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TMI Blog2023 (6) TMI 771X X X X Extracts X X X X X X X X Extracts X X X X ..... tak has erred in law and on facts in sustaining the addition u/s. 40A(3) made by the Ld AO of Rs. 56,51,900.00 on untenable and illegal grounds. Hence, the addition as such may be deleted. 2 That the Ld CIT(A)-Rohtak has erred in law and on facts in sustaining the addition made by the Ld AO of Rs. 50,000.00 on account of capital introduced by proprietor on untenable and illegal grounds. Hence, the addition as such may be deleted." 4. As per the Ground No.1 of the appeal, the assessee has challenged the addition of Rs. 56,51,900/- under Section 40A(3) of the Act. 5. Briefly stated, the assessee is engaged in the business of trading of liquor and also deriving income from salary/pension from Haryana Government. The assessee filed return of income at Rs. 13,21,210/- which was subjected to scrutiny assessment. In the course of scrutiny assessment, the Assessing Officer inter alia observed that the assessee has made cash payments in excess of Rs. 20,000/- against purchases to certain parties. The cash payment aggregating to Rs. 56,51,900/- was found to be in contravention of provisions of Section 40A(3) of the Act. The Assessing Officer accordingly disallowed the expenses to the afo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lation of provisions of Section 40A(3) of the Act r.w. Rule 6DD of the Income Tax Rules. 7. Further aggrieved, the assessee preferred appeal before the Tribunal. 8. When the matter was called for hearing, the ld. counsel for the assessee submitted at the outset that Financial Year 2013-14 relevant to Assessment Year 2014-15 was the first year of his liquor business and the assessee was engaged in this business only for two Assessment Years 2014-15 and 2015-16 in question. The business was closed within two years of operations. 8.1 To support his case for non applicability of Section 40A(3) in the context of the facts of the case, the ld. counsel submitted that; (i) the assessee is a new entrant and an unknown name in the business and therefore, the trust quotient and goodwill in the market is comparatively low. To support the fact of being new entrant, the ld. counsel referred to annual statement from 26AS and submitted that the first purchase was carried out on 31.03.2013 and the last purchase was made on 21.03.2015 and thus the assessee was engaged in effective business for only two Financial Years 2013-14 and 2014-15. (ii) The aggregate cash purchase of 56.51 lakh under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmits that the disallowance under Section 40A(3) is not proper when due weightage is given to the totality of the circumstances and considerations of business expediency existing in the present case as contemplated in Section 40A(3A) of the Act and mere removal of clause (j) to Rule 6DD from Assessment Year 1996-97 by itself is not a compelling factor to necessarily disallow expenses incurred under the umbrella of Section 40A(3) of the Act when cogent evidences are available to prove the bona fides of the cash transactions in question together with identity of recipients. 8.3 The ld. counsel thus urged for appropriate relief by way of cancellation of the disallowance carried out by the Assessing Officer and erroneously confirmed by the CIT(A). 9. The DR for the Revenue, on the other hand, relied upon the orders of the lower authorities and in furtherance submitted that provisions of Section 40A(3) imposing restrictions on cash payments would be triggered in the case of the assessee except in the circumstances listed under Rule 6DD of the Income Tax Rules. The Ld. DR submitted that the case of the assessee have not been shown to fall within any of the clauses of Rule 6DD of the Ru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was reimbursed in cash. 10.3 To appreciate the facts in its perspective, the assessee has provided tabular statement of transaction with parties in both the assessment years in question as reproduced hereunder: Assessment Year 2014-15 S. No. Name of Party TAN Number Cash Payment part Bank payment Total Purchase TCS 1. M/s. ADS Spirits Pvt. Ltd. DELA26813D 3594900 7620146 11215046 112151 2. The Panipat Co-op Sugar Mills Ltd. RTKT01329G 1300000 629780 1929780 19298 3. M/s. Frost Falcon Distillery DELF02254A 150000 3715068 3865068 38650 4. M/s. NV Distilleries Private Ltd. RTKN02286ELtd. 607000 18928004 19535004 195349 Total 5651900 30892998 36544898 365448 Assessment Year 2015-16 S. No. Name of Party TAN Number Cash Payment part Bank payment Total Purchase TCS 1. M/s. ADS Spirits Pvt. Ltd. DELA26813D 1178000 1795590 2973590 29736 2. The ADIE Broswon Distillers and Bottlers Pvt. Ltd. LKNA07119A 600000 1673694 2273694 22736.94 3. M/s. Oasis Commercial Pvt. Ltd. RTKO01614E 850000 17097648 17947648 179476 4. M/s. NV Distilleries ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expediency and other relevant factors embedded in provisions of Section 40A(3) and Section 40A(3A) are not diluted by the amendment in Rule 6DD of the IT Rules which is merely a delegated legislation. The Co-ordinate Bench discharged the assessee from the clutches of Section 40A(3) where the business expediency to make payment in cash was found to be reasonably established. In the instant case, the circumstances narrated on behalf of the assessee provide reasonable ground to show-case considerations of business expediency and existence of relevant factors which warranted cash payments in the wisdom and perspective of a businessman. Be that as it may, the cash transactions, in any case, have been subjected to TCS collections etc. and are thus duly made chargeable to tax in the hands of the recipient. No enquiries have been made on behalf of the Revenue to dislodge the bona fides of the cash purchases. Nonetheless, the suppliers and recipients of cash are identified parties and well regulated. 10.5 Thus in totality, we find merit in the case made out on behalf of the assessee for exoneration from the clutches of Section 40A(3) in the peculiar facts of the present case. 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