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Unity Inds - ITAT Order

Decision of Bangalore tax tribunal allowing payment in cash above INR 10000

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26 views2 pages

Unity Inds - ITAT Order

Decision of Bangalore tax tribunal allowing payment in cash above INR 10000

Uploaded by

contactus
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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TLOL Suite 3.

0 - December 15, 2020 Page: 1

[2020] 84 ITR (Trib) (S.N.) 44 (ITAT[Bang])

[BEFORE THE INCOME-TAX APPELLATE TRIBUNAL — BANGALORE "SMC-C" BENCH]

UNITY INDUSTRIES

v.

INCOME-TAX OFFICER

GEORGE GEORGE K. ((Judicial Member))

November 18, 2020.

Section(s): Income-tax Act, 1961, ss. 040A(3),154 ; Income-tax Rules, 1962, s.


006DD
Assessment Year: 2014-15
Favouring: Assessee, person

BUSINESS EXPENDITURE — DISALLOWANCE — PAYMENTS IN CASH IN EXCESS OF


SPECIFIED LIMITS — PAYMENTS FOR PURCHASE OF RAW MATERIAL WHEN BANK
ACCOUNT NOT ACTIVE — ASSESSEE ESTABLISHING GENUINENESS OF TRANSACTION —
NO DISALLOWANCE WARRANTED — INCOME-TAX ACT, 1961, s. 40A(3) — INCOME-TAX
RULES, 1962, R. 6DD

RECTIFICATION OF MISTAKE — MISTAKE MUST BE APPARENT ON RECORD — MERE


CHANGE OF OPINION NOT SUFFICIENT — RECTIFICATION NOT JUSTIFIED —
INCOME-TAX ACT, 1961, s. 154

The assessee was a firm engaged in manufacturing and fabrication of machine


components. During the previous year relevant to the assessment year 2014-15, the
assessment in the case of the assessee was completed under section 143(3) of the
Income-tax Act, 1961. Subsequently, the Assessing Officer issued a notice under section
154 of the Act on the ground that the assessee had made cash transactions in
contravention of section 40A(3) of the Act. The assessee submitted that it had
commenced operation in August 2013 and the bank account was not yet active. It stated
that it had some business orders in the meanwhile and for purchase of raw material out of
commercial expediency, it had to make cash payments. The objections raised by the
assessee were rejected and the Assessing Officer passed an order adding such cash
payments to the total income by invoking section 40A(3) of the Act. The Commissioner
(Appeals) confirmed the order of the Assessing Officer. On appeal :

Held, allowing the appeal, (i) that rule 6DD(j) of the Income-tax Rules, 1962, inserted
with effect from April 1, 1970, was a residuary rule whereby under exceptional or
unavoidable circumstances, the assessee could prove before the Assessing Officer that it
had to make cash payments. In such circumstances, the assessee could plead that the
disallowance under section 40A(3) of the Act was not warranted. This residuary rule was
omitted with effect from July 27, 1995. Rule 6DD(j) as reintroduced with effect from
December 1, 1995 mentioned specified exceptions to application of section 40A(3) unlike
the erstwhile residuary rule. In spite of the omission of residuary rule with effect from July
27, 1995, if the assessee proved the genuineness of business expediency, it could still
claim the expenditure as an allowable deduction. The assessee’s averments that during
the period in question, the assessee had received certain orders and to fulfil its orders,

©Company Law Institute of India Pvt. Ltd. - licensed to: BALU and ANAND
TLOL Suite 3.0 - December 15, 2020 Page: 2
the assessee was in urgent need of raw material, that since the suppliers were not willing
to extend credit and in view of business expediencies, the raw materials were purchased
paying cash, and that the products manufactured out of these raw materials were sold
and proceeds were offered for tax had not been controverted by the Department.

M. K. AGROTECH PVT. LTD. v. ADDL. CIT [2019] 412 ITR 351 (Karn) and A. DAGA ROYAL
ARTS v. ITO [2018] 64 ITR (Trib) (S.N.) 55 (Jaipur) followed.

(ii) That the Assessing Officer had not doubted the genuineness of the transaction.
Therefore, the proceedings under section 154 of the Act were taken on a mere change
of opinion, which was outside the mandate of the section. A mistake apparent on the
record must be an obvious and patent mistake and not something which could be
established by a long-drawn process of reasoning on points on which there might
conceivably be two opinions. Since the assessee had proved that there was
commercial/business expediency in making cash purchases, the mistake could not be
obvious and apparent from record.

T. S. BALARAM, ITO v. VOLKART BROTHERS [1971] 82 ITR 50 (SC) relied on.

(iii) That therefore, that the disallowance under section 40A(3) of the Act, in section 154
proceedings was uncalled for and liable to be quashed.

I. T. A No. 1862 /Bang/ 2019 (assessment year 2014-15).

R. E. Balasubramanyam for the assessee.


Ganesh R. Ghale, Standing Counsel, for the Department.

For the order please go to : http://www.taxlawsonline.com/sn

©Company Law Institute of India Pvt. Ltd. - licensed to: BALU and ANAND

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