Bank Holidays Do Not Justify Cash Payments Exceeding Statutory Limit: ITAT Rejects Assessee’s Claim u/r 6DD of Income Tax Rules [Read Order]

The Bangalore Bench of the Income Tax Appellate Tribunal (ITAT) ruled that the payments was not made on banking holidays and held that the assessee failed to establish the conditions required for claiming exemption under Rule 6DD(j) thus confirming the disallowance under Section 40A(3) of the Income Tax Act for the Assessment Years 2013-14 and 2014-15.

Texo The Builders (assessee), a real estate developer, faced significant disallowances from the Assessing Officer (AO) for making cash payments exceeding the statutory limit of ₹20,000 for materials and labour.

Aggrieved by the AO’s order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [ CIT(A) ]. The CIT(A) confirmed the disallowance. Aggrieved by the order of the CIT(A), the assessee filed an appeal before the ITAT.

The assessee argued that a substantial portion of these payments was made on bank holidays, which, due to the continuous nature of construction activity, necessitated immediate cash payment to avoid delays.

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The assessee also argued that cash payments made on Saturdays and Sundays (non-working days for banks) for material procurement should be exempt under Rule 6DD(j) due to business expediency in the construction sector.

The two-member bench, comprising Laxmi Prasad Sahu (Accountant Member) and Soundararajan K (Judicial Member), critically examined the detailed submission of dates and payments provided by the assessee for the disputed cash expenses.

For AY 2013-14, the assessee disputed a payment amount of ₹3,41,850. The Tribunal held that the actual days of payment for transactions like 'Engineer work charges' (₹21,250) and 'Mahaganapathi Steel' (₹2,00,000) were Friday, Tuesday, Wednesday, and Thursday - all regular bank working days.

Similarly, for a larger disputed amount in AY 2014-15, the Tribunal noted that the AO had already verified the claim and found that the payments did not satisfy the conditions of Rule 6DD(j) of the Income Tax Rules, 1962.

Accordingly, The Tribunal ruled that the assessee’s submissions that the cash payments were made on banking holidays was incorrect. Therefore, the tribunal observed that the payments did not come under the explanation provided under Rule 6DD(j) of the Act.

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The tribunal rejected the plea of the assessee. The tribunal accordingly dismisses the appeal of the assessee on this ground for both assessment years.

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