Appeal dismissed, addition under IT Act section 40A(3) deleted. CIT(A) decision upheld citing r. 6DD(j).

The ITAT dismissed the appeal and upheld the deletion of the addition of Rs. 10,07,000 under s. 40A(3) of the IT Act. The CIT(A)'s decision to delete the addition was supported, citing the exception under r. 6DD(j) due to delayed payment realization when paid by cheque/draft and the genuineness of transactions. The ITAT emphasized genuine transactions, business expediency, and legal exceptions, concluding that the disallowance could not be sustained in this case.

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Issues:
Appeal against deletion of addition under s. 40A(3) of the IT Act, 1961.

Analysis:
The appeal involved the deletion of an addition of Rs. 10,07,000 made by the AO under s. 40A(3) of the IT Act. The AO noted that the assessee had paid the amount in cash to a supplier owned by the husband of the assessee, in contravention of the provisions. The assessee argued that the payment was made in cash due to the seller's insistence and exceptional circumstances to safeguard business interests. The AO disallowed the amount as the assessee failed to prove exceptional circumstances for not making the payment through crossed cheque/draft. The CIT(A) deleted the addition, citing that the case was covered under exception r. 6DD(j) due to delayed payment realization when paid by cheque/draft, and the genuineness of transactions was not in doubt.

Before the ITAT, the Departmental Representative argued that there were no exceptional circumstances for cash payment as both parties had bank accounts and the seller had accepted crossed cheques/drafts previously. The authorized representative contended that the payment was made due to exceptional circumstances, citing delays in realization if payment was made through banks. The genuineness of transactions and the identity of parties were not in question. The ITAT referred to various legal precedents supporting genuine transactions and exceptions under s. 40A(3) and r. 6DD(j) and upheld the CIT(A)'s decision to delete the disallowance.

The ITAT emphasized the importance of genuine transactions, business expediency, and the exceptions provided under the law. Citing legal precedents, the ITAT concluded that the disallowance under s. 40A(3) could not be sustained in this case. Therefore, the ITAT dismissed the appeal, upholding the deletion of the addition of Rs. 10,07,000.

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