GAYATRI JENA,BALASORE vs. ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE, BALASORE, BALASORE
In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.
What did the Tribunal hold?
The Tribunal held that Section 40A(3) is applicable only to expenditure claimed in the profit and loss account. Since the cash payments were in the nature of advances and no expenditure was debited, the disallowance was not justified.
What were the facts?
The assessee made cash payments exceeding Rs. 2,500, which were recorded in the cash book as advances. The AO disallowed these payments under Section 40A(3) of the Income Tax Act, alleging they were cash payments for expenditure.
What were the issues?
Whether cash payments made as advances, not debited to any expenditure account, are disallowable under Section 40A(3) of the Income Tax Act.
Which sections of the Income-tax Act were involved?
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “SMC” BENCH CUTTACK
Before: SHRI GEORGE MATHAN
O R D E R This is an appeal filed by the assessee against the order of the ld CIT(A), National Faceless Appeal Centre (NFAC), Delhi, dated 09.02.2024 in DIN & Order No.ITBA/APL/S/250/2023-24/1060729557(1) for the assessment year 2014-2015.
The only issue raised in this appeal is with regard to the disallowance made by the AO u/s.40A(3) of the Act by alleging that the assessee has made the cash payments to the various persons, is found recorded in the cash book. Ld. CIT(A) dismissed the appeal of the assessee by observing that these are the entry in the books of accounts where double entry system is followed by the assessee and against every payment there is an expenditure in the books of accounts of the assessee, therefore, this contention of the assessee is not correct.
Before us, ld. AR of the assessee submitted that these are the payments made to various persons as the assessee is running a petrol pump and during the course of regular business, on the request of the certain parties, advances were given to their drivers etc. which was recovered later on. Since it is neither a revenue expenditure nor capital expenditure nor the assessee claimed any expenses in profit and loss account of any such payment, therefore, the provisions of Section 40A(3) of the Act do not apply to the present case of the assessee. Accordingly, the ld. AR prayed that the addition so made by the AO and as confirmed by the ld. CIT(A) deserves to be deleted.
Per Contra, ld. Sr. DR supported the order of both the lower authorities and stated that in double entry system, there must be a nominal account, where the entry of expenses should be made against which these cash payments have been made and finally in the books of accounts, expenses was effected with this cash payments, therefore, the provisions of Section 40A(3) of the Act is completely applicable to the case of the assessee, and prayed for upholding the orders of the lower authorities. 5. I have considered the rival submissions. From perusal of the assessment order, it is seen that the AO himself has accepted that the payments were made to the various parties as recorded in the cash book of the assessee and no expenses account was debited. Merely because the payments were made in the cash as recorded in the cash book which seems to be in the nature of advances, no provisions under Section 40A(3) of the Act are attracted. The provisions of Section 40A(3) of the Act reads as under:- Expenses or payments not deductible in certain circumstances '40A. (1) ******** (2) ********* (3) Where the assessee incurs any expenditure in respect of, which payment is made, after such date (not being later than the 31st day of March, 1969) as may be specified in this behalf by the Central Government by notification in the Official Gazette, in a sum exceeding two thousand five hundred rupees otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft, such expenditure shall not be allowed as a deduction: Provided that where an allowance has been made in the assessment for any year not being an assessment year commencing prior to the 1st day of April, 1969 in respect of any liability incurred by the assessee for any expenditure and subsequently during any previous year the assessee makes any payment in respect thereof in a sum exceeding two thousand five hundred rupees otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft, the allowance originally made shall be deemed to have been wrongly made and the Income-tax Officer may recompute the total income of the assessee for the previous year in which such liability was incurred and make the necessary amendment, and the provisions of section 154 shall, so far as may be, apply thereto, the period of four years specified in sub-section (7) of that section being reckoned from the end of the assessment year next following the previous year in which the payment was so made: Provided further that no disallowance under this sub-section shall be made where any payment in a sum exceeding two thou-sand five hundred rupees is made otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft, in such cases and under such circumstances as may be prescribed, having regard to the nature and extent of banking facilities available, considerations of business expediency and other relevant factors.'.
More judgments on Section 40A(3)
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- Nagendra Prasad, Patna vs ITO Ward -5(3) Patna, Dak BanglowITA 362/PAT/2026[2016-17]Status: Disposed29 Sept 2026AY 2016-17
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