ITAT permits disallowance as Cash payments exceeds Rs. 20,000 to Single Party in Single Day

ITAT permits disallowance as Cash payments exceeds Rs. 20,000 to Single Party in Single Day

The Income Tax Appellate Tribunal (ITAT) Chennai bench permitted the disallowance under Section 40A(3) of the Income Tax Act as cash payment exceeds Rs. 20,000 to a single party in a single day.

The division bench comprising of Vice President Mahavir Singh and Accountant Member G. Manjunatha specified that Section 40A(3), which had been amended by the Finance Act, 2008 provides that the provisions Section 40A(3) of the Act shall be attracted where the aggregate of the payments made to a single party otherwise by an account payee cheque drawn on a bank or account payee bank draft exceeds Rs.20,000/- in a day. The Tribunal stated that, "the provisions of section 40A(3) of the Act is very clear and assessee is unable to prove that his case falls under any of the exception as provided under Rule 6DD of the Income Tax Rules, 1962. Hence, we confirm the disallowance."

In the aforementioned case, the Adjudicating Officer (AO) during the course of assessment proceedings, while examining the books of accounts noted that the appellant/assessee- Shri Kalimuthu Harichandran is a retail trader and wholesale trader of dhall and oil and admitted that he is making payment in cash in excess of Rs. 20,000 for purchase of dhall and oil and had made total payments to the extent of Rs 22 lakh.

The first jurisdictional issue raised by the assessee for assessment year 2013-14 by way of additional ground that no mandatory notice under Section 143(2) of the Income Tax Act had never been issued by the AO and hence contented that the assessment was bad in law. The above ground raised by the assessee were held purely legal and were admitted and adjudicated by the Tribunal.

Further, the AO made total disallowance by invoking the provisions of section 40A(3) of the Act amounting to Rs.22,58,09,550/-. Aggrieved, assessee preferred appeal before Commissioner of Income Tax Appeals (CITA). The CIT(A) also confirmed the action of the AO. Aggrieved, the assessee filed an appeal before the Tribunal.

According to Section 40A(3) of the Income Tax Act, if an assessee incurs any expense for which a payment or aggregate of payments was made to a person during a day in cash and the expenditure exceeds INR 10,000, the expenditure is not allowable as a deduction.

The Tribunal was of the view that since the provisions of Section 40A(3) were very clear the assessee was unable to prove that his case falls under any of the exceptions as provided under Rule6DD of the Income Tax Rules, 1962 and subsequently dismissed the appeals.