The Karnataka High Court observed that the onus of proving that special exigencies existed when a person made the business transaction in cash beyond the restriction imposed is on the assessee under section 40A of Income Tax Act, 1961.

The Court was hearing an appeal by the assessee who was aggrieved by the decision of the Income Tax Appellate Tribunal.

The bench of Justice M.I. Arun and Justice Umesh M. Adiga observed, “Restriction is imposed on the amount of transaction that a person can make in cash for business expenditure because any attempt by the assessee to show his income falsely as expenditure in business is thwarted and that the transaction made is traceable. However, under such circumstances exemptions are made to cater to special exigencies where it is not possible for the transaction to be made through Bank and a person is forced to pay money by way of cash. The onus of proving that such a circumstance existed and indeed payment has been done in cash and the income has not escaped assessment is on the assessee.”

The dispute pertains to non-acceptance of the statement of the assessee, that he had incurred an expenditure of a sum of Rs.3,47,717/- for the assessment year 2013-14.

The Court went through Section 40A(3A) first proviso of the Income Tax Act, 1961 which mentioned “Expenses or payments not deductible in certain circumstances.”

The Court noted that the assessee was in the business of cloth. He had not produced any believable document before the Assessing Officer to show that there was an exigency and he had to necessarily make payments on March 31st itself to the tune of Rs.3,47,717/- to the persons as contended by him.

The Court further stated that the petitioner also failed to show that he could not have made payment by way of cheque. He had also not produced any believable document to show that the said persons have received the said consideration and have declared the same in their income.

The Court did not see any reason to interfere with the decision of the Income Tax Appellate Tribunal.

Consequently, the Court dismissed the Writ Petition.

Cause Title: Santosh M. Bhandari v. The Income Tax Officer (Neutral Citation: 2024:KHC-D:5505-DB)


Appellant: Adv. Ashok A. Kulkarni

Respondent: Adv. Thirumalesh M., Adv. Roopa Anwekar

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