The Chennai Bench of Income Tax Appellate Tribunal ( ITAT ) disallowed the tax deduction on grounds that an amount of 22 Lakhs payment to the whole sale dealer was made fully in cash which is contrary to the provision of Section 40A(3) of Income Tax Act, 1961.
Before the bench of Mahavir Singh (Vice President) and Manjunatha (Accountant Member), two appeals filed by the assessee are arising out of two different orders of the Commissioner of Income Tax (Appeals) [CIT(A)].
The assessments were generated by the Assistant Commissioner of Income Tax, Non-Corporate Circle, in accordance with sections 144 and 147 of the Income Tax Act for the A.Y. 2012–13 and 2013–14.
The relevant grounds raised by the assessee is the CIT (A) erred in upholding the action of the Assessing officer (AO) disallowing a sum of Rs.22,14,69,841 under section 40A(3) of the Income Tax Act.
The assessee acknowledged having paid cash for dhall worth Rs. 18,01,19,841 and oil worth Rs. 4,13,50,000 from one person to another in a single day in excess of Rs. 20,000. By applying the requirements of section 40A(3) of the Income Tax Act, the AO made a total disallowance of Rs. 22,58,09,550.
The bench noted that the assessee, is a trader i.e.,retail and wholesale trader of dhall and oil and he admitted that he is making payment in cash in excess of Rs.20,000/- for purchase of dhall and oil and for which, he has made total payments to the extent of Rs.22,58,09,550.
The tribunal looked into the section 40A(3) of the Income Tax Act that it shall be attracted where the aggregate of the payments made to a single party otherwise by an account payee cheque drawn on a bank or account payee bank draft exceeds Rs.20,000/- in a day.
Further, the bench confirmed the disallowance made by the CIT(A) and AO.
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