Case remanded in absence of finding if disallowance u/s 40A(3) covered by Rule 6DD

Case remanded as no finding was given whether cash payments disallowed u/s 40A(3) were covered by Rule 6DD under Income Tax Rules, 1962. 

In a recent judgment, ITAT Lucknow has remanded the case as there was no finding by the CIT(A) or the Assessing Officer whether the cash payments disallowed under section 40A(3) of the Income Tax Act, 1961 were saved by provisions of Rule 6DD under Income Tax Rules, 1962.

ABCAUS Case Law Citation:
5161 (2026) (06) abacus.in ITAT

In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming additions made u/s 40A(3) of the Income Tax Act, 1961 (the Act).

It was contended that the Assessing Officer had erred in law as well as on facts and circumstances of in making the impugned addition without appreciating the facts that the business place was not served by any banking facility in radius of 7-8 Kilometers against genuine purchase bills to the identified persons.

It was further contended that the Commissioner of Income Tax (Appeals), NFAC also erred in sustaining the Addition arbitrarily made by the A.O. ignoring the facts of genuine purchase bills to the identified persons, therefore the addition made by the AO was unsustainable in law and liable to be deleted.

The Tribunal noted that the impugned addition was made under section 40A(3) of the Act on the ground that payments for expenses were made in cash.

The Tribunal observed that there was no finding by the CIT(A) and by the Assessing Officer in their respective orders whether the aforesaid cash payments disallowed under section 40A(3) of the Act were saved by provisions of Rule 6DD under Income Tax Rules, 1962.

The Tribunal opined that in the absence of this finding it was not possible on the basis of materials on record, to come to a definite finding whether Rule 6DD of Income Tax Rules has any applicability in this case, and therefore, whether the aforesaid disallowance made under section 40A(3) of the Act was partly or wholly justified having regard to the facts and circumstances of the case and applicable law. 

As a result, the impugned appellate order of the CIT(A) was set-aside and the issue in dispute regarding the disallowance under section 40A(3) of the Act was restored back to the file of Assessing Officer with the direction to pass denovo order on this issue, in accordance with law, after providing reasonable opportunity to the assessee and after due verification of whether Rule 6DD has applicability, partly or wholly, to the transactions involved.

Download Full Judgment Click Here >>

• FDCM invites application for empanelment of practising CAs/ Chartered Accountant Firms
• PGRI invites application for CAs for empanelment for Circulation Verification work
• CBDT notifies revised Form for registration as valuer & authorised income tax practitioner
• Curtailing time to file reply to notice u/s 148A(b) from 30 days prejudiced assessee’s right – HC
• For registration u/s 12AB, applicability of proviso to section 2(15) can’t be adjudicated