TaxTMI 
TaxTMI 
2024 (7) TMI 127
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....as ordered to be deleted and disallowance of Rs. 5,96,019/- was upheld. 2. Brief facts of the case are that assessee e-filed return of income for the assessment year 2017-18 declaring taxable income of Rs. 2,99,620/- including income under the head Business and profession at Rs. 4,71,620/- and claimed deduction of Rs. 1,72,000/-. The case was selected for complete scrutiny through CASS. Notice under section 143(2) of the Income Tax Act, 1961 (hereinafter referred as "the Act") was issued on 24.09.2018 and the assessment proceedings were conducted through 'E-proceeding' facility. Assessee was engaged in trading and distribution of milk in the name and style of M/s. Narender Milk Sale Agency. The assessee is distributor of Vita Milk. The m....
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....allowance of expenditure in cash in violation of section 40A(3) of the Act by ignoring the fact that the AO had rightly made the addition on the facts having sufficient reasons and material available on record. So appeal may be accepted. 6. Learned authorized representative for assessee submitted that assessee is milk distributor and sales were carried out through the sub-distributors. The assessee received the milk products from a main supplier Hisar Jind Co-Op. Milk society Ltd. The mode of collection against the sale of milk is in cash. The cash collections are deposited in assessee's bank account and the amount was paid to company through banking channel. The payments were verifiable against the sale receipt shown in the accounts of ....
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.... in the manner prescribed in Section 40A(3) was not practicable or would have caused genuine difficulty to the payee. It is also open to the assessee to identify the person who received the cash payment. Rule 6DD provides that an assessee can be exempted from the requirement of payment by a crossed cheque or crossed bank draft in the circumstances specified under the rule. It will be clear from the provisions of Section 40A(3) and Rule 6DD that they are intended to regulate business transactions and to prevent the use of un-accounted money or reduce the chances to use black money for business transactions. (See Mudiam Oil Company v. ITO [1973] 92 ITR 519 (AP). If the payment is made by a crossed cheque drawn on a bank or crossed bank draft,....
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.... along with the cash the challan was presented to the bank of the payee for the credit of the same in the account of payee. In the result it is ensured that the payee and payee alone receives the payment and the origin and conclusion of transaction is traceable. Thus payment of sum directly in the bank account of payee fulfils the criteria for ensuring the object of introduction of Section 40A(3). This is not a direct payment to the payee but only to the credit of this bank account without the payee actually receiving the cash. We accordingly hold that such payment is not in violation of provision of Section 40A(3) and hence no disallowance is called for. 7. It is seen that the payment is made for purchase of agricultural produce. ....
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....h. Accordingly, there is no violation of Section 40A(3). We accordingly delete the disallowance of Rs. 2,04,000/- in respect of payment made to KP." 7. Learned authorized representative for assessee submitted that Hon'ble ITAT Delhi in IT Appeal No. 4111(Delhi) of 2015 decided on 9.12.2020 titled as "ITO vs. Suresh Kumar" reported as [2021] 124 Taxmann.com 563 held that "where assessee, running a travel agency, made payments in cash in excess of Rs. 20,000 to two entities on account of purchase of flight tickets for his clients, since genuineness of said transactions of payments was not disbelieved by revenue and assessee made out a case of business contingency, impugned payment could not be disallowed under section 40A(3)." ....