The Patna High Court, while allowing an appeal filed against the order of the Tribunal, holding that on mere submission of the assessee that amounts paid to his suppliers were deposited in the accounts maintained by them, accompanied by production of pay-in-slips, there was substantial compliance of Section 40A(3) of the Income Tax Act, held that the identity of the payee is very relevant in such cases and merely because cash has been deposited to the accounts, that would not prove that it was against the purchase made and that the recipient of such payment was an actual trader of the goods purchased.
Brief Facts:
The assessee was a trader of vegetables, mainly onions, which were purchased from traders in Maharashtra. The payments to the purchasers were mostly made in cash and it exceeded Rs. 20,000/- on a single day. The assessee's contention was that the cash amounts were deposited at the bank branches in Patna. Admittedly, the single-day transactions exceeded the Rs. 20,000/- limit, as prescribed under Section 40A(3) of the Income Tax Act at that point in time. The traders, according to the assessee; the respondent herein, are the agents of the farmers, and hence, the exemption under Rule 6DD is applicable. The Assessing Officer found that there was no payment made, as provided under Section 40A(3), by payee cheques or account payee bank drafts. The First Appellate Authority found that the payments made into the account of the traders were evidenced by the pay-in-slips and this would satisfy the object of Section 40A(3). The Tribunal concurred with the First Appellate Authority insofar as the object of Section 40A(3) had been satisfied.
Observations of the Court:
The Court noted that the limit provided in the relevant assessment years as per Section 40A(3) was Rs. 20,000/- and that the assessee had made payments in a single day, far exceeding the above limit, to 13 traders. Section 40A(3) mandates that any expenditure in respect of which a payment is made to a person in a day, other than by an account payee cheque drawn on a bank or account payee bank draft, shall not be allowed as a deduction under the Income Tax Act. What is relevant would be the exigibility to tax the cash, which is claimed as an expenditure by the assessee.
The Court observed that the identity of the payee is very relevant in such cases and merely because cash has been deposited to the accounts, that would not prove that it was against the purchase made and that the recipient of such payment was an actual trader of the goods purchased. The Court said that genuine and bona fide transactions were held to be not taken out of the sweep of the section; which had to be proved by the assessee to the satisfaction of the Assessing Officer. The Court remarked that in the present case, there was no identity of the trader/person who supplied to the Assessing Officer, nor were any invoices produced before the Assessing Officer to prove a corresponding purchase made, based on the deposits made in various accounts.
The decision of the Court:
The Patna High Court, allowing the appeal, held that the order of the Tribunal is perverse and against the rigor of Section 40A(3). The pay-in-slips alone would not substantiate the case of the assessee of, a genuine transaction made to a genuine seller/supplier.
Case Title: The Principal Commissioner of Income Tax vs Ambika Prasad Gupta
Coram: Hon’ble Chief Justice K. Vinod Charan and Hon’ble Justice Partha Sarthy
Case no.: Miscellaneous Appeal No.288 of 2017
Advocate for the Appellant: Mrs. Archana Prasad
Advocate for the Respondents: Not Mentioned
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