2021 (4) TMI 1353 - AT - Income Tax

Disallowance u/s 40A(3) - making the payment of Rs.18, 00, 000/- on a single day - assessee has stated that the entire payment was not made on the same day and it was only the transfer entry of the payments made at the sites - HELD THAT - The assessee has produced the attendance register as well as the acquaintance register wherein it is seen that the payment was made to several labourers which was duly acknowledged by the recipient on Rs.1/- revenue stamp. All the payments were below Rs.20, 000/- to each individual. The assessee has stated that the cash payment was made at agency area to labourers where free mobility is not available. Disallowance u/s 40A(3) attracts if the assessee makes the payment in excess of Rs.20, 000/- in a day to any person with regard to the expenditure incurred. Since each payment was less than Rs.20, 000/- the question of application of section 40A(3) does not arise. The lower authorities could not find any defect in the books of accounts or in the attendance register and the labour payments. Since the AO has not suspected the genuineness of the payment and the payment made to each individual is less than Rs.20, 000/- section 40A(3) does not apply in this case hence we delete the addition made by the AO and allow the appeal of the assessee.

Summary

Issues: Condonation of Delay, Disallowance u/s 40A(3) of the Income Tax Act, 1961

Condonation of Delay:
The appeal was filed with a delay of 6 days, and the assessee sought condonation of the delay due to being on a pilgrimage out of the country. The delay was claimed to be unintentional and not deliberate. The tribunal heard both parties and decided to condone the delay, allowing the appeal to be admitted.

Disallowance u/s 40A(3) of the Income Tax Act:
The dispute revolved around the addition made by the Assessing Officer under section 40A(3) of the Income Tax Act, which was upheld by the CIT(A). The AO disallowed a payment of Rs.18,00,000 made in cash on a single day, citing a violation of section 40A(3). The assessee contended that the payment was for labour charges at project sites to multiple individuals, each receiving less than Rs.20,000. The CIT(A) upheld the addition, finding no valid reason for the lump sum payment on a single day. However, the tribunal disagreed, noting that the payments were genuine, substantiated by evidence such as attendance and acquaintance registers, and each payment was below the threshold of Rs.20,000 per individual. The tribunal ruled that section 40A(3) did not apply in this case, deleting the addition made by the AO and allowing the appeal.

Analysis:
The tribunal first addressed the issue of condonation of delay, considering the reasons provided by the assessee for the late filing of the appeal. After hearing both parties, the tribunal decided to condone the delay and proceed with the appeal.

Moving on to the core issue of disallowance under section 40A(3), the tribunal examined the nature of the payment in question and the circumstances surrounding it. While the AO raised concerns about the lump sum payment made on a single day, the assessee presented evidence to support the claim that the payment was for legitimate expenses incurred at project sites to numerous individuals, each receiving payments below the statutory limit. The tribunal found the evidence provided by the assessee to be credible and sufficient to establish the genuineness of the payments, thereby concluding that section 40A(3) was not applicable in this scenario.

Ultimately, the tribunal ruled in favor of the assessee, allowing the appeal and overturning the addition made by the AO under section 40A(3). The decision was based on the tribunal's assessment of the evidence presented and its interpretation of the relevant provisions of the Income Tax Act.