SHRI KANNADASAN,PORT BLAIR vs. DCIT, CIRCLE - 3(2), PORT BLAIR, PORT BLAIR

- This assessee’s appeal for assessment year 2012-13 arises against Commissioner of Income Tax (Appeals)-1 Kolkata’s order dated 27.12.2017 passed in case No.367/CIT(A)-1/P.B./2015-16, in proceedings u/s 143(3) of the Income Tax Act, 1961; in shorts ‘the Act’. Heard both the parties. Case file perused.

The assessee’s first substantive ground challenges correctness of both the lower authorities action invoking sec. 40A(3) disallowance in cash payment amounting to ₹3,28,600/- in software purchases in issue. The CIT(A)’s detailed discussion to this effect reads as follows:- “Ground NO. 8: This ground relates to the disallowance of Rs.3,28,600/- by applying Sec. 40A(3) is totally uncalled for. The AO observed from the purchase ledger of the assessee, that an amount of As the appellant failed to establish that the said payments Shri Kannadasan vs. DCIT Cir-3(2), Port Blair Page 2 were made through account payee cheque or bank draft, after invoking provisions of section 40A(3) of the IT Act, the AO disallowed the entire amount of Rs.3,28,600/-. The appellant’s A/R has argued that the on this issue, the submission of the appellant is that it was due to urgency that purchases were made for the purpose of the business which the appellant is carrying on and, therefore, the provision of Sec. 40A(3) are not strictly applicable. I have considered the material before me. In view of the above discussion, it is clearly established that the appellant had made the payments of the two amounts viz. Rs.1,44,500/- was paid in cash in a single bill to “Subham Computers” dated 14.05.2011 and another purchases adding to rs.1,84,100/- were also paid in cash each exceeding Rs.20,000/-. The appellant was unable to offer any satisfactory explanation of substantiate reasons for making the payment totaling Rs.3,28,000/- by cash, i.e. otherwise than through crossed cheque/demand draft either during the assessment or appellate proceedings. Therefore, it is held that there is no infirmity in the finding of the AO in disallowing the impugned amount of Rs.3,28,600/- u/s/. 40A(3) of the Act, which is confirmed. This ground is not allowed.”

Both parties reiterate their respective stands against and in support of impugned disallowance. Hon'ble jurisdictional high court’s decision in CIT vs Crescent Export Syndicate in of 2008 dated 30.7.2008 – Jurisdictional High Court decision holds that the impugned disallowance is not sustainable in an instance of overwhelming genuine payment as under:- “It also appears that the purchases have been held to be genuine by the learned CIT(Appeal) but the learned CIT(Appeal) has invoked Section 40A(3) for payment exceeding Rs.20,000/- since it is not made by crossed cheque or bank draft but by hearer cheques and has computed the payments falling under provisions to Section 40A(3) for Rs.78,45,580/- and disallowed @ 20% thereon Rs.15,69,116/-. It is also made clear that without the payment being made by bearer cheque these goods could not have been procured and it would have hampered the supply of goods within the stipulated time. Therefore, the genuineness of the purchase has been accepted by the ld. CIT(Appeal) which has also not been disputed by the department as it appears from the order so passed by the learned Tribunal. It further appears from the assessment order that neither the Assessing Officer nor the CIT(Appeal) has disbelieved the genuineness of the transaction. There was no dispute that the purchases were genuine.” We adopt the above their lordship detailed discussion mutatis mutandis to delete the impugned disallowance therefore.