Tribunal Allows Appeal: Disallowance Unjustified, Interest Deleted; Late Filing Interest Upheld.

The Tribunal partially allowed the appeal, determining that the disallowance under section 40A(3) was unjustified as the payment was made directly to the bank account of the recipient, ensuring traceability. Interest charged under section 234B was deleted since the assessee's declared income was below the threshold for advance tax payment. However, interest under section 234A was upheld due to the late filing of the tax return.

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Issues: Disallowance u/s 40A(3) and charging of interest u/s 234A and 234B.

Disallowance u/s 40A(3): The assessee, a rice mill business, paid cash to M/s. K. Parameswarappa & Co. for rice purchase. The Assessing Officer disallowed Rs. 2.04 lakhs under section 40A(3) as payment was not made by crossed cheque/draft. The assessee argued KP acted as an agent, covered under Rule 6DD(f), and payments were routed through banking channels. The Departmental Representative contended KP was a trader, not an agent, thus disallowance was upheld. The Tribunal referred to Supreme Court's interpretation of section 40A(3), emphasizing genuine transactions and routing payments through banking channels. As the payment was made directly to KP's bank account, ensuring traceability, the disallowance was not justified.

Charging of Interest u/s 234A and 234B: The return was filed late, attracting interest u/s 234A. However, interest u/s 234B was not applicable as the declared income was minimal, below the threshold for advance tax payment. Since the assessee was not obligated to pay advance tax, interest u/s 234B was deleted.

In conclusion, the Tribunal partly allowed the appeal, deleting the disallowance u/s 40A(3) and interest charged u/s 234B.

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