2025 (2) TMI 823 - AT - Income Tax

Disallowance u/s 40A(3) - amount paid in cash to the Kerala State Electricity Board (KSEB) towards electricity charges - HELD THAT - The provisions of section 40A(3) is not absolute. Provisions of section 40 A(3) cannot be read in isolation but should be read with the provisions of rule 6DD of the I.T. Rules. Provisions of rule 6DD enumerates certain exceptions for invoking provisions of section 40A(3). Clause (b) of rule 6DD provides that where the payment is made to the government no disallowance u/s. 40A(3) is to be made. In the present case the payment is made to state government undertaking i.e. KSEB which is considered to be a state within the meaning of Article 12 of the Constitution of India and the cash payment made to the state government undertaking cannot be disallowed. See SRC Aviation P. Ltd. 2012 (9) TMI 296 - DELHI HIGH COURT and Arvind Mills Ltd. 2014 (11) TMI 591 - GUJARAT HIGH COURT Since the payment in question falls under the exceptions enumerated under rule 6DD we delete the addition. Assessee appeal allowed.

Summary

The case involves an appeal by a partnership firm against an order of the National Faceless Appeal Centre for the Assessment Year 2015-16. The firm was involved in the manufacturing and trading of food items. The Income Tax Officer disallowed a cash payment made to the Kerala State Electricity Board towards electricity charges, invoking section 40A(3) of the Income Tax Act, 1961. The CIT(A) upheld the AO's decision. The appellant argued that the payment to a government undertaking like KSEB falls under exceptions in rule 6DD of the I.T. Rules, thus no addition should be made. The Tribunal agreed, citing relevant case law, and deleted the addition. As a result, the appeal was allowed on 19th February 2025.