Cash Payments to Suppliers cannot be Disallowed since Genuineness of Payment and Existence of Suppliers were Proved: ITAT [Read Order]

The Chennai bench of the Income Tax Appellate Tribunal (ITAT) has held that the cash payments made to suppliers cannot be disallowed by invoking section 40A(3) of the Income Tax Act, 1961 by observing that the assessee has proved the genuineness of the payments and the existence of the suppliers.

The assessee-firm, M/s. Om Balaji Stores is engaged in the business of textiles. The assessee made cash payment of Rs.14,20,377/- to various suppliers in violation of Section 40A(3). As per the section, where the assessee incurs any expenditure in respect of a payment or aggregate of payments made to a person in a day otherwise than by an account payee cheque drawn on a bank or account payee bank draft which exceeds twenty thousand rupees, no deduction shall be allowed in respect of such expenditure. During the course of assessment proceedings, the assessee did not file any satisfactory reply and accordingly, this amount was added to the income of the assessee.

The division bench of the Tribunal consists of Shri Mahavir Singh, Vice President and Shri Manoj Kumar Aggarwal, AM observed that the assessee has not made cash payment directly to the suppliers but deposited the same directly into their bank accounts.

“In support, the assessee has placed on record bank deposit slips. This is stated to have been done on the request of the suppliers and the suppliers themselves have furnished the bank account details to the assessee to ensure fast receipt of payment without delay. It could be also noted that genuineness of the payment or the existence of the suppliers is not under doubt. The assessee has placed on record complete details of suppliers along with their addresses, bank details with copies of deposits slips for each of payment transferred to them. On the basis of all these documentary evidences, we are of the considered opinion that impugned disallowance is not justified on the facts and circumstances,” the bench observed.

Support our journalism by subscribing to Taxscan AdFree. Follow us on Telegram for quick updates.