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Facts
The assessee made cash payments for bonus and performance bonus totaling Rs. 17,30,800/- to employees, exceeding Rs. 10,000/- per employee, in violation of Section 40A(3) of the Income-tax Act. The Assessing Officer made a disallowance based on this violation.
Held
The Tribunal held that the cash payments were made in violation of Section 40A(3) and that none of the exceptions under Rule 6DD were applicable. The Tribunal also noted that employees had bank accounts for salary credits, making cash payments unnecessary.
Key Issues
Whether cash payments for bonus exceeding Rs. 10,000/- per employee are disallowable under Section 40A(3) of the Income-tax Act when exceptions under Rule 6DD are not met.
Sections Cited
143(3), 143(3A), 143(3B), 40A(3)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘B’ BENCH: CHENNAI
Before: SHRI MANU KUMAR GIRI & SHRI JAGADISH
आदेश / O R D E R
PER JAGADISH, A.M : Aforesaid appeal filed by the assessee for Assessment Year (AY) 2018-19 arises out of the order of Learned Commissioner of Income Tax (NFAC), Delhi [hereinafter “CIT(A)”] dated 13.11.2024 in the matter of assessment framed by the Assessing Officer [AO] u/s. 143(3) r.w.s 143(3A) & 143(3B) of the Income-tax Act,1961 (hereinafter “the Act”) dated 10.02.2021.
The effective ground of appeal in this appeal of assessee is against confirming disallowance of Rs.17,30,800/- made by the A.O u/s. 40A(3) of the Act.
1. 3. The assessee is a proprietor of the business concern, namely Sri Ram Industries and engaged in the manufacturing of machinery components. During the course of assessment, the A.O found that the assessee has made cash payment of bonus to 84 employees totaling to Rs. 12,91,300/- and performance bonus to 42 employees amounting to Rs. 4,39,500/-, each exceeding Rs.10,000/- in violation to the provisions of Section 40A(3) of the Act. The A.O accordingly made disallowance of Rs.17,30,800/- u/s. 40A(3) of the Act. The assessee filed an appeal before the Ld. CIT(A) and argued that payments made to the workers were genuine and identity of the payee was not doubted and therefore, as per clause (j) of Rule 6DD of the Income Tax Rules, 1962 (hereinafter “the Rules”), no disallowance should be made. The Ld. CIT(A) after careful consideration of provisions of Section 40A(3) and Rule 6DD has noted the violation of provisions of section 40A(3) without any exception. The Ld CIT(A) also noted that the bonus and performance bonus was paid in cash, despite employee having the bank account and confirmed the disallowances.
The Ld. Authorized Representative (A.R) of the assessee reiterated that all the payments were made to genuine employees whose identity was not in question, and hence Section 40A(3) should not be invoked. The Ld. A.R also submitted that the assessee was under the bona fide belief that the upper limit for cash payments as per section 40A(3) was Rs.20,000/-, and therefore payment was made in cash up to Rs 20,000. It was further argued that prior to A.Y. 2018–19, the upper limit for cash payment limit was Rs. 20,000/-, and even the Ld. CIT(A) in the impugned order, referred to the threshold as Rs.20,000/-, thereby indicating potential ambiguity. On this basis, the Ld. A.R requested that the disallowance be deleted.
On the other hand, the Ld. Departmental Representative (D.R) relied on the findings of the A.O and the order of the Ld. CIT(A).
We have heard the rival submissions and perused the materials available on record. It is an undisputed fact that the assessee made cash payments totaling Rs.17,30,800/- towards bonus and performance bonus, in violation of the provisions of Section 40A(3) of the Act. The Ld. CIT(A) has clearly brought out that none of the exceptions listed under Rule 6DD of the Rules are applicable in this case. Moreover, it is evident that the payments were made in cash despite the fact that all the employees had bank accounts into which their regular salaries were credited. Therefore, we find no infirmity in the findings of the Ld. CIT(A) and dismiss the appeal filed by the assessee.
In the result, the appeal filed by the assessee is dismissed.
Order pronounced on 27th May, 2025.