the payment, is taken into consideration the disallowance u/s 40A(3) is not called for.
It was stated by the assessee that the increase in profit ratios would indicate that the impugned expenditure is not bogus. Further argued that the disallowance u/s 40A has to be seen considering the nature of business, the extent of banking facilities available and the business expediency and other relevant factors.
A Coram of Sh. Anil Chaturvedi, accountant member and Sh. Challa Nagendra Prasad, judicial member observed that the provision of Section 40A(3) of the Act is not intended to restrict the business activities and insistence of payment by crossed cheque or crossed bank draft is insisted to enable the assessing authority to ascertain whether the payment is genuine or whether it is out of the income from disclosed sources.
In light of the precedents, it was held by the Tribunal that the disallowance u/s 40A(3) of the Act is not justified and directed the deletion of the addition made by AO and upheld by CIT(A). The appeal of the assessee was allowed.
Shri KVSR Krishna, C. A appeared for the assessee and Shri Jitender Chand appeared for the revenue.
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