Genuine Business Transactions cannot be Disallowed under section 40(3) Income Tax: ITAT
Govind Ramprashad Baheti (ITA No.1395/PUN/2018)
Facts:
- The assessee had deposited cash in bank; which in turn, was credited to the account of M/s. Subhash Fertilizer Pvt. Ltd.
- Cash was also paid to Shriram Fertilizers, Nanded in the course of business activities involving farming sector in remote areas.
- The AO held that hon’ble SC’s landmark decision in Attar Singh Gurmukh Singh vs. ITO [1991] 191 ITR 667 (SC) held that the purpose of the Sec 40A(3) is to prevent flow of unaccounted money in business activities. Once the assessee could not prove the overwhelming exigencies over and above those specified in Rule 6DD of the Income Tax Rules, 1962, expenses in cash have to be disallowed under Sec 40A(3).
ITAT Pune held as below:
- Hon Gujarat High Court in Anupam Tele Services vs. ITO [2014] 366 ITR 122 (Guj.) holds that the overwhelming genuine business transactions are nowhere sought to be covered u/s 40A(3) of the Act.
- Carrying out the respective business activities involving farming sector only wherein not all the customers have their bank accounts since residing in remote areas can hardly be termed as a violation of Sec 40A(3).
- Faced with this situation and keeping in mind peculiar business activity of the assessee as well as his twin payees, we hold that he has sufficiently proved by way of reasonable explanation regarding overwhelming circumstances leading him to make cash payment in issue.
- We accordingly direct the Assessing Officer to delete the impugned disallowance.