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Facts
The assessee, a commission agent, faced a disallowance of Rs. 2,75,17,500/- by the AO under Section 40A(3) for cash payments of commission and salary during the A.Y. 2018-19, citing lack of evidence during assessment. The CIT(A) allowed the assessee's appeal, accepting additional evidence submitted during appellate proceedings which showed individual cash payments were below the prescribed limit and stated that Rule 46A was not applicable as evidence was already available to the AO.
Held
The Tribunal upheld the CIT(A)'s decision, confirming that the assessee's cash payments for commission and salary did not violate Section 40A(3) as individual transactions were below the statutory threshold. It was also held that Rule 46A regarding admission of additional evidence was inapplicable since the relevant facts and documents were already before the AO, who had misappreciated them. Consequently, the revenue's appeal was dismissed.
Key Issues
Whether the CIT(A) was justified in deleting the disallowance under Section 40A(3) for cash payments of commission and salary. Whether the CIT(A) erred in admitting additional evidence without providing an opportunity to the AO under Rule 46A.
Sections Cited
143(1), 143(3), 40A(3), Rule 46A of IT Rules, 1962
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Income Tax Appellate Tribunal, “D” BENCH, KOLKATA
Before: SHRI RAJESH KUMAR & SHRI PRADIP KUMAR CHOUBEY
(निर्धारणवर्ा/Assessment Years :2018-2019) ITO, Ward-32(1), Kolkata Vs Satish Singh, 5B/H/6, Shibtala Lane, Kolkata-700071 PAN No. :DSWPS 6446 B (अपीलधर्थी /Appellant) .. (प्रत्यर्थी / Respondent) रधजस्वकीओरसे /Revenue by : Shri Sandip Sarkar, JCIT, Sr.DR निर्धाररतीकीओरसे /Assessee by : Shri Somnath Ghosh, Advocate सुनवाई की तारीख / Date of Hearing : 09/12/2025 घोषणा की तारीख/Date of Pronouncement : 23.12.2025 आदेश / O R D E R
Per Rajesh Kumar, AM:
This is an appeal filed by the revenue against the order passed by the ld. National Faceless Appeal Centre (NFAC), Delhi, dated 01.01.2025for the assessment year2018-2019.
The issue raised in the appeal of revenue is against the order of ld. CIT(A) in admitting the additional evidence without allowing reasonable opportunity to the Assessing Officer as per provisions of Rule 46A of IT Rules, 1962 and second issue is against the deletion of addition of Rs.2,75,17,500/- as made by the AO u/s.40A(3) of the Act in respect of commission and salary paid by the assessee during the year.
Facts in brief are that the assessee is an individual and filed his return of income for the A.Y. 2018-19 declaring total income of Rs. 16,36,550/-on 11/06/2019, The return of income was processed u/s 143(1) of the Act on 25.10.2019. Subsequently, return of the assessee was selected for scrutiny. The assessment proceedings was completed by passing order u's 143(3) of the LT Act, 1961 on 08/04/2021 at an assessed income of Rs.2,92.65,172- after disallowing the expenditure of Rs. 93,07,500/- paid as commission and Rs. 1,82,10,000/-paid as salaries totalling to Rs. 2,75,17,500/-. During the financial year under consideration, the assessee was a commission agent for recovery collection of outstanding EMIs of banks and financial institutions. During the financial year, the assessee debited Rs. 96.31.100/- towards Commission paid and Rs. 1,83,24,000/- towards Salaries. However, the assessee failed to submit proper information for examination during the course of assessment proceeding except copies of photo identities of a few persons. Despite being asked specifically to submit ledgers, cash book reflecting payment of Salaries and commission which paid on cash basis by withdrawing cash from hank account and reasons for payments of salaries and commission in cash, the assessee did not submit the requisite documents during the course of assessment proceedings.Further, as the payments were made in cash but the assessee did not furnish the requisite details in this regard. Thus, the AO in absence of the evidences, held that the salaries and commission was paid in contravention to the provisions of Section 40A(3) of Income Tax Act, 1961 and the expenditure of Rs.93,07,500/- paid as commission & Rs.1,82,10,000/- paid as salaries totaling to Rs.2,75,17,500/- had been disallowed added back to his total income.
4. In appeal, the ld. CIT(A) has allowed the appeal of the assessee stating that during the course of appellate proceedings, the assessee submitted documents to prove the identity, existence and genuineness of the payments of salary, bonus and commission payments during the financial year 2017-18. The CIT(A) further stated that the assessee submitted date wise detailed individual ledger account of all the employed, giving names, actual date of payments, date of credit of salary, nature of transactions, to whom salary and bonus were paid during the financial year 2017-18. These ledger accounts show that no cash payment was in excess of Rs. 10,000/- on a single day. The CIT(A) further stated that as the assessee has submitted the daily cash book for the entire financial year during the course of appellate proceedings, there is no ground to apply the provision of Section 40A(3) in the case of the assessee. Accordingly, the ld.CIT(A) relying upon the judicial pronouncement of Jurisdictional High Court in the case of S. K. Jaynal Abddin Commissioner of Income-tax [2024] 161 taxmann.com 640 (Calcutta), allowed the appeal of the assessee.
Now, the revenue is in appeal against the order of the ld.CIT(A) before the Tribunal.
Ld.Sr. DR vehemently supported the order of the AO and submitted that the ld. CIT(A) has wrongly allowed the appeal of the assessee solely on the ground that the assessee has submitted all the relevant supporting documents in support of his contention during the appellate proceedings. However, the ld. CIT(A) completely ignored the fact that the assessee Assessing Officer by not submitting relevant supporting documents during the course of assessment proceedings. It was also submitted by the ld. Sr. DR that the assessee submitted new/additional evidences before the Ld. CIT(A), the appellate authority should not have taken into account any evidence produced under sub-rule (1) unless the Assessing Officer has been allowed a reasonable opportunity (a) to examine the evidence or document or to cross-examine the witness produced by the appellant, or (b) to produce any evidence or document or any witness in rebuttal of the additional evidence produced by the appellant as per provisions of Section 46A of Income Tax Rules, 1962.Since, the additional documents/evidences have been taken into account by the Ld. CIT(A) in contravention to the Section 46A of Income Tax Rules, 1962, therefore, the order passed by the ld. CIT(A) deserves to be reversed and the order of the ld.AO should be upheld.
After hearing the rival contentions of the parties and perusing the material available on record, we find that the assessee has incurred these expenses for which he evidences are available before us. We note that the salary , bonus expenses and commission expenses were disbelieved by the AO on the assumption that they were paid in contravention of Section 40A(3) of the Act that means in excess of Rs.10,000/- on a single day. The ld. CIT(A) held that the AO has misunderstood and assumed that the details of salary and bonus and details of commission payments e-submitted on 22.10.2020 as the actual amount of payments made to various employees and recovery agents. But in fact, each of the actual cash payments was less than Rs.10,000/-. The ld. CIT(A) referred to ledger account of all the employees and recovery agents duly e-submitted on 07.04.2021 which clearly vindicates that no payment to the employees and recovery agents has been made in cash in excess of Rs.10,000/- .Thereafter the ld. CIT(A) noted that the AO has made very high-pitched assessment at the income of Rs.2,91,54,050/- which is 94.84% of the Gross Receipt shown by the assessee. Ld.CIT(A) relied upon the decision of Hon’ble Jurisdictional High Court in the case of S. K. Jaynal Abddin Commissioner of Income-tax [2024] 161 taxmann.com 640 (Calcutta), wherein it has been held that where the assessee withdrew funds through supervisors to pay labourers and the AO disallowed 20% under section 40A(3) of the Act, since supervisors acted as agents and payments didn’t exceed Rs.20,000/-, said payment would not fall within scope of section 40A(3) of the Act and consequently disallowance to the extent of 20% would be deleted. Considering these facts on record, the order passed by the ld.CIT(A) is a very reasoned order and does not require any interference and we uphold the same.
Moreover, on the issue of admission of additional evidence, ld.CIT(A) has recorded a categorical finding that all the evidence were before the AO and the AO misappreciated the facts, therefore, the provision of Rule 46A of IT Rules are not applicable. In view of the above, we uphold the order of the ld.CIT(A) and dismiss the appeal of the revenue.