Shakti Singh Gulia vs ITO

Case snapshot

Sections / provisions: 40A(3)

Questions before the Court / Tribunal

• Section 40A(3): business expediency, genuineness and whether cash-payment disallowance is mechanically mandatory.
• What factual, statutory and procedural conditions control the relief?
• How does the operative order apply to the parties and the challenged proceeding?

Material facts and procedural background

Shakti Singh Gulia v. ITO H.No.305/26, Palika Colony Ward-4 Killa Mohalla, Rohtak Bhadurgarh Distt Jhajja Bahadurgarh Haryana TAN/PAN: ACWPG1881D (Appellant) (Respondent)

Appellant by: Shri Manoj Kumar, CA Respondent by: Ms. Meenakshi Dohare, Addl.CIT Date of hearing: 06 06 2023 Date of pronouncement: 15 06 2023

The captioned appeals have been filed by the assessee against the orders of the Commissioner of Income Tax (Appeals), Rohtak (‘CIT(A)’ in short) dated 23.07.2018 and 27.03.2019 arising from the assessment orders dated 30.12.2016 and 26.12.2017 passed by the Assessing Officer (AO) under Section 143(3) of the Income Tax Act, 1961 (the Act) concerning AY 2013-14 and 2015-16 respectively.

3. The grounds of appeal raised by the assessee read as under:

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.

Appellant / assessee submissions

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

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 Rules and therefore, the assessee is not entitled to any relief from the applicability of Section 40A(3) of the Act. The Ld. DR also submitted that having regard to robust banking facilities available these days and sophisticated digital platform for banking, the transfer of money through banking channel should not be seen as any impediment unlike good old days. The Ld. DR thus urged for upholding the action.

Revenue / respondent submissions

judgment delivered by the Hon’ble Supreme Court and various High Courts on the schematic interpretation of provisions of Section 40A(3) of the Act and observed that the considerations of business 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…

Court / Tribunal analysis and reasoning

The reasoning is integrated into the packaged record. Read it with the facts, statutory text and operative directions; this editorial article does not invent missing reasons.

Operative decision and relief

14. Ground No.2 of the assessee appeal is thus dismissed.

15. In the result, the appeal of the assessee for Assessment Year 2014-15 is partly allowed.

18. The appeal of the assessee for Assessment Year 2015-16 is thus allowed.

19. In the combined result, the appeal of the assessee for the Assessment Year 2014-15 in ITA No.6115/Del/2018 is partly allowed whereas appeal for the Assessment Year 2015-16 in ITA No.4618/Del/2019 is allowed.

Ratio and legal principle

• The packaged judgment addresses Section 40A(3): business expediency, genuineness and whether cash-payment disallowance is mechanically mandatory. The precise proposition must be read with the Court/Tribunal's reasoning and operative directions.
• Reliance depends on matching the statutory version, jurisdiction, procedural stage and material evidence recorded in the judgment.

Why this judgment matters

This decision is relevant to practitioners and affected parties dealing with section 40a(3): business expediency, genuineness and whether cash-payment disallowance is mechanically mandatory. Its value lies in showing how the adjudicating forum connected the applicable rule to the proved facts and procedural posture.

Practitioner action points

• Match the statutory version, jurisdiction, procedural stage and decisive evidence before relying on the result.
• Verify current appellate, review and SLP history and any later amendment or controlling authority.
• Attach the complete judgment to the working paper or filing and cite the paragraph/page supporting the proposition.

Does this case match your facts?

Section / provision impact

• 40A(3) - apply the exact version considered in the judgment.

Case network

Similar issue / useful comparison

• PCIT v. Ashwin Purshotam Bajaj - Court / Tribunal to be verified
• PCIT v. N.S. Software - Court / Tribunal to be verified
• The Nakodar Primary Cooperative Agriculture Development Bank Ltd vs. Income Tax Officer, Nakodar - ITAT Amritsar

Different outcome / possible distinction

• Dy. CIT v. Curosis Healthcare Private Limited - Operative order controls
• KESHORAIPATAN SAHKARI SUGAR MILLS LTD. vs. PRINCIPAL COMMISSIONER OF INCOME TAX - Operative order controls

Full judgment and source control

Read / download packaged judgment record

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