TEXO THE BUILDERS ,UDUPI V. ACIT, CENTRAL CIRCLE-2, MANGALORE

ITA 1200/BANG/2025

AI Insights

The case involves M/s. Texo The Builders, a partnership firm engaged in real estate development, which appealed against the orders of the Assessing Officer (AO) for the Assessment Years 2013-14 and 2014-15. The appeals were related to disallowances made under section 40A(3) of the Income Tax Act, which prohibits certain cash payments exceeding Rs. 20,000 in a day. The AO had disallowed various cash payments made by the firm, citing violations of this section. The Tribunal examined the submissions, the nature of the payments, and the circumstances under which they were made, including payments on bank holidays and for labor expenses.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 784413 (ITAT-BANGALORE)
• Duration Of Justice: 5 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-11-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2014-2015
• Appeal Filed On: 27-05-2025
• Other Referred Cases: Surya Merchants Ltd v. DCIT, Smt. Chandra Moolchand Jain vs Income Tax Officer, Geo Connect Ltd. v. Deputy Commissioner of Income-tax, A. Daga Royal Arts v. Income-tax Officer, Brother Pharma (P.) Ltd. V. Income tax Officer
• Laws Referred To: Income Tax Act
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: SANDEEP CHALAPATHY
• Keywords: Set aside; Reassessment proceedings; Business expenditure; TDS
• Section: 147; 148; 154; 68; 40A(3); 133A; 37(1)

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH : BANGALORE BEFORE SHRI.LAXMI PRASAD SAHU, ACCOUNTANT MEMBER AND SHRI.SOUNDARARAJAN K, JUDICIAL MEMBER ITA Nos.1199, 1200/Bang/2025 Assessment Years : 2013-14, 2014-15 M/s. Texo The Builders, 6-49 Sunder Leela, Bommarabettu Village, Hiriadka, Udupi – 576 113. PAN : AAFFT 0780 M Vs. ACIT, Central Circle – 2, Mangalore. APPELLANT RESPONDENT Assessee by : Shri. Sandeep Chalapathy, CA Revenue by : Shri. Subramanian S,JCIT(DR)(ITAT), Bangalore. Date of hearing : 24.09.2025 Date of Pronouncement : 13.11.2025 O R D E R Per Laxmi Prasad Sahu, Accountant Member : These two appeals are filed by the assessee against the separate Orders passed by the NFAC vide DIN and Order Nos.ITBA/APL/M/250/2024- 25/1073942400(1) dated 03.03.2025 and ITBA/APL/M/250/2024- 25/1073950534(1) dated 03.03.2025 for Assessment Years 2013-14 and 2014- 15 respectively. 2. The issue raised in both the appeals are identical except the figures. They were heard together and are disposed off by way of this common Order. 3. Briefly stated the facts of the case are that assessee is engaged in the business of real estate development of residential / commercial building. Shri. Nithish Kumar Shetty is the managing partner of the firm. Smt. Shruthi K. Printed from counselvise.com ITA Nos.1199, 1200/Bang/2025 Page 2 of 28 Shetty is the other partner in the assessee firm. The assessee filed return of income for the Assessment Year 2013-14 on 04.01.2014 declaring total income of Rs.1,28,680/- and for Assessment Year 2014-15 on 28.11.2014 declaring total income of Rs.6,38,700/-. The case was selected for scrutiny. Other case was reopened under section 147 of the Act. Notice under section 148 was issued on 07.02.2020 and other statutory notices were issued on different dates. On examination of the documents assessee has made cash payment of more than Rs.20,000/- towards expenditure incurred which are debited in the P & L A/c which is in violation of section 40A(3) of the Act for both the years and further addition was made under section 68 of the Act of Rs.8,26,000/- for the Assessment Year 2014-15. After considering the entire submissions, the AO assessed the total income for Assessment Year 2013-14 of Rs.40,53,080/- and for Assessment Year 2014-15 of Rs.1,65,00,980/- and passed Order on 26.09.2021. 4. Aggrieved from the above Order, assessee filed appeal before the CIT(A). After considering the entire submissions of the assessee, learned CIT(A) partly allowed appeal of the assessee and directed the AO to verify the cash payments made by the assessee vide Order dated 03.03.2025. Accordingly, the AO passed OGE dated 16.04.2025. The learned Counsel filed appeal for disputed amount towards labour expenses of Rs.3,41,850/- and payments made on Sundays / public holidays of Rs.6,42,380/- and difference of Rs.10,14,230/- under section 40A(3) of the Act. For the Assessment Year 2013-14 and for Assessment Year 2014-15 assessee disputed the amount of Rs.78,27,682/- for the cash payment towards materials purchased where bill received and VAT paid for Rs.37,42,684/-, labour expenses of Rs.11,57,443/- and payment made on Sunday and public holidays of Rs.29,27,555/-. Assessee has also filed rectification application under section 154 of the Act and the AO passed Order on 10.09.2025 for the Assessment Year 2013-14 in Printed from counselvise.com ITA Nos.1199, 1200/Bang/2025 Page 3 of 28 which amount was not allowed in OGE were confirmed and rejected the rectification petition filed by the assessee. 5. The learned Counsel reiterated the submissions made before the lower authorities and he has filed written synopsis as under. Assessment Year 2013-14 1. Background of the Case 1.1. The appellant is a partnership firm which is engaged in the business of real estate development of residential and commercial buildings. Shri Nitish Kumar Shetty is the managing partner of and Smt. Shruthi K Shetty is the other partner of the firm. The appellant filed return of income for the said assessment year vide acknowledgement 859007050040114 declaring total income of Rs. 1,28,680/- and tax liability of Rs. 39,762/- which was discharged by way of TDS. 1.2. The Survey u/s 133A of the Act was conducted at the business premises of the appellant on 12.12.2017. During the course of survey, various incriminating material including books of accounts and documents were found and impounded. Subsequently, the case was selected for reassessment proceedings u/s 147 of the Act and notice u/s 148 was issued on 07.02.2020. 1.3. Subsequently the assessment proceedings was completed on 26.09.2021 with the assessed income of Rs. 40,53,080/- and a demand of Rs. 24,73,105/-. The break-up of the same is as under. Particulars Amount Total Income as per Return of Income Add (i) Unaccounted cash receipts (ii) Unaccounted cheque receipts (iii) Cash payment disallowance u/s 40A(3) of the Act 1,28,678 1,00,000 5,60,000 32,64,406 Total Income assessed as per assessment order u/s 147 40,53,084 1.4. The appellant aggrieved by the above addition and disallowance preferred an appeal before learned Commissioner of Income Tax (Appeals). During the course of the appeal proceedings the appellant submitted all the relevant details to substantiate the genuineness of the expense. However, the learned assessing officer considered the submissions of the appellant and granted relief to the extent of 27,45,176/- and confirmed the disallowance u/s 40A(3) of the Act of Rs. Printed from counselvise.com ITA Nos.1199, 1200/Bang/2025 Page 4 of 28 6,72,380/- for the payments made on Sunday and the bank holidays and Rs. 3,41,850/- incurred for making labour payments. Aggrieved by this disallowance the appellant filed an appeal before Hon’ble Income Tax Appellate Tribunal. 2. Ground No. 2 & 3 Cash Payment Disallowance u/s 40A(3) of the Act Rs. 10,14,230/- 2.1. During the survey and assessment proceedings, it was observed by the department that there were lot of cash payments in excess of Rs. 20,000 to various parties towards purchase of materials, labour and other expenses. The learned Assistant Commissioner stated that payment in excess of Rs. 20,000/- is a violation of provisions of Section 40A(3) of the Act and disallowed the amount. It is submitted that the learned Assessing Officer has not doubted the genuineness of the transactions and business expediency. However, disallowance was carried out purely on the violation of provisions of section 40A(3) of the Act as stated above. 2.2. It is submitted that the provisions of section 40A(3) of the Act are not applicable to the present case. The detailed submissions are provided below and the provision of section 40A(3) of the Act is reproduced below for ready reference. Section 40A Expenses or payments not deductible in certain circumstances. (1) The provisions…… . . (3) Where the assessee incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, [or use of electronic clearing system through a bank account [or through such other electronic mode as may be prescribed], exceeds ten thousand rupees,] no deduction shall be allowed in respect of such expenditure. ….. 2.3. On perusal of above provisions, it can be understood that Section 40A(3) of the Act is a critical provision which aims at regulating the cash expenditure in business or profession. The primary agenda for introduction of this provision was to impose the cash payment limit on all the assessee and encourage the use of banking channels or other electronic mode more rigorously. Further, section 40A(3) of the Act must be read along with rule 6DD. The section must be read along with the rule which indicates that the provision are not intended to restrict the business activities. Section 40A(3) of the Act empowers the assessing officer to disallow the transaction which are not made as per the above terms specified. This payment terms were specified to evaluate whether the said expenditure is genuine and is incurred out of the disclosed income. Moreover, the section 40A(3) r.w.r 6DD have never excluded the consideration of business expediency, genuine and bona fide transactions out of the sweep of this section. Printed from counselvise.com ITA Nos.1199, 1200/Bang/2025 Page 5 of 28 2.4. In the present case, the appellant is engaged in the business of real estate development and such activities are even carried out during the clock, even on Sundays and Saturdays and the appellant tend to procure the materials on Sundays and public holidays to avoid any break in the process of construction. Hence, the appellant made the payment in cash on second half of Saturday or Sunday which are non-working for banks, and such exception falls under Rule 6DD(j) and therefore, disallowance u/s 40A(3) of the Act should not be made. The breakup of payments made on non-working days of bank are provided as under. 2.5. It can be viewed from the above table that the appellant has made payment for procuring the materials for construction activity to avoid the break in the process of construction. Further, it can also be seen that the payment made involved individual invoices having amount less than 20,000/-. Considering this, the disallowance made by the learned revenue authorities u/s 40A(3) of the Act is not valid in law and the same is required to be deleted. 2.6. We rely on the decision of Hon’ble ITAT Delhi in case of Surya Merchants Ltd v. DCIT ITA No.178 to 181/Del/2017. The relevant portion of judgement is reproduced below for reference. 11. So far as payments made on national holidays and bank holidays are concerned, the Ld. Counsel for the assessee drew the attention of the bench to the submissions made before the CIT(A) on various dates, copies of which are placed at page 13 to 24 of the paper book and submitted that when the same was brought to the notice of the CIT(A), the Ld. CIT(A) called for a remand report from the Assessing Officer. Although the Assessing Officer has not disputed the payment of Rs.39,12,033/- for A. Y. 2007-08, Rs.1,26,24,000/- for A. Y. 2008-09 and Rs.84,60,000/- for A. Y. 2009-10, on bank holidays, however, his objection was that assessee during the course of assessment proceedings / remand proceedings failed to prove the compulsion of such payments on bank holidays. Referring to the provisions of Rule 6DD(J) he submitted that the said provision provides that provisions of section 40A(3) will not be applicable where the payment was required to be made on a day on which the banks were closed on Printed from counselvise.com ITA Nos.1199, 1200/Bang/2025 Page 6 of 28 account of holidays or strikes. He submitted that the assessee company is a developer of commercial and residential real estate projects, therefore, it is bound to complete the construction to offer the possession in agreed time to avoid penalties. The assessee, therefore, carries the construction activities round the clock even on Sundays and holidays. The assessee had procured the materials on Sundays and public holidays to avoid any break in the process of construction. He submitted that the customers generally visit the sites of the builders on holidays. Since the assessee received cash on holidays from the customers, therefore, payments were made to the suppliers on holidays for procurement of the materials. Therefore, in view of the availability of cash majorly on holidays, the assessee was bound to make cash payments of pending dues of the suppliers on the holidays itself. . . . The Assessing Officer in the remand report has admitted that such payments have been made on bank holidays. The provision of rule 6DD(J) provides that provisions of section 40A(3) shall not be applicable where the payment was required to be made on a day on which the banks were not open on account of holidays or strike. Since the assessee in the instant case has admittedly made the payments on a day on which the banks were not open on account of holidays and the Assessing Officer has also admitted that such payments were made on bank holidays therefore under the facts and circumstances of the case we are of the considered opinion that provision of section 40A(3) are not applicable to the payments made in excess of Rs.20,000/- on bank holidays which are as under :- 2.7. The above proposition is equally applicable to the facts of the present case where the payments are made on Saturdays after the bank timings which is end of the day to settle the debts. It is generally accepted practice in the state of Karnataka where the payments are made on Saturdays after the business timings. Hence, the disallowance on the mere ground that the payments were made on Saturday should not be accepted when the genuineness of such transactions was never doubted. 2.8. Further the appellant has incurred expenses towards payment for labourers. This payment is again incurred on the construction labourers who receives daily or weekly wages in cash due to non-availability of bank account. It is submitted that the wages paid to individual labour on 15 days basis do not exceed Rs. 20,000/- per day. The total amount of cash paid shown by the assessing officer is nothing but payment of cash to a person who maintain the labourers containing more than 15 or 20 persons. Therefore, each individual payment made to every labourer has to be seen for applicability of provision section 40A(3) of the Act. Hence, disallowance does not arise. The breakup the disallowance is given below Printed from counselvise.com ITA Nos.1199, 1200/Bang/2025 Page 7 of 28 2.9. Further, it is a settled proposition that the genuineness of the expenses is required to be verified before making any disallowance u/s 40A(3) of the Act. In the instant case, the appellant has provided all the required explanations to establish the genuineness of the expenses such has labour registers, the breakup of the payments made on second Saturday. Further, it is required to be noted that the learned assessing officer has also not doubted on the genuineness of the payments. Hence, the disallowance made u/s 40A(3) of the Act is not valid in law. We further rely on the following decisions for the proposition. 2.10. It is further submitted that the learned CIT(A) has directed the learned assessing officer to allow all the labour payments since the individual payments of the labourers do not exceed Rs. 20,000/-. However, the learned assessing officer without following the directions of learned CIT(A), has disallowed the labour expenses. The relevant portion of the CIT(A) order is reproduced below 2.11. We rely on decision of Hon’ble ITAT Bangalore in case of Smt. Chandra Moolchand Jain, Bangalore vs Income Tax Officer, Ward- 6(2)(4) ITA No.1133/Bang/2024 10. On appeal before the CIT(A), assessee contested that all these payments have been made on a bank holiday and therefore disallowance of the same could not have been made as it is covered by provisions of exceptions provided under Rule 6DD of the I.T. Rules. The ld. CIT(A) did not accept the above contention and held that assessee has failed to show that date on which purchases were made and cash is deposited happens to be a bank holiday. Even before us, assessee has though provided details of cash payment, but did not show the date on which cash is paid and that date happens to be a bank holiday. If that be so, Printed from counselvise.com ITA Nos.1199, 1200/Bang/2025 Page 8 of 28 disallowance could not have been made. Therefore if transactions is executed on a day on which there is a bank holiday, disallowance should not have been made u/s. 40A(3) of the Act. Further, the assessee has claimed that she has hired a person as she is a women and amount was given to that person who has made cash payment to the sellers of gold & bullion and therefore the situation is covered clearly by clause (k) of Rule 6DD of the I.T. Rules. These argument was not examined by the ld. CIT(A). On careful consideration of the arguments and judicial precedents cited before us, the claim of assessee is that assessee has given cash to her employee who is the supervisor or the agent who in turn made payment to the sellers of the gold and therefore the same would not fall within the scope of section 40A(3) of the Act in view of the decision of Hon'ble Calcutta High Court in the case of S.K. Joynal Abedin v. CIT. It was also the claim of assessee that part of jewellery and bullion is purchased by assessee was shown as stock in trade and the provisions of section 40A(3) were not applicable. For this proposition assessee relied on the decision of Delhi High Court in the case of PCIT v. Prosperous Buildcon Pvt. Ltd. The assessee has further relied on the decision of Delhi High Court in the case of Rajesh Kumar v. CIT, 157 taxmann.com 311 stating that if the assessee proves the genuineness of the transaction, disallowance could not have been made u/s. 40A(3) of the Act. On careful consideration, all these issues have not been considered by the ld. lower authorities, therefore, we restore the whole issue back to the file of ld. AO with a direction to the assessee to substantiate that the payment made to 61 parties on bank holiday, the payment was made by the agent and further the business exigency also demanded payment of cash. The ld. AO may examine the above contentions of the assessee for which onus would be on the assessee to prove so and then the AO will decide the issue afresh. Accordingly, all the grounds of appeal of the assessee are restored back to the file of the ld. AO with the above direction. 2.12. We rely on decision of Hon’ble ITAT Bangalore in case of M/S. Amrut Distilleries Private vs Deputy Commissioner Of Income Tax ITA Nos.948 to 950/Bang/2023 ; \"The terms of section 40A(3) are not absolute. Consideration of business expediency and other relevant factors are not excluded. Genuine and bona fide transactions are not taken out of the sweep of the section. It is open to the assessee to furnish to the satisfaction of the Assessing Officer the circumstances under which the payment in the manner prescribed in section 40A(3) was not practicable or would have caused genuine difficulty to the payee. It is also open to the assessee to identify the person who has received the cash payment. Rule 6DD provides that an assessee can be exempted from the requirement of payment by a crossed cheque or crossed bank draft in the circumstances specified under the rule. It will be clear from the Printed from counselvise.com ITA Nos.1199, 1200/Bang/2025 Page 9 of 28 provisions of section 40A(3) and rule 6DD that they are intended to regulate business transactions and to prevent the use of unaccounted money or reduce the chances to use black money for business trans- actions.\" The said decision of the Hon'ble Supreme Court was also cited by the Mumbai Bench of the ITAT in Arihant Traders vs. ACIT (ITA No. 442/Mum/2019) where their Honours, even in a case where the payments made to the individual truck drivers exceeded the threshold limit of Rs.35,000/- observed as follows: \"In the present case, the payment made by the assessee to the individual truck driver has not been disputed. It is not the case of Department that the payments made by the assessee are not genuine or the payees are not identifiable. The assessee has sufficiently explained the circumstances under which the payments have been made to the truck drivers in cash. The assessing officer made disallowance by taking a pedantic view of the cash transactions. Where cash payments are made under bona fide conditions and no doubt is raised over genuineness of the payments and the payees are identifiable; no disallowances under section 40A(3) is warranted. Thus, in view of the facts of case and various decisions discussed above, we do not find any error in the findings of Commissioner (Appeals) in deleting disallowances of Rs. 60,73,403 made by the assessing officer under section 40A(3) of the Act. We concur with the findings of Commissioner (Appeals). Accordingly, ground Nos. 1 and 2 raised by the Department in appeal are dismissed.\" In the present case too, the genuineness of the payments have not been called into question, but the allegation is merely that the payments were made to the same person in the same day, for which reasons have been assigned in detail. In the circumstances, it is prayed that no disallowance under Sec.40A(3) be sustained. 2.13. We rely on decision of Hon’ble ITAT Delhi in case of Geo Connect Ltd. v. Deputy Commissioner of Income-tax Delhi – Trib [2023] 149 taxmann.com 456. The relevant portion of judgement is reproduced below: 13. In case of A. Daga Royal Arts (supra), the Coordinate Bench while dealing with identical issue has observed that even after amendment of Rule 6DD(j), the legal exposition propounded by the Hon'ble Supreme Court regarding consideration of expediency and other relevant factors cannot be considered to be diluted as the rules framed by way of delegated legislation cannot override the substantive legislation in form of section 40A(3) which has not changed its character. Following observations of the Coordinate Bench would be of much relevance: \"27. We do not believe that by virtue of these amendments, the legal proposition so laid down by the Hon'ble Supreme court regarding consideration of business expediency and other relevant factors has Printed from counselvise.com ITA Nos.1199, 1200/Bang/2025 Page 10 of 28 been diluted in any way. At the same time, we also believe that Rule 6DD as amended are not exhaustive enough and which visualizes all kinds and nature of business expediency in all possible situations and it is for the appropriate authority to examine and provide for a mechanism as originally envisaged which provides for exceptional or unavoidable circumstances to the satisfaction of the Assessing officer whereby genuine business expenditure should not suffer disallowance. 28. Further, the Courts have held from time to time that the Rules must be interpreted in a manner so as to advance and not to frustrate the object of the legislature. The intention of the legislature is manifestly clear and which is to ITA No. 1065/JP/2016 M/s A Daga Royal Arts, Jaipur Vs ITO, Jaipur curb the chances and opportunities to use or create black money and to ascertain whether the payment was genuine or whether it was out of the income from disclosed sources. And section 40A(3) continues to provide that no disallowance shall be made in such cases and under such circumstances as may be prescribed having regard to the nature and extent of the banking facilities available, consideration of business expediency and other relevant factors. In our view, given that there has been no change in the provisions of section 40A(3) in so far as consideration of business expediency and other relevant factors are concerned, the same continues to be relevant factors which needs to be considered and taken into account while determining the exceptions to the disallowance as contemplated under section 40A(3) of the Act so long as the intention of the legislature is not violated. We find that our said view find resonance in decisions of various authorities, which we have discussed below and thus seems fortified by the said decisions.\" 2.14. We rely on decision of Hon’ble ITAT Jaipur in case of A. Daga Royal Arts v. Income-tax Officer, Ward- 2(2), Jaipur [2018] 94 taxmann.com 401 (Jaipur - Trib.). The relevant portion of judgement is reproduced below: 43. In the entirety of facts and circumstances of the case and respectfully following the legal proposition laid down by the various Courts and Coordinate Benches referred supra, we are of the view that the identity of the persons from whom the various plots of land have been purchased and source of cash payments as withdrawals from the assessee's bank account has been established. The genuineness of the transaction has been established as evidenced by the registered sale deeds and lastly, the test of business expediency has been met in the instant case. Further, as held by the Hon'ble Rajasthan High Court in case of Smt. Harshila Chordia (supra), the consequences, which were to befall on account of non-observation of sub-section (3) of section 40A must have nexus to the failure of such object. Therefore the genuineness of the transactions and it being free from vice of any device of evasion of tax is relevant consideration. The intent and the purpose for which section 40A(3) has been brought on the statute Printed from counselvise.com ITA Nos.1199, 1200/Bang/2025 Page 11 of 28 books has been clearly satisfied in the instant case. Therefore, being a case of genuine business transaction, no disallowance is called for by invoking the provisions of section 40A(3) of the Act. In the result, the appeal of the assessee is allowed. 2.15. We rely on decision of Hon’ble High Court of Punjab & Haryana in case of Gurdas Garg v. Commissioner of Income-tax (Appeals), Bathinda High Court of Punjab and Haryana [2015] 63 taxmann.com 289 (Punjab & Haryana) 8. The respondent's case is also supported by the judgment of the Supreme Court in Attar Singh Gurmukh Singh v. ITO [1991] 191 ITR 667/59 Taxman 11. After referring to Rule 6DD, the Supreme Court held:— \"7. In our opinion, there is little merit in this contention. Section 40-A(3) must not be read in isolation or to the exclusion of Rule 6-DD. The section must be read along with the rule. If read together, it will be clear that the provisions are not intended to restrict the business activities. There is no restriction on the assessee in his trading activities. Section 40-A (3) only empowers the assessing officer to disallow the deduction claimed as expenditure in respect of which payment is not made by crossed cheque or crossed bank draft. The payment by crossed cheque or crossed bank draft is insisted on to enable the assessing authority to ascertain whether the payment was genuine or whether it was out of the income from disclosed sources. The terms of Section 40-A(3) are not absolute. Consideration of business expediency and other relevant factors are not excluded. The genuine and bona fide transactions are not taken out of the sweep of the section. It is open to the assessee to furnish to the satisfaction of the assessing officer the circumstances under which the payment in the manner prescribed in Section 40-A(3) was not practicable or would have caused genuine difficulty to the payee. It is also open to the assessee to identify the person who has received the cash payment. Rule 6-DD provides that an assessee can be exempted from the requirement of payment by a crossed cheque or crossed bank draft in the circumstances specified under the rule. It will be clear from the provisions of Section 40-A(3) and Rule 6-DD that they are intended to regulate the business transactions and to prevent the use of unaccounted money or reduce the chances to use black money for business transactions. [See: Mudiam Oil Company v. ITO [(1973) 92 ITR 519 (AP)] ]. If the payment is made by a crossed cheque drawn on a bank or a crossed bank draft then it will be easier to ascertain, when deduction is claimed, whether the payment was genuine and whether it was out of the income from disclosed sources. In interpreting a taxing statute the court cannot be oblivious of the proliferation of black money which is under circulation in our country. Any restraint intended to curb the chances and opportunities to use or create black money should not be regarded as curtailing the freedom of trade or business.\" Printed from counselvise.com ITA Nos.1199, 1200/Bang/2025 Page 12 of 28 9. At the cost of repetition, the Tribunal has not disbelieved the transactions or the genuineness thereof. Nor has it disbelieved the fact of payments having been made. More important, the reasons furnished by the appellant for having made the cash payments, which we have already adverted to, have not been disbelieved. In our view, assuming these reasons to be correct, they clearly make out a case of business expediency. 10. In the circumstances, the order of the Tribunal in this regard is set aside. The payments cannot be disallowed under Section 40A(3) of the Act. 2.16. We rely on the decision of Hon’ble ITAT Jaipur in case of Brother Pharma (P.) Ltd. V. Income tax Officer, Ward 4(2), Jaipur [2017] 82 taxmann.com 234 (Jaipur - Trib.) 15. We have heard the rival contentions of both the parties and perused the material available on the record. Prima facie it appears that the assessee has paid salary in excess to Rs. 20,000/- and violated the provisions of Section 40A(3) of the Act but it is also revealed that these payments were pertained to salary for the months of May to August. The genuineness of the payments has not been doubted. The employees were insisted upon casfannexh payments only, therefore, to maintain the good relation with them, the company paid cash salary for various months. The Hon'ble Rajasthan High Court in the case of Harshila Chorida (supra) has held that exceptional condition mentioned in Rule 6DD are not exclusive. This was the business expediencies of the company to pay in cash, therefore, we do not find that these payments are covered U/s 40A(3) of the Act. Accordingly, the addition confirmed by the ld CIT(A) is deleted. Hence, this ground of assessee's appeal is allowed. 2.17. We rely on the decision of Hon’ble ITAT Delhi in case of Income Tax Officer, Ward -52(1), new Delhi [2021] 124 taxmann.com 563 (Delhi - Trib.) 35. A similar view is expressed by the High Court of Calcutta in Giridharilal Goenka's case (supra), where it was observed that (at p. 128): \"The circular of the Board is not exhaustive, it is only illustrative and the Assessing Officer has to take into account the surrounding circumstances, considerations of business expediency and the facts of each particular case in exercising his discretion either in favour or against the assessee'. It was also held that the Income-tax Officer should take a practical approach to the problem and strike a balance between the direction of law and hardship to the assessee.\" 36. The circular and judgments unequivocally intend at allowing the expenses owing to genuineness of the payment and contingency of the business. Hence, keeping in view the provisions of the Act, Rules and the above judgments and having examined the issue and the peculiar Printed from counselvise.com ITA Nos.1199, 1200/Bang/2025 Page 13 of 28 facts and circumstances of the case, on finding that the assessee is merely facilitator and intermediary in the transaction and his receipts assessable to tax constitute the margin between the price obtained and further paid but not the entire receipts which stands further passed on to the two ticketing agencies, we hereby hold that the provisions u/s 40A(3) are not attracted. 37. In the result, the appeal of the revenue is dismissed on all the grounds. 2.18. In order to disallow the expenditure u/s 40A(3) of the Act the appellant must have incurred such expenditure through unaccounted means, or the authorities are not able to identify the genuineness of expenditure. In the present case, the appellant has incurred genuine expenditure and has produced all the relevant information in support of the expenditure. It is also to be noted that it is impracticable to conduct business like construction without incurring the cash payments as the main means for operation is labours and material purchases. In view of the above submissions, it is prayed that the Hon’ble Tribunal be pleased to allow the appeal of the appellant. Assessment Year 2014-15 3. Background of the Case 3.1. The appellant is a partnership firm which is engaged in the business of real estate development of residential and commercial buildings. Shri Nitish Kumar Shetty is the managing partner of and Smt. Shruthi K Shetty is the other partner of the firm. The appellant filed return of income for the said assessment year vide acknowledgement 426378211281114 declaring total income of Rs. 6,38,700/- and tax liability of Rs. 2,02,551/- which was discharged by way of TDS and advance tax. 3.2. The Survey u/s 133A of the Act was conducted at the business premises of the appellant on 12.12.2017. During the course of survey, various incriminating material including books of accounts and documents were found and impounded. Subsequently, the case was selected for reassessment proceedings u/s 147 of the Act and notice u/s 148 was issued on 07.02.2020. 3.3. Subsequently the assessment proceedings was completed on 26.09.2021 with the assessed income of Rs. 1,65,00,980/- and a demand of Rs. 1,10,87,617/-. The break-up of the same is as under. Particulars Amount Total Income as per Return of Income Add (iv) Unaccounted cash receipts (v) Unaccounted cheque receipts 6,38,700 9,30,600 8,26,000 19,87,857 Printed from counselvise.com ITA Nos.1199, 1200/Bang/2025 Page 14 of 28 (vi) Contract from receipts from Shanti Sadana (vii) Cash payment disallowance u/s 40A(3) of the Act 1,21,17,822 Total Income assessed as per assessment order u/s 147 1,65,00,980 3.4. The appellant aggrieved by the above addition and disallowance preferred an appeal before learned Commissioner of Income Tax (Appeals). During the course of the appeal proceedings the appellant submitted all the relevant details to substantiate the genuineness of the expense. However, the learned assessing officer considered the submissions of the appellant and granted relief to the extent of 70,98,483/- and confirmed the disallowance u/s 40A(3) of the Act of Rs. 37,42,684/- for the material payments, Rs. 11,57,443/- incurred for making labour payments and Rs. 29,27,555/- for making payments on Saturday. Aggrieved by this disallowance the appellant filed an appeal before Hon’ble Income Tax Appellate Tribunal. 4. Ground No. 2 & 3 Cash Payment Disallowance u/s 40A(3) of the Act Rs. 78,27,682/- 4.1. During the survey and assessment proceedings, it was observed by the department that there were lot of cash payments in excess of Rs. 20,000 to various parties towards purchase of materials, labour and other expenses. The learned Assistant Commissioner stated that payment in excess of Rs. 20,000/- is a violation of provisions of Section 40A(3) of the Act and disallowed the amount. It is submitted that the learned Assessing Officer has not doubted the genuineness of the transactions and business expediency. However, disallowance was carried out purely on the violation of provisions of section 40A(3) of the Act as stated above. 4.2. It is submitted that the provisions of section 40A(3) of the Act are not applicable to the present case. The detailed submissions are provided below and the provision of section 40A(3) of the Act is reproduced below for ready reference. Section 40A Expenses or payments not deductible in certain circumstances. (1) The provisions…… . . (3) Where the assessee incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, [or use of electronic clearing system through a bank account [or through such other electronic mode as may be prescribed], exceeds ten thousand rupees,] no deduction shall be allowed in respect of such expenditure. ….. 4.3. On perusal of above provisions, it can be understood that Section 40A(3) of the Act is a critical provision which aims at regulating the cash Printed from counselvise.com ITA Nos.1199, 1200/Bang/2025 Page 15 of 28 expenditure in business or profession. The primary agenda for introduction of this provision was to impose the cash payment limit on all the assessee and encourage the use of banking channels or other electronic mode more rigorously. Further, section 40A(3) of the Act must be read along with rule 6DD. The section must be read along with the rule which indicates that the provision are not intended to restrict the business activities. Section 40A(3) of the Act empowers the assessing officer to disallow the transaction which are not made as per the above terms specified. This payment terms were specified to evaluate whether the said expenditure is genuine and is incurred out of the disclosed income. Moreover, the section 40A(3) r.w.r 6DD have never excluded the consideration of business expediency, genuine and bona fide transactions out of the sweep of this section. 4.4. In the present case, the appellant is engaged in the business of real estate development and such activities are even carried out during the clock, even on Sundays and Saturdays and the appellant tend to procure the materials on Sundays and public holidays to avoid any break in the process of construction. Hence, the appellant made the payment in cash on second half of Saturday or Sunday which are non-working for banks, and such exception falls under Rule 6DD(j) and therefore, disallowance u/s 40A(3) of the Act should not be made. The breakup of payments made on non-working days of bank are provided in the paper book. 4.5. It can be viewed from the above table that the appellant has made payment for procuring the materials for construction activity to avoid the break in the process of construction. Further, it can also be seen that the payment made involved individual invoices having amount less than 20,000/-. Considering this, the disallowance made by the learned revenue authorities u/s 40A(3) of the Act is not valid in law and the same is required to be deleted. 4.6. We rely on the decision of Hon’ble ITAT Delhi in case of Surya Merchants Ltd v. DCIT ITA No.178 to 181/Del/2017. The relevant portion of judgement is reproduced below for reference. 11. So far as payments made on national holidays and bank holidays are concerned, the Ld. Counsel for the assessee drew the attention of the bench to the submissions made before the CIT(A) on various dates, copies of which are placed at page 13 to 24 of the paper book and submitted that when the same was brought to the notice of the CIT(A), the Ld. CIT(A) called for a remand report from the Assessing Officer. Although the Assessing Officer has not disputed the payment of Rs.39,12,033/- for A. Y. 2007-08, Rs.1,26,24,000/- for A. Y. 2008-09 and Rs.84,60,000/- for A. Y. 2009-10, on bank holidays, however, his objection was that assessee during the course of assessment proceedings / remand proceedings failed to prove the compulsion of such payments on bank holidays. Referring to the provisions of Rule 6DD(J) he submitted that the said provision provides that provisions of section 40A(3) will not be applicable where the payment was required to be made on a day on which the banks were closed on Printed from counselvise.com ITA Nos.1199, 1200/Bang/2025 Page 16 of 28 account of holidays or strikes. He submitted that the assessee company is a developer of commercial and residential real estate projects, therefore, it is bound to complete the construction to offer the possession in agreed time to avoid penalties. The assessee, therefore, carries the construction activities round the clock even on Sundays and holidays. The assessee had procured the materials on Sundays and public holidays to avoid any break in the process of construction. He submitted that the customers generally visit the sites of the builders on holidays. Since the assessee received cash on holidays from the customers, therefore, payments were made to the suppliers on holidays for procurement of the materials. Therefore, in view of the availability of cash majorly on holidays, the assessee was bound to make cash payments of pending dues of the suppliers on the holidays itself. . . . The Assessing Officer in the remand report has admitted that such payments have been made on bank holidays. The provision of rule 6DD(J) provides that provisions of section 40A(3) shall not be applicable where the payment was required to be made on a day on which the banks were not open on account of holidays or strike. Since the assessee in the instant case has admittedly made the payments on a day on which the banks were not open on account of holidays and the Assessing Officer has also admitted that such payments were made on bank holidays therefore under the facts and circumstances of the case we are of the considered opinion that provision of section 40A(3) are not applicable to the payments made in excess of Rs.20,000/- on bank holidays which are as under :- 4.7. The above proposition is equally applicable to the facts of the present case where the payments are made on Saturdays after the bank timings which is end of the day to settle the debts. It is generally accepted practice in the state of Karnataka where the payments are made on Saturdays after the business timings. Hence, the disallowance on the mere ground that the payments were made on Saturday should not be accepted when the genuineness of such transactions was never doubted. 4.8. Further the appellant has incurred expenses towards payment for labourers. This payment is again incurred on the construction labourers who receives daily or weekly wages in cash due to non-availability of bank account. It is submitted that the wages paid to individual labour on 15 days basis do not exceed Rs. 20,000/- per day. The total amount of cash paid shown by the assessing officer is nothing but payment of cash to a person who maintain the labourers containing more than 15 or 20 persons. Therefore, each individual payment made to every labourer has to be seen for applicability of provision section 40A(3) of the Act. Hence, disallowance does not arise. The breakup the disallowance is given in paper book at page no. __ Printed from counselvise.com ITA Nos.1199, 1200/Bang/2025 Page 17 of 28 4.9. Further, it is a settled proposition that the genuineness of the expenses is required to be verified before making any disallowance u/s 40A(3) of the Act. In the instant case, the appellant has provided all the required explanations to establish the genuineness of the expenses such has labour registers, the breakup of the payments made on second Saturday. Further, it is required to be noted that the learned assessing officer has also not doubted on the genuineness of the payments. Hence, the disallowance made u/s 40A(3) of the Act is not valid in law. We further rely on the following decisions for the proposition. 4.10. It is further submitted that the learned CIT(A) has directed the learned assessing officer to allow all the labour payments since the individual payments of the labourers do not exceed Rs. 20,000/-. However, the learned assessing officer without following the directions of learned CIT(A), has disallowed the labour expenses. The relevant portion of the CIT(A) order is reproduced below 4.11. We rely on decision of Hon’ble ITAT Bangalore in case of Smt. Chandra Moolchand Jain, Bangalore vs Income Tax Officer, Ward- 6(2)(4) ITA No.1133/Bang/2024 10. On appeal before the CIT(A), assessee contested that all these payments have been made on a bank holiday and therefore disallowance of the same could not have been made as it is covered by provisions of exceptions provided under Rule 6DD of the I.T. Rules. The ld. CIT(A) did not accept the above contention and held that assessee has failed to show that date on which purchases were made and cash is deposited happens to be a bank holiday. Even before us, assessee has though provided details of cash payment, but did not show the date on which cash is paid and that date happens to be a bank holiday. If that be so, disallowance could not have been made. Therefore if transactions is executed on a day on which there is a bank holiday, disallowance should not have been made u/s. 40A(3) of the Act. Further, the assessee has claimed that she has hired a person as she is a women and amount was given to that person who has made cash payment to the sellers of gold & bullion and therefore the situation is covered clearly by clause (k) of Rule 6DD of the I.T. Rules. These argument Printed from counselvise.com ITA Nos.1199, 1200/Bang/2025 Page 18 of 28 was not examined by the ld. CIT(A). On careful consideration of the arguments and judicial precedents cited before us, the claim of assessee is that assessee has given cash to her employee who is the supervisor or the agent who in turn made payment to the sellers of the gold and therefore the same would not fall within the scope of section 40A(3) of the Act in view of the decision of Hon'ble Calcutta High Court in the case of S.K. Joynal Abedin v. CIT. It was also the claim of assessee that part of jewellery and bullion is purchased by assessee was shown as stock in trade and the provisions of section 40A(3) were not applicable. For this proposition assessee relied on the decision of Delhi High Court in the case of PCIT v. Prosperous Buildcon Pvt. Ltd. The assessee has further relied on the decision of Delhi High Court in the case of Rajesh Kumar v. CIT, 157 taxmann.com 311 stating that if the assessee proves the genuineness of the transaction, disallowance could not have been made u/s. 40A(3) of the Act. On careful consideration, all these issues have not been considered by the ld. lower authorities, therefore, we restore the whole issue back to the file of ld. AO with a direction to the assessee to substantiate that the payment made to 61 parties on bank holiday, the payment was made by the agent and further the business exigency also demanded payment of cash. The ld. AO may examine the above contentions of the assessee for which onus would be on the assessee to prove so and then the AO will decide the issue afresh. Accordingly, all the grounds of appeal of the assessee are restored back to the file of the ld. AO with the above direction. 4.12. We rely on decision of Hon’ble ITAT Bangalore in case of M/S. Amrut Distilleries Private vs Deputy Commissioner Of Income Tax ITA Nos.948 to 950/Bang/2023 ; \"The terms of section 40A(3) are not absolute. Consideration of business expediency and other relevant factors are not excluded. Genuine and bona fide transactions are not taken out of the sweep of the section. It is open to the assessee to furnish to the satisfaction of the Assessing Officer the circumstances under which the payment in the manner prescribed in section 40A(3) was not practicable or would have caused genuine difficulty to the payee. It is also open to the assessee to identify the person who has received the cash payment. Rule 6DD provides that an assessee can be exempted from the requirement of payment by a crossed cheque or crossed bank draft in the circumstances specified under the rule. It will be clear from the provisions of section 40A(3) and rule 6DD that they are intended to regulate business transactions and to prevent the use of unaccounted money or reduce the chances to use black money for business trans- actions.\" The said decision of the Hon'ble Supreme Court was also cited by the Mumbai Bench of the ITAT in Arihant Traders vs. ACIT (ITA No. 442/Mum/2019) where their Honours, even in a case where the Printed from counselvise.com ITA Nos.1199, 1200/Bang/2025 Page 19 of 28 payments made to the individual truck drivers exceeded the threshold limit of Rs.35,000/- observed as follows: \"In the present case, the payment made by the assessee to the individual truck driver has not been disputed. It is not the case of Department that the payments made by the assessee are not genuine or the payees are not identifiable. The assessee has sufficiently explained the circumstances under which the payments have been made to the truck drivers in cash. The assessing officer made disallowance by taking a pedantic view of the cash transactions. Where cash payments are made under bona fide conditions and no doubt is raised over genuineness of the payments and the payees are identifiable; no disallowances under section 40A(3) is warranted. Thus, in view of the facts of case and various decisions discussed above, we do not find any error in the findings of Commissioner (Appeals) in deleting disallowances of Rs. 60,73,403 made by the assessing officer under section 40A(3) of the Act. We concur with the findings of Commissioner (Appeals). Accordingly, ground Nos. 1 and 2 raised by the Department in appeal are dismissed.\" In the present case too, the genuineness of the payments have not been called into question, but the allegation is merely that the payments were made to the same person in the same day, for which reasons have been assigned in detail. In the circumstances, it is prayed that no disallowance under Sec.40A(3) be sustained. 4.13. We rely on decision of Hon’ble ITAT Delhi in case of Geo Connect Ltd. v. Deputy Commissioner of Income-tax Delhi – Trib [2023] 149 taxmann.com 456. The relevant portion of judgement is reproduced below: 13. In case of A. Daga Royal Arts (supra), the Coordinate Bench while dealing with identical issue has observed that even after amendment of Rule 6DD(j), the legal exposition propounded by the Hon'ble Supreme Court regarding consideration of expediency and other relevant factors cannot be considered to be diluted as the rules framed by way of delegated legislation cannot override the substantive legislation in form of section 40A(3) which has not changed its character. Following observations of the Coordinate Bench would be of much relevance: \"27. We do not believe that by virtue of these amendments, the legal proposition so laid down by the Hon'ble Supreme court regarding consideration of business expediency and other relevant factors has been diluted in any way. At the same time, we also believe that Rule 6DD as amended are not exhaustive enough and which visualizes all kinds and nature of business expediency in all possible situations and it is for the appropriate authority to examine and provide for a mechanism as originally envisaged which provides for exceptional or unavoidable circumstances to the satisfaction of the Assessing officer whereby genuine business expenditure should not suffer disallowance. Printed from counselvise.com ITA Nos.1199, 1200/Bang/2025 Page 20 of 28 28. Further, the Courts have held from time to time that the Rules must be interpreted in a manner so as to advance and not to frustrate the object of the legislature. The intention of the legislature is manifestly clear and which is to ITA No. 1065/JP/2016 M/s A Daga Royal Arts, Jaipur Vs ITO, Jaipur curb the chances and opportunities to use or create black money and to ascertain whether the payment was genuine or whether it was out of the income from disclosed sources. And section 40A(3) continues to provide that no disallowance shall be made in such cases and under such circumstances as may be prescribed having regard to the nature and extent of the banking facilities available, consideration of business expediency and other relevant factors. In our view, given that there has been no change in the provisions of section 40A(3) in so far as consideration of business expediency and other relevant factors are concerned, the same continues to be relevant factors which needs to be considered and taken into account while determining the exceptions to the disallowance as contemplated under section 40A(3) of the Act so long as the intention of the legislature is not violated. We find that our said view find resonance in decisions of various authorities, which we have discussed below and thus seems fortified by the said decisions.\" 4.14. We rely on decision of Hon’ble ITAT Jaipur in case of A. Daga Royal Arts v. Income-tax Officer, Ward- 2(2), Jaipur [2018] 94 taxmann.com 401 (Jaipur - Trib.). The relevant portion of judgement is reproduced below: 43. In the entirety of facts and circumstances of the case and respectfully following the legal proposition laid down by the various Courts and Coordinate Benches referred supra, we are of the view that the identity of the persons from whom the various plots of land have been purchased and source of cash payments as withdrawals from the assessee's bank account has been established. The genuineness of the transaction has been established as evidenced by the registered sale deeds and lastly, the test of business expediency has been met in the instant case. Further, as held by the Hon'ble Rajasthan High Court in case of Smt. Harshila Chordia (supra), the consequences, which were to befall on account of non-observation of sub-section (3) of section 40A must have nexus to the failure of such object. Therefore the genuineness of the transactions and it being free from vice of any device of evasion of tax is relevant consideration. The intent and the purpose for which section 40A(3) has been brought on the statute books has been clearly satisfied in the instant case. Therefore, being a case of genuine business transaction, no disallowance is called for by invoking the provisions of section 40A(3) of the Act. In the result, the appeal of the assessee is allowed. 4.15. We rely on decision of Hon’ble High Court of Punjab & Haryana in case of Gurdas Garg v. Commissioner of Income-tax (Appeals), Bathinda Printed from counselvise.com ITA Nos.1199, 1200/Bang/2025 Page 21 of 28 High Court of Punjab and Haryana [2015] 63 taxmann.com 289 (Punjab & Haryana) 8. The respondent's case is also supported by the judgment of the Supreme Court in Attar Singh Gurmukh Singh v. ITO [1991] 191 ITR 667/59 Taxman 11. After referring to Rule 6DD, the Supreme Court held:— \"7. In our opinion, there is little merit in this contention. Section 40-A(3) must not be read in isolation or to the exclusion of Rule 6-DD. The section must be read along with the rule. If read together, it will be clear that the provisions are not intended to restrict the business activities. There is no restriction on the assessee in his trading activities. Section 40-A (3) only empowers the assessing officer to disallow the deduction claimed as expenditure in respect of which payment is not made by crossed cheque or crossed bank draft. The payment by crossed cheque or crossed bank draft is insisted on to enable the assessing authority to ascertain whether the payment was genuine or whether it was out of the income from disclosed sources. The terms of Section 40-A(3) are not absolute. Consideration of business expediency and other relevant factors are not excluded. The genuine and bona fide transactions are not taken out of the sweep of the section. It is open to the assessee to furnish to the satisfaction of the assessing officer the circumstances under which the payment in the manner prescribed in Section 40-A(3) was not practicable or would have caused genuine difficulty to the payee. It is also open to the assessee to identify the person who has received the cash payment. Rule 6-DD provides that an assessee can be exempted from the requirement of payment by a crossed cheque or crossed bank draft in the circumstances specified under the rule. It will be clear from the provisions of Section 40-A(3) and Rule 6-DD that they are intended to regulate the business transactions and to prevent the use of unaccounted money or reduce the chances to use black money for business transactions. [See: Mudiam Oil Company v. ITO [(1973) 92 ITR 519 (AP)] ]. If the payment is made by a crossed cheque drawn on a bank or a crossed bank draft then it will be easier to ascertain, when deduction is claimed, whether the payment was genuine and whether it was out of the income from disclosed sources. In interpreting a taxing statute the court cannot be oblivious of the proliferation of black money which is under circulation in our country. Any restraint intended to curb the chances and opportunities to use or create black money should not be regarded as curtailing the freedom of trade or business.\" 9. At the cost of repetition, the Tribunal has not disbelieved the transactions or the genuineness thereof. Nor has it disbelieved the fact of payments having been made. More important, the reasons furnished by the appellant for having made the cash payments, which we have already adverted to, have not been disbelieved. In our view, assuming these reasons to be correct, they clearly make out a case of business expediency. Printed from counselvise.com ITA Nos.1199, 1200/Bang/2025 Page 22 of 28 10. In the circumstances, the order of the Tribunal in this regard is set aside. The payments cannot be disallowed under Section 40A(3) of the Act. 4.16. We rely on the decision of Hon’ble ITAT Jaipur in case of Brother Pharma (P.) Ltd. V. Income tax Officer, Ward 4(2), Jaipur [2017] 82 taxmann.com 234 (Jaipur - Trib.) 15. We have heard the rival contentions of both the parties and perused the material available on the record. Prima facie it appears that the assessee has paid salary in excess to Rs. 20,000/- and violated the provisions of Section 40A(3) of the Act but it is also revealed that these payments were pertained to salary for the months of May to August. The genuineness of the payments has not been doubted. The employees were insisted upon casfannexh payments only, therefore, to maintain the good relation with them, the company paid cash salary for various months. The Hon'ble Rajasthan High Court in the case of Harshila Chorida (supra) has held that exceptional condition mentioned in Rule 6DD are not exclusive. This was the business expediencies of the company to pay in cash, therefore, we do not find that these payments are covered U/s 40A(3) of the Act. Accordingly, the addition confirmed by the ld CIT(A) is deleted. Hence, this ground of assessee's appeal is allowed. 4.17. We rely on the decision of Hon’ble ITAT Delhi in case of Income Tax Officer, Ward -52(1), new Delhi [2021] 124 taxmann.com 563 (Delhi - Trib.) 35. A similar view is expressed by the High Court of Calcutta in Giridharilal Goenka's case (supra), where it was observed that (at p. 128): \"The circular of the Board is not exhaustive, it is only illustrative and the Assessing Officer has to take into account the surrounding circumstances, considerations of business expediency and the facts of each particular case in exercising his discretion either in favour or against the assessee'. It was also held that the Income-tax Officer should take a practical approach to the problem and strike a balance between the direction of law and hardship to the assessee.\" 36. The circular and judgments unequivocally intend at allowing the expenses owing to genuineness of the payment and contingency of the business. Hence, keeping in view the provisions of the Act, Rules and the above judgments and having examined the issue and the peculiar facts and circumstances of the case, on finding that the assessee is merely facilitator and intermediary in the transaction and his receipts assessable to tax constitute the margin between the price obtained and further paid but not the entire receipts which stands further passed on to the two ticketing agencies, we hereby hold that the provisions u/s 40A(3) are not attracted. 37. In the result, the appeal of the revenue is dismissed on all the grounds. Printed from counselvise.com ITA Nos.1199, 1200/Bang/2025 Page 23 of 28 4.18. In order to disallow the expenditure u/s 40A(3) of the Act the appellant must have incurred such expenditure through unaccounted means, or the authorities are not able to identify the genuineness of expenditure. In the present case, the appellant has incurred genuine expenditure and has produced all the relevant information in support of the expenditure. It is also to be noted that it is impracticable to conduct business like construction without incurring the cash payments as the main means for operation is labours and material purchases. In view of the above submissions, it is prayed that the Hon’ble Tribunal be pleased to allow the appeal of the appellant. 6. On the other hand, learned DR relied on the Order of lower authorities and submitted that assessee’s rectification application for the Assessment Year 2013-14 which is rejected by the AO vide Order dated 10.09.2025 and for Assessment Year 2014-15, the DCIT, Central Circle – 2, Mangalore, issued letter on 25.08.2025 and directed to furnish in compliance with assessee’s rectification application dated 07.05.2025 copy of supporting documents of the working staff of the firm along with supporting documents towards labour by 29.08.2025. The learned CIT(A) directed to verify the payments of Rs.32,64,406/- under section 40A(3) of the Act and it was divided in 4 categories as under: 7. The learned CIT(A) accepted the amount of Rs.21 lakhs which is not in the nature of expenditure and not claimed as deduction. During the course of rectification process for the Assessment Year 2013-14, the AO accepted category 1 i.e., material purchases where bill received and VAT paid. Further in case of labour expenses per day per person it was observed that the total amount of Rs.4,92,026/-, labour expense was only to the tune of Rs.1,24,906/- Printed from counselvise.com ITA Nos.1199, 1200/Bang/2025 Page 24 of 28 and amount of Rs.25,270/- was personal drawings. The balance payment of Rs.3,41,850/- was paid as under: Date Particular Amount (Rs.) 18.01.2013 Engineer work charges 21.250 01.08.2012 Labour development cess 99,000 26.02.2013 Mahaganapathi Steel 2,00,000 31.01.2013 Professional 21,600 Total 3,41,850 8. Further in respect of balance amount, assessee has clearly violated the provisions of section 40A(3) of the Act. Therefore, same was disallowed. Regarding category 3 Payment made on Sundays and other bank holidays of Rs.6,70,380/- was verified and found that none of the payments were made on Sundays and other bank holidays. Therefore the same amounts were rightly disallowed by the AO and the assessee was unable to bring any sufficient cause which was necessary to make payment on cash could not be established as per Rule 6DD(i) of the Rules and for Assessment Year 2014-15, the learned DR relied on the Order of OGE and submitted that assessee has violated the provisions of section 40A(3) of the Act. Therefore AO has rightly made addition. The case laws relied on by the learned Counsel are not applicable to the present facts of the case case on hand since assessee could not establish cash payment as per Rule 6DD(i) of the Rules. 9. Considering the rival submissions and on perusal of entire material available on record and Orders of authorities below, we noted that during the reassessment proceedings it was observed that assessee has made cash Printed from counselvise.com ITA Nos.1199, 1200/Bang/2025 Page 25 of 28 payments on working days on Sundays as well as on non banking days. As per direction of the learned CIT(A) the AO verified and noted that assessee has made payments on the bank working days. The learned Counsel strongly supported the payments made and stated that genuineness of the payments are not doubted and therefore relying on the judgments cited by him submitted that the addition made under section 40A(3) of the Act is not justified and the payments were made on the bank holiday days. After going through the entire submissions of the assessee we noted that assessee has made payment of Rs.3,41,850/- as per the above table for the Assessment Year 2013-14. We have also verified date of payments. We noted as under: Date Day Particular Amount(Rs.) 18.01.2013 Friday Engineer work charges 21.250 01.08.2012 Wednesday Labour development cess 99,000 26.02.2013 Tuesday Mahaganapathi Steel 2,00,000 31.01.2013 Thursday Professional 21,600 10. From the above table noted supra, we noted that on 01.08.2012 labour development cess paid of Rs.99,000/- might have been paid towards labour to the government department but during the course of hearing the learned Counsel could not establish that it has been paid to the government department. Therefore, for the limited purpose of verification, we remit this amount of payment of labour development cess of Rs.99,000/- if the assessee is able to prove that the amount has been paid to the government department it should be deleted and the balance amount of Rs.2,42,850/- is hereby confirmed since assessee has violated the provision of section 40A(3) of the Act and submissions made that the assessee has paid on banking holiday day is not correct. Further in respect of payment of Rs.6,72,380/- as the contested Printed from counselvise.com ITA Nos.1199, 1200/Bang/2025 Page 26 of 28 that this payment was made on Sundays and other bank holidays and during the rectification process the AO examined and found that the. none of the payments were made on Sundays and other bank holidays. Accordingly, we also uphold this addition. Therefore, the above payments did not come under the explanation provided under Rule 6dd(j) of the Act. With this observation, appeal for Assessment Year 2013-14 is partly allowed for statistical purposes. 11. Further, in respect of Assessment Year 2014-15, the learned CIT(A) classified the addition made under section 40A(3) of the Act of Rs.1,21,17,822/- under the same head as under: 12. As per direction of the learned CIT(A) the AO after verifying passed OGE and partly gave relief. Regarding material purchases where bill received and VAT was paid for Rs.43,34,334/- the AO has given relief to the assessee for Rs.5,91,650/- because payments were made on bank holidays and balance amount of Rs.37,42,684/- was confirmed. In this regard, learned Counsel submitted that AO has not doubted on purchase and bills were received on the material purchased, the assessee has paid VAT and benefit of VAT has also been given. 13. Learned DR relied on the Order of the lower authorities. 14. We found that AO has not doubted on the purchase and he has allowed expenditure claimed under section 37(1) of the Act. But there are other Printed from counselvise.com ITA Nos.1199, 1200/Bang/2025 Page 27 of 28 provisions to compute the income under the head profit from business / profession. The AO has disallowed under section 40A(3) of the Act for violating provisions and assessee has made payment more than specified limit on single date to single party. We also uphold findings recorded by AO on this point. Since assessee could not establish that balance payment was made which does not fall under Rule 6DD(j) of the Act. Further, in respect of labour expenses per day per person of Rs.44,32,333/- the ld CIT(A) had directed to allow all labour payments, following the direction of ld. CIT(A) the AO as per assessee’s submissions verify and found that the payment were not made towards labour . After verifying the AO noted that Rs. 11,57,443 were not for the labour payments and balance of Rs. 32,74,800/- was allowed. The learned Counsel has submitted that it was paid on bank holidays to labours. We noted from OGE The AO verified and found that the amount of Rs. 11,57,443 were not paid for labours , the assessee made wrong submissions made before the Ld. CIT(A) and misguided. The payments have been made on working days. Accordingly, we also uphold the Order of the AO in the OGE passed. Therefore, Rs.11,53,443/- is confirmed. Here in this case the assessee produced wrong facts and misguided to the revenue authorities, therefore, the case law relied on by the ld. counsel will not support. Further, in respect of payment of Rs.32,51,155/- assessee has argued that it was made on banking holidays. The AO has verified and allowed Rs.3,23,600/- and Rs.29,27,555/- and was added. There is no doubt that the AO has allowed under section 37(1) of the Act but he has made addition under section 40A(3) of the Act because assessee did not satisfy the conditions laid down under the above section. AO examined and found that payment of Rs.29,27,555/- does not satisfy the provisions of section 40A(3) of the Act r.w.r.6DD(j). We have gone through the Orders of the lower authorities. We agree with the findings recorded by the lower authorities on this point. Printed from counselvise.com ITA Nos.1199, 1200/Bang/2025 Page 28 of 28 15. In the result, we dismiss grounds raised by the assessee. 16. To sum up, appeal for Assessment Year 2013-14 in ITA No.1199/Bang/2025 is partly allowed for statistical purposes and ITA No.1200/Bang/2025 for Assessment Year 2014-15 is dismissed. Pronounced in the open court on the date mentioned on the caption page. Sd/- Sd/- (SOUNDARARAJAN K) (LAXMI PRASAD SAHU) Judicial Member Accountant Member Bangalore. Dated: 13.10.2025. /NS/* Copy to: 1. Appellants 2. Respondent 3. DRP 4. CIT 5. CIT(A) 6. DR,ITAT, Bangalore. 7. Guard file By order Assistant Registrar, ITAT, Bangalore. Printed from counselvise.com "