RAJAMANI BALACHANDER,CHENNAI vs. DCIT, CENTRAL CIRCLE-3(3), CHENNAI
What did the Tribunal hold?
The Tribunal held that for AY 2018-19, the disallowance sustained by the CIT(A) was high given the nature of the business and directed a disallowance of 20% of the total disallowance. For AY 2019-20, considering the business nature and accepted books of accounts, the Tribunal sustained a 10% disallowance on non-TDS expenses.
What were the facts?
The assessee, an event manager, incurred cash expenses violating Section 40A(3) of the Income Tax Act. The Assessing Officer made additions for these violations, and the CIT(A) allowed partial relief. The assessee appealed against the sustained disallowance.
What were the issues?
Whether cash expenses incurred due to business exigency fall under the proviso to Section 40A(3), and the extent of disallowance for non-substantiated expenses.
Which sections of the Income-tax Act were involved?
AI-generated summary — verify with the full judgment below
Before: Shri V. Durga Rao & Shri Manoj Kumar Aggarwal
O R D E R
PER V. DURGA RAO, JUDICIAL MEMBER:
Both the appeals filed by the assessee are directed against separate orders of the ld. Commissioner of Income Tax (Appeals) 18, Chennai, both dated 07.12.2022 relevant to the assessment years 2018- 19 and 2019-20.
Both the appeals filed by the assessee are delayed by ten days in filing the appeals before the Tribunal. The assessee has filed petitions for condonation of delay against which, the ld. DR has not objected. Since the assessee was prevented by reasonable cause, we hereby condone the delay of ten days in filing the appeals and admit the appeals for adjudication.
Brief facts of the case are that the assessee is an individual, engaged in the business of event management for corporate and filed her return of income for the assessment year 2018-19 on 31.10.2018 admitting total income of ₹.19,34,210/-. A survey operation under section 133A of the Income Tax Act, 1961 [“Act” in short] was initiated at the business premises of the assessee. Subsequently, the case was selected for scrutiny and issued statutory notices to the assessee. After following due procedure, the Assessing Officer has completed the assessment under section 143(3) of the Act dated 30.09.2021 by assessing total income of the assessee at ₹.44,57,658/- after making various additions. In the assessment order, the Assessing Officer has noted that on verification of the cash expenses incurred from April to December, 2017 as per impounded vouchers, the assessee had incurred a sum of ₹.12,69,740/- by violating the provisions of section 40A(3) of the Act by making payment exceeding ₹.10,000/- to a single person on a day till December, 2017. In the course of assessment proceedings, the assessee was called upon to furnish the details of such cash payments made in violation of the provisions of section 40A(3) for the period from January, 2018 to March, 2018 which was reported to be ₹.1,84,196/-. The Assessing Officer, after taking into account the above, made a total disallowance of ₹.14,53,936/- as incurred by violating the provisions of section 40A(3) of the Act. On appeal, the ld. CIT(A) allowed 50% of the expenses incurred upto December, 2017 (₹.6,34,870/-) as an admissible expenditure and sustained the balance disallowance.
On being aggrieved on the confirmation of disallowance of ₹.6,34,870/-, the assessee carried the matter in appeal before the Tribunal. The ld. Counsel for the assessee has submitted that the assessee, as an event manager incurred various expenses at the site of the event and had to incur cash expenses through the personnel deployed by her to the site due to business exigency, which falls within the ambit of first proviso to section 40A(3) of the Act and prayed for deleting the addition confirmed by the ld. CIT(A).
On the other hand, the ld. DR supported the order passed by the ld. CIT(A).
We have heard both the sides, perused the materials available on record and gone through the orders of authorities below. The cash expenses incurred from April, 2017 to March, 2018 in violation of provisions of section 40A(3) of the Act by making payment exceeding ₹.10,000/- to a single person on a day of ₹.14,53,936/- was brought to tax. On appeal, while sustaining the disallowance made for the period from January, 2018 to March, 2018 of ₹.1,84,196/-, out of the disallowance of ₹.12,69,740/- of cash expenses incurred from April, to December, 2017, the ld. CIT(A) allowed relief of 50% to the balance disallowance viz., 6,34,870/- as an admissible expenditure and sustained the balance disallowance of ₹.6,34,870/-.
Before us, the ld. Counsel for the assessee has argued that the ld. CIT(A) was not justified in sustaining the disallowance of ₹.6,34,870/- and contended that the assessee, being an event manager incurred various expenses at the site of the event and had to incur cash expenses through the personnel deployed by her to the site due to business exigency, which falls within the ambit of first proviso to section 40A(3) of the Act and prayed for deleting the addition confirmed by the ld. CIT(A). Considering the nature of business of the assessee, wherein cash expenses are inevitable, in order to meet the ends of natural justice, we are of the considered opinion that the disallowance confirmed by the ld. CIT(A) is at an higher side. Accordingly, we direct the Assessing Officer to disallow 20% of total disallowance of ₹.12,69,740/- and the income of the assessee may be recomputed accordingly.
So far as assessment year 2019-20 is concerned, the Assessing Officer disallowed 30% of the total expenses of ₹.4,90,49,931/-, which comes to ₹.1,47,14,979/- since the assessee could not produce documentary evidences for the expenses incurred. On appeal before the ld. CIT(A), the assessee has submitted that the expenditure to the extent of ₹.2,93,65,308/- is covered by TDS and therefore, the said expenditure should be allowed in full. With regard to the balance amount of ₹.1,96,84,623/-, the assessee has submitted before the ld. CIT(A) that the books of accounts were duly audited under section 44AB of the Act and the Assessing Officer has not pointed any specific defect or discrepancy in the books of accounts and prayed for allowance of entire claim made by the assessee. After considering the submissions of the assessee, to the extent the expenditure covered by TDS of ₹.2,93,65,308/-, the ld. CIT(A) allowed the claim made by the assessee. Since the assessee could not produce evidences to substantiate the business purpose of the expenses, the ld. CIT(A) sustained the disallowance of 30% on the balance non-TDS suffered expenses of ₹.1,96,84,623/-. Considering the nature of business of the assessee being event manager for corporate and the authorities below have not found any specific defect of discrepancy in the books of accounts and the books of accounts were duly accepted, we sustain the disallowance of 10% on the balance non- TDS suffered expenses of ₹.1,96,84,623/-. Accordingly, the Assessing Officer is directed to recompute the income of the assessee.
In the result, both the appeals filed by the assessee are partly allowed. Order pronounced on 21st April, 2023 at Chennai.
More judgments on Section 40A(3)
- Rekha Agarwal, Jaipur vs ITO WD 4(1), JaipurITA 844/JPR/2025[2021-22]Status: Disposed21 Oct 2026AY 2021-22
- Infra Developers, Shivpuri vs Income Tax Officer, AshoknagarITA 454/AGR/2026[2014-15]Status: Disposed16 Oct 2026AY 2014-15
- Saiyed Zaharul Alam, Murshidabad vs I.T.O., Ward - 42(1), MurshidabadITA 2233/KOL/2026[2013-2014]Status: Disposed16 Oct 2026AY 2013-2014
- M/S Sadana Electric Store, Lucknow vs DCIT Range-6, LucknowITA 283/LKW/2024[2014-15]Status: Disposed30 Sept 2026AY 2014-15
- Nagendra Prasad, Patna vs ITO Ward -5(3) Patna, Dak BanglowITA 362/PAT/2026[2016-17]Status: Disposed29 Sept 2026AY 2016-17
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