2018 (12) TMI 1663 - AT - Income Tax

Determination of income u/s.153A - disallowance u/s.40A(3) - HELD THAT - Disallowance out of expenditure could be made if payment or aggregate of payments made to a person in a day exceeds twenty thousand rupees. Ld. first appellate authority has examined this aspect and recorded a categorical finding of fact that payments made by the assessee on a single day did not exceed twenty thousand rupees to a person if that be so then how disallowance u/s.40A(3) of the Act could be made. Thus for the time being if we do not take cognizance of the first fold of submission that addition ought to be made on the basis of seized material then also otherwise on merit this addition could not be made. Ld. first appellate authority has rightly appreciated the facts and circumstances and no interference is called for in the order of the Ld.CIT(A). - Decided in favour of assessee

Summary

Issues:
1. Determination of income u/s.153A of the Income Tax Act, 1961 without seized material.
2. Deletion of disallowance under section 40A(3) of the Act.

Analysis:

Issue 1: Determination of income u/s.153A without seized material
The appeal was filed by the Revenue against the CIT(A)'s order for AY 2011-12. The Revenue raised two primary issues: (a) whether income u/s.153A should be determined without seized material, and (b) deletion of disallowance under section 40A(3) of the Act. The search under section 132 of the Act was conducted, and a notice u/s.153A was served upon the assessee. The Assessing Officer disallowed an amount of &8377; 2,86,20,701/- under section 40A(3) of the Act, related to cash payments made to farmers for land purchase. The CIT(A) deleted the addition based on the argument that no payment in a single day exceeded &8377; 20,000, and the addition was not supported by seized material.

Issue 2: Deletion of disallowance under section 40A(3) of the Act
The assessee contended that the addition was not sustainable as no single-day payment exceeded &8377; 20,000, and the cash payments were due to the absence of bank accounts for the land sellers. The CIT(A) accepted these contentions and deleted the addition. The CIT(A) referred to various case laws, including the Saumya Construction case, stating that additions under section 153A should be based on incriminating documents found during the search. The CIT(A) noted that the addition was made based on books of accounts examined during assessment proceedings, not on seized material. The CIT(A) found that none of the cash payments exceeded the limit of &8377; 20,000 in a day, and the total payment for land purchase was &8377; 13,43,40,451, out of which &8377; 2,86,20,701 was made in cash. Therefore, the CIT(A) concluded that the Assessing Officer was not justified in making the addition under section 40A(3) of the Act, and thus, the addition was deleted.

In conclusion, the ITAT, Ahmedabad dismissed the Revenue's appeal, upholding the CIT(A)'s decision to delete the disallowance under section 40A(3) of the Act. The judgment emphasized that the disallowance could not be made as no single-day payment exceeded &8377; 20,000, and the addition was not supported by seized material.