🧾 Income Tax Update | Section 40A(3) & Rule 6DD

💵 Cash Payment Above Prescribed Limit Does Not Automatically Lead to Disallowance

🔹 Facts of the Case:

* The Assessing Officer (AO) disallowed cash payments made towards purchases under Section 40A(3) of the Income-tax Act on the ground that the payments exceeded the prescribed threshold limit.

* The assessee contended that no banking facility was available within a radius of 7–8 km from the business premises.

* The payments were made against genuine purchase bills and to identifiable parties.

⚖️ Issue:

* Neither the AO nor the CIT(A)/NFAC examined whether the payments qualified for exemption under Rule 6DD of the Income-tax Rules.

🏛️ ITAT Held:

* Without examining the applicability of Rule 6DD, it is not possible to determine whether the disallowance under Section 40A(3) is wholly or partly justified.

* Accordingly, the matter was remanded back to the AO for fresh examination in light of Rule 6DD.

📌 Key Takeaway:

Section 40A(3) disallowance is not automatic merely because cash payments exceed the prescribed limit. The AO is duty-bound to examine Rule 6DD exemptions — including non-availability of banking facilities — before making any disallowance.

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