2022 (6) TMI 1397 - AT - Income Tax

Disallowance u/s 40A(3) - cash payment to various suppliers exceeding specified limit - assessee could not prove that the cash payment was due to exceptional or under unavoidable circumstances - HELD THAT - Upon perusal of documents, we find that that the assessee has not made cash payment directly to the suppliers but deposited the same directly into their bank accounts. In support, the assessee has placed on record bank deposit slips. This is stated to have been done on the request of the suppliers and the suppliers themselves have furnished the bank account details to the assessee to ensure fast receipt of payment without delay. It could be also noted that genuineness of the payment or the existence of the suppliers is not under doubt. Assessee has placed on record complete details of suppliers along with their addresses, bank details with copies of deposits slips for each of payment transferred to them. On the basis of all these documentary evidences, we are of the considered opinion that impugned disallowance is not justified on the facts and circumstances. Hence, by deleting the same, we allow the appeal.

Summary

Issues: Disallowance u/s 40A(3) on account of cash payment exceeding specified limit

Analysis:
1. The appeal for Assessment Year 2016-17 arose from the order of the Commissioner of Income Tax (Appeals) regarding disallowance u/s 40A(3) on cash payments exceeding the specified limit to various suppliers.

2. The delay of 183 days in filing the appeal was condoned due to the Covid-19 pandemic situation, allowing the appeal to be admitted for adjudication on merits.

3. The disallowance under Sec. 40A(3) was challenged by the appellant, arguing that payments were directly deposited into the suppliers' bank accounts. The Revenue contended that the appellant violated the provisions of Sec. 40A(3) without any applicable exceptions.

4. The appellant, a resident firm engaged in textiles business, made cash payments to suppliers, resulting in a disallowance under Sec. 40A(3) as no deduction is allowed for such expenditures exceeding twenty thousand rupees made in cash.

5. The CIT(A) deleted the disallowance for RTGS payments but upheld the balance disallowance as the appellant failed to prove exceptional or unavoidable circumstances for cash payments, not falling under any exceptions in Rule 6DD of Income Tax Rules.

6. Upon review, it was found that the appellant did not make cash payments directly to suppliers but deposited the amounts into their bank accounts as per the suppliers' request for prompt receipt. The genuineness of payments and suppliers' existence were confirmed through detailed documentation, leading to the conclusion that the disallowance was unwarranted, resulting in allowing the appeal.

7. The appeal was allowed, and the disallowance under Sec. 40A(3) was deleted based on the documentary evidence provided by the appellant.