INCOME TAX ACT, 1961

Section 40A(3)

Business disallowance under section 40A(3) - Cash payments in excess of prescribed limit - Business expediency -

Assessee made cash payment in excess of prescribed limit towards purchase of piece of land. AO invoked section 40A(3) and made disallowance. Assessee's case was that seller was a resident of village which has no banking facility and therefore, she didn't had occasion to open any bank account in absence of any bank and in fact, she did not have any bank account opened and maintained in her name as on the date of execution of sale deed and, therefore, in such circumstances, assessee had no option but to discharge sale consideration in cash. Held: Clearly a case of business expediency which necessitated assessee who wanted to acquire piece of land to discharge sale consideration in cash due to lack of formal banking facility and in absence of any bank account in name of seller. Further, sale deed had been executed on 18-8-2013 and payment was made on said date which happened to be Sunday and thus a bank holiday again necessitating payment in cash coupled with the fact that seller did not have a bank account. Also, identity of persons from whom purchase of land was made by assessee was established and source of cash payments was duly reflected in assessee's regular books of accounts and said details were submitted before the lower authorities and have not been disputed by them. Further, it was not the case of revenue that any unaccounted or undisclosed income of the assessee was utilised in making cash payments. Thus, genuienensss and bona fide of the transactions stood established and no disallowance under section 40A(3) was called for.

Followed:CIT v. Solutions 80 Taxmann.com 246.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2014-15

INCOME TAX ACT, 1961

Section 68

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