INCOME TAX ACT, 1961

Section 40A(3)

Business disallowance under section 40A(3) - Cash payments made through agents of suppliers - Purchase of building materials for purpose of construction - Validity of

Assessee was a civil contractor. AO observed that assessee had made payments frequently for purchase of building materials for the purpose of construction. He purchased sand, morrom and boulders from the agents of suppliers. Payments were made to the agents in cash in instalments in violation of provisions of section 40A(3). Since the payments were made in cash in excess of Rs. 20,000, he disallowed the sum under section 40A(3). This was upheld by CIT(A). Held: Assessee being a contractor frequently purchased building materials from various suppliers through their agents. The agents have flexibility to assessee to make payments in installments. However, for giving such facility they required payments to be made in cash only. Assessee was compelled to make cash payments in excess of Rs. 20,000. Assessee had also established the circumstances under which the payment in the manner prescribed in section 40A(3) was not practicable or would have caused genuine problems and hence, the business expediency was proved beyond doubt. Thus, AO was directed to delete the disallowance made under section 40A(3).

Followed:Attar Singh Gurmukh Singh v. ITO (1991) 191 ITR 667 (SC) : 1991 TaxPub(DT) 1528 (SC)

REFERRED :

FAVOUR : In assessee's favour by way of remand

A.Y. :

INCOME TAX ACT, 1961

Section 40(a)(ia)

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