THE PRINCIPAL COMMISSIONER OF INCOME TAX 3 vs. RJD BUILDCON LIMITED

Facts

This Tax Appeal was filed by the Revenue against an order of the Income Tax Appellate Tribunal (ITAT), Ahmedabad Bench, dated December 3, 2018, for Assessment Year 2011-12. The appeal challenges the ITAT's confirmation of the Commissioner of Income Tax (Appeals) [CIT(A)] decision to delete a disallowance of Rs. 2,86,20,701/- made by the Assessing Officer (AO) under Section 40A(3) of the Income Tax Act, 1961. The AO had disallowed cash payments made by the assessee, RJD Buildcon Limited, for land purchases. The CIT(A) had deleted the addition, and the ITAT upheld this deletion.

Held

The High Court held that the disallowance under Section 40A(3) could not be made. The Tribunal noted that the CIT(A) had made a categorical finding of fact that the payments made by the assessee on a single day did not exceed Rs. 20,000/- to any person. Section 40A(3) of the Act, as applicable for AY 2011-12, stipulates that no deduction shall be allowed in respect of expenditure where a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque or draft, exceeds twenty thousand rupees. Since this condition was not met, the disallowance was not justified. The High Court found no error of law or fact in the Tribunal's order upholding the CIT(A)'s deletion. The appeal was dismissed.

Key Issues

1. Whether the Appellate Tribunal has erred in law and on facts in confirming the decision of the CIT(A) deleting the disallowance of Rs. 2,86,20,701/- made by the Assessing Officer under Section 40A(3) of the Act? Assessee's Contentions (as recorded by the Tribunal): 1. Income under Section 153A is to be determined based on material found during a search or requisition under Section 132A. No such material was found to justify the disallowance under Section 40A(3). 2. Section 40A(3) contemplates disallowance if payments or aggregate of payments to a person in a day exceed Rs. 20,000/-. The assessee did not pay any person more than Rs. 20,000/- in a single day. 3. Cash payments were made due to business expediency as land sellers did not have bank accounts. 4. The assessment completed under Section 143(3) read with Section 153A was legally invalid. Revenue's Contentions: No specific contentions for the Revenue are recorded in the judgment beyond the fact that they are challenging the ITAT's order.