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Issues involved: Appeal against disallowance u/s 40A(3) of the Income Tax Act.
Summary: The appeal was filed by the assessee against the order of the Commissioner of Income Tax (Appeals) sustaining the disallowance of cash payments made under section 40A(3) of the Income Tax Act by the Assessing Officer for the assessment year 2008-09. The Assessing Officer disallowed cash payments made in excess of Rs. 20,000 for purchases made by the assessee, citing non-compliance with Rule 6DD of Income Tax Rules read with section 40A(3) of the Act. The Commissioner of Income Tax (Appeals) upheld the disallowance, stating that the assessee failed to establish exceptional and unavoidable circumstances necessitating the cash payments. However, the counsel for the assessee argued that the payments were made to an associate concern for the purchase of stock-in-trade, with a significant portion made through account payee cheques. The counsel contended that the cash payments were due to business exigency and exceptional circumstances, supported by proper accounting and genuine transactions. After hearing both sides, the Appellate Tribunal found that the genuineness of the payments and the identity of the payee were established. The Tribunal noted that the payments were made in the exigency of business considerations and that the provisions of section 40A(3) were not applicable in this case. Citing relevant case law, the Tribunal emphasized that the payments were genuine, identified, and made on business expediency, thus ruling in favor of the assessee and deleting the disallowance made by the Assessing Officer under section 40A(3) of the Act. Therefore, the appeal of the assessee was allowed, and no disallowance under section 40A(3) was warranted in this case. (Order pronounced on Tuesday, the 11th of September, 2012 at Chennai.)
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