Merely making cash payment cannot be a ground for disallowance – ITAT

Merely making cash payments cannot be a ground for disallowance if section 40A(3) not violated or no defects were found in books of accounts/bills & vouchers

ABCAUS Case Law Citation:
ABCAUS 3075 (2019) (07) ITAT

The assessee had challenged the order of CIT(A) in sustaining the part disallowance out of the addition made by the Assessing Officer (AO).

The assessee was an individual and is engaged in the business of wholesale trading of   wheat and cattle feed.

During the scrutiny assessment, the AO noted that assessee had debited various expenses under different heads, i.e. salary, labour,electricity, general expenses, freight etc. Although the assessee furnished the ledger account and some vouchers/bills to substantiate its claim, the AO noted that all the payments were made in cash only. He, therefore, disallowed an amount of 30% out of the total expenses claimed on estimate basis.

In appeal the CIT(A) restricted such disallowance to 20% as against 30% made by the Assessing Officer (AO).

Before the Tribunal, the assessee submitted that the disallowance made by the AO and partly sustained by the CIT(A) was uncalled for which was made on ad hoc basis. He submitted that no defects were found in the books of accounts and assessee had furnished all the details including supporting evidences.

It was contended that merely because the payments were made in cash, the same cannot be disallowed especially when none of the payment is above 20% in cash in violation of provisions of section 40A(3) of the Act.

Merely making cash payments cannot be a ground for disallowance

The Tribunal observed that the AO in the preceding assessment year had passed the assessment order u/s 143(3) and disallowed an amount of Rs. 50,000/- only on ad hoc basis. Further, for the impugned assessment year the AO had not rejected the books of account or pointed out any defects in the bills and vouchers except stating that the payments have been made in cash.

The Tribunal opined that when there was no violation of provisions of section 40A(3) of the Act and no other defects were pointed out either in the books of accounts or in the bills and vouchers, therefore, merely because the payment had been made in cash could not be a ground for disallowance.

Further, the Tribunal opined that the disallowance so sustained by the CIT(A) appeared to be on higher side when compared with the disallowance made by the AO in scrutiny assessment for preceding assessment year.

Accordingly, the Tribunal set aside the order of the CIT(A) and directed the AO to restrict the disallowance to Rs. 50,000/- only.

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