Section 40A(3) disallowance fails where no direct cash payment by the assessee to the land owners is shown.

Section 40A(3) applies only where the assessee is shown to have made a cash payment to the relevant payee. On the facts stated, no direct cash payment by the assessee to the land owners was established, and the sale deeds were executed directly between the land owners and the purchasers. The article notes that a co-ordinate bench had reached the same result on identical facts, so the cash payment disallowance was not sustainable and the relief to the assessee was upheld.

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Issues: Whether disallowance under section 40A(3) of the Income-tax Act, 1961 was sustainable where the assessee had not made cash payment directly to the land owners and the conveyance deeds showed transactions between the land owners and the purchasers.

Analysis: The liability under section 40A(3) arises only when there is a cash payment covered by the provision. On the facts recorded, the assessee had not made any direct cash payment to the land owners, and the sale deeds were executed directly between the land owners and the purchasers. The earlier co-ordinate bench decision in the assessee's own case on identical facts had also deleted the addition, and no infirmity in the appellate finding was shown.

Conclusion: The disallowance under section 40A(3) was not justified and the relief granted to the assessee was upheld.

Final Conclusion: The Revenue's challenge to the deletion of the cash payment disallowance failed, and the appellate order was left undisturbed.

Ratio Decidendi: Section 40A(3) cannot be invoked where the assessee is not shown to have made the cash payment to the relevant payees directly.

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