ITAT Kolkata allows deductions for genuine cash payments under Section 40A(3) in landmark ruling

The Appellate Tribunal ITAT Kolkata partially allowed the assessee's appeal, directing the allowance of disallowed cash payments under Section 40A(3) while upholding the disallowance of the drawings. The Tribunal noted the genuineness of the payments and referenced precedents allowing deductions for genuine transactions with cash payments. The judgment was pronounced on 15/07/2016.

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Issues:
1. Disallowance of cash payment under Section 40A(3) of the Act.
2. Disallowance of drawings of the assessee.

Issue 1: Disallowance of Cash Payment under Section 40A(3) of the Act:
The assessee, engaged in a lottery business, made cash payments exceeding Rs. 20,000 to suppliers for purchases of tickets. The AO disallowed Rs. 26,05,178 under Section 40A(3) due to lack of adjustment entries in the books. The ld. CIT(A) upheld the disallowance, stating Rule 6DD(d) applies to mutual adjustments, not multilateral. The assessee contended that the payments were genuine, covered under Rule 6DD(k), and should be allowed based on business expediency. Citing the Hon’ble Supreme Court judgment in Attar Singh Gurmukh Singh case, the assessee sought deletion of the addition. The Tribunal noted the genuineness of payments was not in question, referencing Girdharilal Goenka case, allowing deductions for genuine transactions with cash payments. The Tribunal set aside lower authorities' orders, directing allowance of the cash payments.

Issue 2: Disallowance of Drawings of the Assessee:
The AO disallowed Rs. 60,000 towards the assessee's low drawings of Rs. 30,000, considering the assessee's status and expenses. The ld. CIT(A) upheld the addition, deeming it moderate for the financial year. The assessee appealed, but the Tribunal found no grounds to interfere, as the ld. AR failed to provide contrary evidence. Consequently, the Tribunal upheld the lower authorities' decision on the disallowance of drawings.

In conclusion, the Tribunal partially allowed the assessee's appeal, directing the allowance of the disallowed cash payments under Section 40A(3) while upholding the disallowance of the drawings. The judgment was pronounced on 15/07/2016 by the Appellate Tribunal ITAT Kolkata.

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