2012 (11) TMI 1305 - AT - Income Tax

Revenue's Appeal Upheld on Cash Payment Disallowance (3)

The Dy. Commissioner of income-tax Circle-12 (3), Versus M/s Sandur Sales & Services Pvt. Ltd., Bangalore

The revenue appealed against the CIT(A)'s decision to delete the disallowance under section 40A(3) for cash payments exceeding Rs. 20,000 without ... - Issues involved: Revenue's appeal against CIT(A)'s order deleting disallowance u/s 40A(3) for cash payments made without verification.Summary:The revenue appealed against CIT(A)'s decision to delete the disallowance made u/s 40A(3) for cash payments exceeding Rs. 20,000 without verification. The AO observed multiple cash payments made by the assessee, proposing a 20% disallowance. The assessee claimed the cash was directly deposited into suppliers' bank accounts without violating Sec.40A(3). The CIT(A) relied on a previous ITAT decision and allowed the appeal, stating that direct cash deposits enable transaction verification and prevent unaccounted money use. The revenue contended that the facts differed from the previous case and employees cannot be considered as agents. The assessee argued that direct bank deposits do not violate Sec.40A(3) and submitted additional evidence for verification. The Tribunal referred to the legal position established in a previous case, concluding that direct bank deposits do not attract Sec.40A(3). However, as verification of additional evidence was crucial, the case was remanded to the AO for further examination. Ultimately, the revenue's appeal was allowed for statistical purposes.The Tribunal emphasized that direct cash deposits into suppliers' bank accounts, as opposed to issuing cheques, do not violate Sec.40A(3) as they ensure payment traceability and prevent misuse of unaccounted funds. The decision was based on the principle that such transactions fulfill the objective of Sec.40A(3) by routing payments through banking channels. Despite differing facts, the legal principle remained consistent with the previous case, leading to the upholding of CIT(A)'s decision. The case was remanded to the AO for verification of additional evidence regarding direct bank deposits, with the outcome determining the necessity of disallowance.