Cash Payments to Landlord, Students etc., Exceeds Threshold limit of Rs.10,000: ITAT Upholds Disallowance u/s 40A(3) [Read Order]

The Chennai Bench of the Income Tax Appellate Tribunal (ITAT) has upheld the disallowance of cash payments amounting to Rs. 66,61,467 for violating the threshold limit of Rs. 10000 prescribed under Section 40A(3) of the Income Tax Act, 1961.

Devcare Solutions (assessee) who had observed by the Assessing Officer (AO) that the assessee  had withdrawn Rs. 80,14,000 in cash from its HDFC bank account. The AO observed cash expenses totaling Rs. 66,61,467, where individual payments exceeded the Rs. 10,000 threshold limit stipulated under Section 40A(3) of the Income Tax Act. 

The AO issued a show-cause notice to the assessee. The assessee submitted a cash book but failed to provide adequate rebuttal or evidence to justify the cash payments. Aggrieved by the AO’s addition of Rs. 66,61,467, the assessee appealed before the Commissioner of Income Tax (Appeals) [CIT(A)]. The assessee argued that the cash payments were made under compelling circumstances.

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The assessee submitted that cash payments amounting to Rs. 3,60,000 was paid as rent in cash at the request of landlords, who were also partners of the firm, Rs. 21,84,147 was paid as stipends to students hired for US projects, who lacked bank accounts and Rs. 40,16,237 was paid as salaries or outsourcing charges to temporary or contractual staff without bank accounts.

The CIT(A) upheld the AO’s findings and dismissed the assessee’s arguments as insufficient to treat the payments as an exception under Rule 6DD of the Income Tax Rules. Aggrieved by the CIT(A)’s order, the assessee filed an appeal before ITAT. The assessee reiterated the same arguments and relied on the previously submitted documents.

The two-member bench comprising Manu Kumar Giri (Judicial Member) and Amitabh Shukla (Accountant Member) observed that Section 40A(3) aims to curb cash transactions to ensure a traceable trail of expenses.

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The tribunal observed that Rule 6DD provides exceptions for cash payments exceeding Rs. 10,000. The tribunal observed the exceptions as in cases of inadequate banking facilities or payments to low-end laborers.

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The tribunal observed that the assessee’s justifications lacked merit. The tribunal held that the claim that landlords insisted on cash payments was deemed insufficient. The tribunal rejected the contention that non-availability of banking facilities in a metropolis like Chennai for white-collar workers or students.

The tribunal upheld the CIT(A)’s findings and confirmed the disallowance of Rs. 66,61,467. The tribunal held that the assessee failed to provide evidence for genuineness of the transactions. The appeal of the assessee was dismissed.

To Read the full text of the Order CLICK HERE

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