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2016 (6) TMI 417 - AT - Income TaxApplicability u/s 40A(3) - payments made in cash by the assessees to MSRTC for purchase of scrap in auction - Held that:- We are of the considered opinion that the CIT(A) has erred in holding that MSRTC is not a “State” and cash payments made to MSRTC are hit by the provisions of section 40A(3) of the Act. In so far as genuineness of the payments to MSRTC by the assessees, they are not disputed by the department. Once it has been held that MSRTC is a “State” within the meaning of Article 12 of the Constitution of India, the payments cannot be disallowed u/s.40A(3). The provisions of Rule 6DD would protect the assessee from such disallowance. The assessees have explained that cash payments have been made to MSRTC on successful bid of scrap auction. The payments are made in cash immediately to guard against the pilferage of scrap. Thus, cash payments are also made out of business expediency. Therefore, in our considered view, no disallowance can be made u/s.40A(3) in the facts of the present case. Our view is fortified by the decision rendered in the case of Sri Laxmi Satyanarayan Oil Mill Vs. CIT (2014 (8) TMI 486 - ANDHRA PRADESH HIGH COURT ) no disallowance can be made u/s.40A(3) where genuineness of payment is not doubted. The provisions of Rule 6DD (b) provide exception to Section 40A(3) where cash payments are made to Government. The aforesaid exception will operate in the case of the assessee. Thus, the CIT(A) has erred in holding that disallowance u/s.40A(3) is to be made in respect of cash payments made by assessees to MSRTC. - Decided in favour of assessee.
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