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Facts
The assessee's assessment was reopened under Section 147 for unexplained cash credits. While the Assessing Officer also examined alleged violations of Section 40A(3) regarding cash payments but made no addition, the CIT(A) subsequently deleted the cash credit addition but enhanced the assessment by Rs. 11,05,019/- for the Section 40A(3) violation.
Held
The Tribunal held that the CIT(A) erred in enhancing the assessment under Section 40A(3) as the AO had already found no violation. It was observed that the CIT(A) incorrectly applied a cash payment limit of Rs. 10,000/- for transporters, while the correct limit under the Act was Rs. 35,000/-, and the assessee's payments were within this limit. Therefore, the impugned addition made by the Ld. CIT(A) was ordered to be deleted.
Key Issues
Whether the CIT(A) can enhance assessment on an issue not reopened by the AO and previously examined without addition, and the correct limit for cash payments to transporters under Section 40A(3).
Sections Cited
Section 250, Section 147, Section 40A(3)
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Income Tax Appellate Tribunal, “SMC” BENCH, AHMEDABAD
Before: Shri Sanjay Garg & Annapurna Gupta
Year :2018-19 Bhagwati Trading Co. The ITO बनाम/ 38, Market Yard (Gunj Bazar) Ward-1 v/s. Visanagar Patan – 384 265 Mehsana – 384 315 (Gujarat) "थायी लेखा सं./PAN: AABFB 5914 D (अपीलाथ+/ Appellant) (,- यथ+/ Respondent) Assessee by : Shri Rushin Patel, AR Revenue by : Shri Suresh Chand Meena, Sr.DR सुनवाई की तारीख/Date of Hearing : 19/02/2026 घोषणा की तारीख /Date of Pronouncement: 25/02/2026 आदेश/O R D E R
Per Sanjay Garg, Judicial Member:
The present appeal has been preferred by the assessee against the order of the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘CIT(A)’] dated 29/10/2025 passed u/s.250 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) for the Assessment Year (AY) 2018-19.
The assessee, in this appeal, is aggrieved by the action of the Ld. CIT(A) in enhancing the assessment by Rs.11,05,019/- for alleged violation u/s.40A(3) of the Act. Bhagwati Trading Co. vs. ITO Asst. Year : 2018-19 2
Originally, the assessment of the assessee was reopened u/s.147 of the Act on account of unexplained cash credits in the bank account of the assessee. During the assessment proceedings, the assessee explained the source of the cash deposits. The Assessing Officer (AO) did not get satisfied with the explanation given by the assessee about the source of such deposits and made the addition of Rs.42,09,324/- on account of unexplained cash credits. However, the AO also examined the issue of disallowance u/s.40A(3) of the Act of an amount of Rs.11,05,019/- being the amount paid in cash in violation of provisions of section 40A(3) of the Act. The assessee furnished the reply to the AO that it had not violated the said provisions, therefore, the AO did not make any addition on this issue also.
During the first appellate proceedings, the Ld.CIT(A) get satisfied about the explanation given by the assessee regarding the source of deposits and deleted the addition so made by the AO on this issue. However, the Ld. CIT(A) enhanced the income of the assessee reversing the decision of the AO in respect of the cash payments made by the assessee in violation of the provisions of section 40A(3) of the Act.
Being aggrieved by the said order of the Ld. CIT(A), the assessee has come in appeal before us.
The Ld. Counsel for the assessee has submitted that firstly, the assessment was not reopened by the AO on the issue of cash payments in violation of provisions of section 40A(3) of the Act. He has submitted that the issue on which the assessment was reopened and the addition was made by the AO, stand decided in favour of the assessee, therefore, the addition, if any, on any other ground could not have been made by the Ld. CIT(A). He has further submitted that even the issue relating to cash payments in Bhagwati Trading Co. vs. ITO Asst. Year : 2018-19 3 violation of provisions of section 40A(3) of the Act stood examined by the AO and no additions were made by the AO. Therefore, the Ld. CIT(A) was not empowered to re-examine this issue. He has further submitted that the assessee has made cash payments to various transporters and the prescribed limit for making such cash payments was Rs.35,000/-, whereas, the Ld. CIT(A) had assumed the said limit at Rs.10,000/-. The Ld. Counsel for the assessee has relied upon various bills/vouchers placed in the paper-book to show that the cash payments made to the transporters were less than the prescribed limit of Rs.35,000/-.
In view of this factual evidence on the file, the impugned addition is not sustainable. Even the AO has already examined the said contention and finding force in it, has not made any addition on this issue. Therefore, the impugned addition made by the Ld. CIT(A) is ordered to be deleted.