Cash Payment Disallowance u/s 40A(3) Partially Upheld: ITAT Remits for Verification of Government Cess Payment [Read Order]
The Tribunal has provided partial relief to a real estate firm facing significant disallowance on cash payments and remitted one specific payment for verification while upholding the additions for other disputed transactions.
The Bangalore Bench of the Income Tax Appellate Tribunal (ITAT) provided partial relief to a real estate firm facing significant disallowance on cash payments and remitted government cess payment for verification while upholding the additions for other disputed transactions
Texo The Builders, a partnership firm engaged in real estate development, concerning disallowances made under Section 40A(3) of the Income Tax Act, 1961, for the Assessment Years 2013-14 and 2014-15.
The Assessing Officer (AO) had initially made a large disallowance under Section 40A(3) for both years, asserting that the assessee had made cash payments exceeding the prescribed limit of ₹20,000 to various parties for materials and labour, violating the statutory provisions.
Aggrieved by the AO’s order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [ CIT(A) ]. The CIT(A) confirmed the disallowance. Aggrieved by the CIT(A)’s order, the assessee filed an appeal before the ITAT.
The assessee argued that payments made to a labour supervisor were eventually routed to individual laborers, none of whom received more than the limit, and hence the disallowance was invalid.
The assessee also argued that the genuineness of the transactions was never doubted by the lower authorities.
The two-member bench comprising Laxmi PrasadSahu (Accountant Member) and Soundararajan K (Judicial Member) upheld the AO's findings on the general cash payments and confirmed the disallowance for the amounts where the assessee failed to establish the conditions laid down under the exception of Rule 6DD(j) of the Rules.
The bench noted a payment of ₹99,000 recorded on 01.08.2012 as 'Labour development cess'. The tribunal observed that this cess payment might have been paid towards labour to the government department. The bench noted that the assessee's counsel could not definitively establish this fact during the hearing.
The bench noted that the payments to the government are exempt from the provisions of Section 40A(3) of the Income Tax Act. Therefore, for the limited purpose of verifying this specific transaction, the Tribunal remitted the issue of the ₹99,000 cess payment back to the file of the Assessing Officer.
In its final order, the tribunal partly allowed the assessee’s appeal for AY 2013-14 for statistical purposes and dismissed the appeal for AY 2014-15
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