Payment in cash exceeding Rs. 20,000/- : The expenditure be allowed as Deduction if the transactions were found to be genuine

 

 

Allahabad High Court in the case of  Smt. Sangeeta Verma vs.. CIT has observed that  Payment in cash exceeding Rs. 20,000/- be allowed as deducxtion if the transactions were found to be genuine on specified criteria. It observed in Para 8 & 9 as under:

8. Having heard learned counsel for the parties and having perused the record, though it cannot be denied that section 40-A(3) of the Act is a compliance provision inasmuch as, in absence of statutory compliance being made, certain percentage of the expenditure is to be disallowed, at the same time, the said deduction is not absolute. Only a statutory presumption exists in favour of the revenue to disallow such expenditure as may have been made in cash by making payments in excess of Rs. 20,000/- during the previous year, to any persons. The presumption is rebuttal. The extent of evidence required to be led to rebut that presumption, has been considered by this Court in Chaudhary & Co. (supra). Thereafter, the Court has opined that it is the totality of the circumstances that may be seen i.e.the expenditure be allowed in entirety if the transactions were found to be genuine on the following consideration:

“1. The statement of the assessee that his seller has been insisting on cash payment ;

2. The identity of the seller had been disclosed by the assessee ;

3. The assessee had furnished certificates from the sellers stating that they had insisted on cash payment ;

4. The genuineness of the payments.”

5. In view of the facts of the present case, we find that the affidavits filed by the assessee during the assessment proceeding were not rebutted by the revenue. Those affidavits contain clear recital that the purchasers insisted for cash payment. Their identity is certainly not in doubt. There is no finding to that effect in any of the orders leading to this appeal. The sale deeds are also admitted to be registered documents and there is no other material as may be considered adverse to the claim set up by the assessee. In view of the undisputed facts of the present case we find no good ground to distinguish the law laid down by this Court in Chaudhary & Co. (supra) that has held the field for more than 26 years now. Accordingly, question no. (iii) is answered in the negative i.e.in favour of the assessee and against the revenue.

6. Present appeal stands partly allowed.

The copy of the order is as under:

[2021] 133 taxmann.com 97 (Allahabad)

HIGH COURT OF ALLAHABAD

Smt. Sangeeta Verma

v.

Commissioner of Income-tax*

NAHEED ARA MOONIS AND SAUMITRA DAYAL SINGH, JJ.

IT APPEAL NO. 416 OF 2012†

OCTOBER  8, 2021

CASES REFERRED TO

CIT v. Chaudhary & Co. [1996] 84 Taxman 495/217 ITR 431 (All.) (para 5).

Amit Mahajan for the Appellant. Praveen Kumar and S. Agrawal, C.S.C. for the Respondent.

ORDER

1. Heard Sri Amit Mahajan, learned counsel for the assessee and Sri Praveen Kumar, learned counsel for the revenue.

2. Present appeal has been filed by the assessee under section 260-A of the Income-tax Act, 1961 arising from the order of the Income-tax Appellate Tribunal, Delhi Bench ‘C’, Delhi dated 22-2-2008 passed in Income-tax Appeal No. 2764(Del)/2007 for A.Y. 2000-01.

3. Present appeal was admitted on the following question of law:

“(i) Whether, on the facts and in the circumstances of the case, the Tribunal was legally justified in upholding the proceedings U/s 147 of the Act, even though, the same is made only on account of change of opinion and without any material coming to the knowledge of the Assessing Officer?

(ii) Whether, on the facts and in the circumstances of the case, the Tribunal was legally justified in to hold that the Assessing Officer has reason to believe that the income has escaped assessment?

(iii) Whether, on the facts and in the circumstances of the case, the Tribunal was legally justified in confirming the disallowance u/s 40-A(3) of the Act, even though, the appellant has explained exceptional circumstances under proviso to the said section?”

4. Having heard learned counsel for the parties, insofar as question nos. (i) and (ii) are concerned, we find that no assessment order came to be passed in the case of assessee under section 143(3) of the Income-tax Act, 1961 (hereinafter referred to as the ‘Act’). Thus, no opinion had been formed by the assessing authority with respect to the matters considered while recording the reasons to believe that income had escaped the assessment at the hands of the assessee. Those reasons dated 30-3-2005 are confined to cash expenditure contrary to the mandate of section 40-A(3) of the Act. Therefore, in absence of any opinion having been formed by the Assessing Officer, learned counsel for the assessee may not be right in asserting that reasons to believe could have been recorded only on the strength of any fresh material that may have come into existence or that may have come to the knowledge of the Assessing Officer after the assessment order came to be passed. That principle would remain applicable only to cases where an opinion had been formed on the subject matter considered in the reassessment proceeding, in an assessment order passed under section 143(3) of the Act. Accordingly, question nos.1 and 2 are answered in the affirmative i.e.against the assessee and in favour of the revenue.

5. Insofar as question no. 3 is concerned, learned counsel for the assessee has submitted, during the previous year in question, the assessee had purchased agricultural land from certain persons who did not have bank accounts or easy access to banking services and that in any case they had pressed for urgent payments to be made, if the sale were to fructify. The purchasers filed their affidavits during the assessment proceedings. In support of the aforesaid contentions they acknowledged the sale transactions. Further, they disclosed their true identities. The sale having been evidenced by a registered sale deed, there was nothing to doubt the genuineness of the transactions, yet, the Tribunal has overlooked these admitted facts and taken a technical view by relying on the provisions of section 40-A(3) read with the second proviso thereto, as then existed on the statute book. In support of his submission Sri Amit Mahajan, learned counsel for the assessee has relied on an earlier decision of this Court in CITv. Chaudhary & Co. [1996] 84 Taxman 495/217 ITR 431. That appeal involved the following question of law:

“Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was legally justified in holding that the payments made to Santlal Jain, Daulat Ram Makhan Lal and to M. M. Istiaq Ahmad Sultan Ahmad were covered by rule 6DD(j) of the Income-tax Rules, 1962, and that the payments made to Gupta Iron and Steel Co. were not hit by section 40A(3) and in thus deleting the addition of Rs. 65,537 made by the Income-tax Officer?”

6. While deciding that question, a coordinate Bench of this Court has opined as under:

‘We may mention that the object of section 40A(3) was that fictitious amounts should not be claimed as revenue expenditure. The intention of section 40A(3) was not that cash payment can never be allowed as deductible amount. In fact, the Supreme Court in Attar Singh Gurmukh Singh v. ITO [1991] 191 ITR 667 has observed (at page 673) :

“The terms of section 40A(3) are not absolute. Considerations of business expediency and other relevant factors are not excluded. Genuine and bona fide transactions are not taken out of the sweep of the section. It is open to the assessee to furnish to the satisfaction of the Assessing Officer the circumstances under which the payment in the manner prescribed in section 40A(3) was not practicable or would have caused genuine difficulty to the payee.”

As has already been observed above, in the present case the totality of circumstances shows that the transactions were genuine for the reasons already mentioned above. In fact, the amount said to have been paid in cash by the assessee to certain parties has been verified by the certificates of those parties. Hence, the interest of the Department is protected because the Department can assess those amounts in the hands of the payee and it is not that these amounts will not be assessed at all. Thus, the Department will not suffer in any way.

In view of the above, we answer the question referred in the affirmative, i.e., in favour of the assessee and against the Department. Parties shall bear their own costs.’

7. On the other hand, learned counsel for the revenue would submit that the clear intent of Section 40-A(3) of the Act is only to disallow that a certain percentage of expenditure made in cash if the same has been met through cash payment in excess of Rs. 20,000/-. The said provision is mandatory, no discretion vests with the authority to allow such expenditure in entirety unless the assessee discharges the burden by leading adequate evidence contemplated under the second proviso to the said section.

8. Having heard learned counsel for the parties and having perused the record, though it cannot be denied that section 40-A(3) of the Act is a compliance provision inasmuch as, in absence of statutory compliance being made, certain percentage of the expenditure is to be disallowed, at the same time, the said deduction is not absolute. Only a statutory presumption exists in favour of the revenue to disallow such expenditure as may have been made in cash by making payments in excess of Rs. 20,000/- during the previous year, to any persons. The presumption is rebuttal. The extent of evidence required to be led to rebut that presumption, has been considered by this Court in Chaudhary & Co. (supra). Thereafter, the Court has opined that it is the totality of the circumstances that may be seen i.e.the expenditure be allowed in entirety if the transactions were found to be genuine on the following consideration:

“1. The statement of the assessee that his seller has been insisting on cash payment ;

2. The identity of the seller had been disclosed by the assessee ;

3. The assessee had furnished certificates from the sellers stating that they had insisted on cash payment ;

4. The genuineness of the payments.”

 

9. In view of the facts of the present case, we find that the affidavits filed by the assessee during the assessment proceeding were not rebutted by the revenue. Those affidavits contain clear recital that the purchasers insisted for cash payment. Their identity is certainly not in doubt. There is no finding to that effect in any of the orders leading to this appeal. The sale deeds are also admitted to be registered documents and there is no other material as may be considered adverse to the claim set up by the assessee. In view of the undisputed facts of the present case we find no good ground to distinguish the law laid down by this Court in Chaudhary & Co. (supra) that has held the field for more than 26 years now. Accordingly, question no. (iii) is answered in the negative i.e.in favour of the assessee and against the revenue.

10. Present appeal stands partly allowed.