2019 (11) TMI 510 - AT - Income Tax

Income from other sources - Addition u/s 40A(3) - cash payment exceeding prescribed threshold - income of the assessee has been assessed under the head income from other sources - HELD THAT - Assessing Officer has himself stated that the assessee has claimed deduction u/s 57 and out of total expenses Rs. 3, 48, 150/- has been disallowed by invoking the provisions of section 40A(3) of the Act. It is no doubt true that section 40A(3) of the Act relates to expenditure under the head Income from business/profession . However by virtue of section 58 provisions of section 40A(3) are equally applicable where the income of the assessee is assessed under the head income from other sources . Even though the Assessing Officer has not specifically stated so while invoking section 40A(3) of the Act however mere omission of reference to section 58 by the Assessing Officer would not render the addition so made by the Assessing Officer untenable in law given that the substance of the transactions relates to cash payment exceeding Rs. 20, 000/- which is not disputed by the assessee. There is no infirmity in the order of the AO as far as the invoking of section 40A(3) where the same is read along with section 58 of the Act. Further the assessee has contended that it has made cash payment under exceptional and unavoidable circumstances as the payment has been made on account of expenses for breakfast lunch dinner paid to the various restaurant halwai etc. at places outside the regular place of operations of the assessee and at these places they do not accept the cheque payment being unknown to the assessee. Assessee has relied on the Coordinate Bench decision in case of M/s A Daga Royal Arts Jaipur 2018 (6) TMI 1240 - ITAT JAIPUR We find that the said contention of the assessee regarding exceptional and unavoidable circumstances under which it has made the payments in cash though raised before the lower authorities have not been examined. Therefore it would be appropriate if the matter is set aside to the file of the ld. CIT(A) who shall consider the aforesaid contention - Decided in favour of assessee for statistical purposes.

Summary

Issues:
1. Jurisdictional validity of assessment order under section 143(3)
2. Disallowance under section 40A(3) for cash payments exceeding Rs. 20,000
3. Charging of interest under section 234B/C

Issue 1: Jurisdictional Validity of Assessment Order
The appeal challenged the assessment order under section 143(3) as being bad in law and jurisdictionally invalid. The appellant sought to quash the assessment order citing lack of jurisdiction and other reasons. The Tribunal noted that the appeal lacked specific contentions, deeming it general in nature and not necessitating adjudication.

Issue 2: Disallowance under Section 40A(3)
The dispute centered around the disallowance of Rs. 3,48,150 under section 40A(3) of the Income Tax Act. The appellant, an NGO registered under the Society Act, received various grants and donations for developmental projects. The Assessing Officer (AO) disallowed the amount due to cash payments exceeding Rs. 20,000, invoking section 40A(3). The Commissioner of Income Tax (Appeals) upheld the disallowance, stating that the appellant's activities fell under business payments, thus making the provision applicable. The appellant argued that being an Association of Persons (AOP) declaring income from other sources, section 40A(3) for business expenditure did not apply. The appellant contended that payments were made on behalf of government agencies and other institutions, justifying cash transactions under exceptional circumstances. The Tribunal found that while section 40A(3) typically applies to business expenses, it can extend to income from other sources as per section 58. The Tribunal directed the matter back to the CIT(A) for further examination of the appellant's contentions on exceptional circumstances for cash payments.

Issue 3: Charging of Interest under Section 234B/C
The appellant disputed the charging of interest under sections 234B/C, denying liability for such charges. However, the Tribunal did not provide detailed analysis or resolution for this issue in the judgment.

In conclusion, the Tribunal allowed the appeal for statistical purposes, directing a fresh consideration by the CIT(A) regarding the disallowance under section 40A(3) based on exceptional circumstances cited by the appellant. The judgment highlighted the applicability of section 40A(3) to income from other sources and the need for a practical assessment of cash payments made under unique circumstances.