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| The Tax Publishers2019 TaxPub(DT) 6771 (Kol-Trib) INCOME TAX ACT, 1961
Section 40A (3)
Where assessee took enough precautions from his side to make payment through banking channel, but on insistence of payee he had no other option except to make payment in cash, because otherwise his business would have been stopped or restricted to that extent, therefore, no disallowance could be made under section 40A (3) as it was assessee`s genuine business activity.
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Business disallowance under section 40A(3) - Cash payment exceeding prescribed limit - Exceptional circumstances -
AO made disallowances under section 40A (3) as assesses made cash payment. Assessee contended that he made payment in cash on account of business expediency because payee itself insisted him to make payment in cash. However, revenue contended that ignorance of law was no excuse, and therefore section 40A (3) should be followed strictly. Held: In the instant case, assessee made bank draft to make the payment but payee refused to accept the same, therefore in order to run the business the assessee did not have any option but to make payment in cash. Because had the assessee not paid in cash, his business would have been stopped or restricted to that extent. The purpose of section 40A (3) is not to restrict the assessee`s genuine business activity. Hence, as the assessee acted with bona fide intention and as he took enough precautions from his side, the payment should not be disallowed.
Relied:Attar Singh Gurmukh Singh v. ITO (1991) 191 ITR 667 (SC) : 1991 TaxPub(DT) 1528 (SC),CIT v. CPL Tannery (2009) 318 ITR 179 (Cal) : 2009 TaxPub(DT) 0706 (Cal-HC),Girdharilal Soni v. CIT (1989) 179 ITR 111 (Cal) : 1989 TaxPub(DT) 1080 (Cal-HC)
REFERRED :
FAVOUR : In assessee's favour
A.Y. : 2010-11
INCOME TAX ACT, 1961
Section 145(3)
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