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of <h1>Tribunal rules cash payments to Railways exempt under Income-tax Act, Section 40A(3)</h1> <h3>Shri Venkatesh Kabade, Hubli. Versus The Deputy Commissioner of Income Tax,</h3> Shri Venkatesh Kabade, Hubli. Versus The Deputy Commissioner of Income Tax, - TMI Issues Involved:1. Applicability of Section 40A(3) of the Income-tax Act, 1961.2. Coverage under exceptions provided in Rule 6DD of the Income-tax Rules, 1962.3. Justifiability of disallowance of Rs. 2,22,40,998 by the Assessing Officer.Issue-wise Detailed Analysis:1. Applicability of Section 40A(3) of the Income-tax Act, 1961:The primary issue in this case is whether the provisions of Section 40A(3) of the Income-tax Act, 1961, which disallows deductions for cash payments exceeding Rs. 20,000, are applicable. The assessee purchased railway scrap material worth Rs. 2,22,40,998 from South Western Railways and made the payment in cash. The Assessing Officer (AO) invoked Section 40A(3) and disallowed the expenditure, as it was not made by crossed cheque or bank draft.2. Coverage under Exceptions Provided in Rule 6DD of the Income-tax Rules, 1962:The assessee contended that the payment was covered under the exceptions provided in Rule 6DD(b) of the Income-tax Rules, 1962, which allows cash payments to the government if required to be made in legal tender. The CIT(A) rejected this argument, stating that the assessee did not furnish exceptional, unavoidable, and justifiable reasons for making cash payments. However, the Tribunal noted that similar facts and issues were adjudicated in the case of Sri Devendrappa M. Kalal v. ITO, where it was held that payments made in cash to the government (South Western Railways) were covered under Rule 6DD(b) and thus exempt from Section 40A(3).3. Justifiability of Disallowance of Rs. 2,22,40,998 by the Assessing Officer:The CIT(A) upheld the AO's decision, emphasizing that the assessee failed to provide justifiable reasons for cash payments. The Tribunal, however, referred to the decision in Sri Devendrappa M. Kalal's case, where it was concluded that payments made in legal tender to the government are not subject to Section 40A(3). The Tribunal highlighted that the payment was made in Indian currency, which qualifies as legal tender, and the South Western Railways' terms required cash payment. Consequently, the Tribunal found that the CIT(A) was not justified in confirming the disallowance and ruled in favor of the assessee, deleting the addition.Conclusion:The Tribunal allowed the appeal, holding that the cash payments made by the assessee to the South Western Railways were covered by the exceptions in Rule 6DD(b) and thus not subject to disallowance under Section 40A(3). The Tribunal's decision was based on the precedent set in the case of Sri Devendrappa M. Kalal, where similar facts and legal issues were adjudicated. The appeal was pronounced in the open court on May 30, 2012.
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