| Question And Answer | |
|---|---|
| Subject: | Section 40A(3) and 40A(3A) of Income Tax Act |
| Category: | Income-Tax |
| Querist: | Ruchi Bhansali |
| Answered by: | Advocate Neelam Jadhav |
| Tags: | cash payment, no bank account, Section 40A(3A) |
| Date: | February 19, 2022 |
Assessee is a developer of the housing project and engaged in the business of construction.
The assessee purchased a land for development of housing project on which there was encroachment of a person. A settlement has been made by the assessee with the said person and as per the agreed terms the assessee agreed to share with him the sale proceeds of one unit in the said housing project for withdrawing his claim of the land.
In the year 2012-13, the assessee sold the unit allotted to the person referred above for Rs. 1 crores and credited the sale proceeds to his account in books of assessee.
As per the request of the said person, assessee has started paying the amount by bearer cheque to the said person. In the A.Y 2015-16, assessee has paid Rs. 10,00,000/- on different dated by bearer cheque. The AO asked the assessee to show cause as to why these payments should not be disallowed u/s 40A(3A) of the Act. Assessee has replied that
- The said payment is genuine.
- The said payment, the recipient has accepted and also confirmed that he has no bank account and therefore as per his request payment is effected by bearer cheque.
- The recipient is assessed to tax and he has also confirmed that he has submitted the return of income disclosing the amount received in the said return.
- The expenditure is not incurred in the F.Y.2012-13 as well as in current year.
However, AO has not appreciated the submission and made the addition.
Is this action of AO correct?
Please guide with supporting case laws, if any.
If the expenditure is not claimed as deduction , there is no question of disallowance u/s 40A(3) or 40(3A) of the Act .
In Smt. Sangeeta Verma v. CIT [2022] 284 Taxman 303 (All)(HC) held that, the affidavits filed by the assessee is clear recital that the purchasers insisted for cash payment. Their identity is certainly not in doubt. The sale deeds are also admitted to be registered documents and there is no other material as may be considered adverse to the claim set up by the assessee. The undisputed facts of the case that, seller has been insisting on cash payment, the identity of the seller had been disclosed by the assessee, The assessee had furnished certificates from the sellers stating that they had insisted on cash payment, The genuineness of the payments is also proved, hence there is no disallowance under section 40A(3).
In Vijayeta Buildcon (P.) Ltd. v. ACIT [2021] 186 ITD 493 (Jaipur)(Trib.) held that, since identity of sellers and source of cash payments as withdrawals from assessee’s bank account were established and genuineness of transaction was also evidenced by registered sale deeds of lands and test of business expediency was also met, no disallowance under section 40A(3) was to be made in respect of such cash payment made by assessee.
The assessee may rely on the above case laws and can also produce the affidavit of the recipient of the amount .