Genuine cash payments to identified group concerns may escape section 40A(3) disallowance when business expediency is shown.

Cash payments to group concerns for purchases were treated as outside the disallowance under section 40A(3) where the transactions were genuine, fully accounted, and made to identified payees in the course of business. The text explains that the purchases, pricing, receipt of funds, and supplier identity were not in dispute, and that there was no indication of unaccounted money or tax evasion. Section 40A(3) is described as an anti-black-money provision, but its rigour was held inapplicable to bona fide transactions supported by business expediency. Rule 6DD was also treated as non-exhaustive, allowing relief on settled principles.

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Issues: Whether cash payments made to group concerns for purchases were disallowable under section 40A(3) of the Income-tax Act, 1961, or whether the transactions were genuine and fell outside the rigours of the provision.

Analysis: The payments were found to be made between group entities in the course of an accounted business arrangement. The factual findings accepted that the purchases, prices, identity of the payees, and receipt of money by the supplier companies were not in dispute. The expenditure was held to be genuine, at arm's length, and supported by business necessity, with no element of unaccounted money or tax evasion. Section 40A(3) was applied as a measure aimed at curbing black money, but its rigour was held inapplicable to bona fide transactions of the present kind. Rule 6DD was treated as not exhaustive, and the cash payments were accepted in light of the settled principle that genuine business expediency and identified payees may justify relief from disallowance.

Conclusion: The cash payments were held to be outside the purview of section 40A(3), and the disallowance was deleted.

Final Conclusion: The Revenue's challenge to the deletion of the cash-payment disallowance failed, and the assessment relief granted by the first appellate authority was sustained.

Ratio Decidendi: Section 40A(3) does not require disallowance where cash payments are proved to be genuine, accounted, supported by identifiable payees, and made in circumstances showing business expediency, especially when Rule 6DD is construed as non-exhaustive.

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