Cash payment disallowance under section 40A(3) fails where fruit purchases fall within the Rule 6DD agricultural produce exception.

Cash payments for purchase of fruits were examined against the disallowance rule in section 40A(3). The text notes that section 40A(3) disallows expenditure paid otherwise than through banking channels above the prescribed limit, but Rule 6DD provides exceptions, including payments for agricultural produce under Rule 6DD(e)(i). Because the audit remark was only general and did not give transaction-wise particulars, or show whether the amount reflected a single payment or multiple entries to one person, the disallowance was treated as unsustainable and deleted.

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Issues: Whether the cash payment disallowance made under section 40A(3) could be sustained when the purchase was of fruits and the record did not contain specific transaction-wise particulars.

Analysis: Section 40A(3) disallows expenditure where payment to a person in a day exceeds the prescribed limit otherwise than through banking channels, but Rule 6DD creates exceptions. The payment in question was stated to relate to purchase of fruits, which prima facie falls within the category of agricultural produce covered by Rule 6DD(e)(i). The tax audit remark was only general and did not specify whether the figure represented a single payment or multiple entries to a particular person, and the adjustment was made without transaction-wise details. In these circumstances, the disallowance was treated as unsustainable.

Conclusion: The disallowance under section 40A(3) was deleted and the issue was decided in favour of the assessee.

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