INCOME TAX ACT, 1961

Section 40A(3)

Business disallowance under section 40A(3) - Cash payment in excess of prescribed limit - Payment towards electricity charges to State electricity distribution company -

Assessee made payment towards electricity charges amounting to Rs. 71 lakhs in cash to Ajmer Vidyut Nigam Limited (AVVNL) and therefore, AO invoked section 40A(3) and made disallowance. Assessee submitted that its mining site was located 3 km. away from the nearest village Chapoli and Tehsil Udairpurwati was also 20 km. away from the said village. All the electricity bills were required to be deposited in AVVNL, Udairpurwati office only. It was further submitted that AVVNL, Udairpurwati did not accept account payee cheques of every bank except cheques of only local clearing banks of Udairpurwati only, and its bank account was with Vijaya Bank, Jhunjhunu, which had no branch in Udairpurwati. It was further submitted that in each of the cases of cash deposits, the amount has been withdrawn from bank account of the assessee firm and then payment had been made to the AVVNL. Held: There was no dispute regarding identity of state electricity distribution company (AVVNL), genuineness of transaction in terms of electricity bills for consumption of electricity by the assessee, source of cash being withdrawals from assessee's own bank account and test of business expediency had also been met. Therefore, no disallowance was called for by invoking section 40A(3).

REFERRED :

FAVOUR : In assessee's favour.

A.Y. :

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