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2023 (11) TMI 630 - AT - Income TaxDisallowance u/s 40A(3) - cash payment to the farmers/land owners exceeding permissible limits - payment made by the assessee to ten parties included the electricity expenses and vehicle repair expenses - HELD THAT:- By considering the judgment of Attar Singh Gurmukh Singh [1991 (8) TMI 5 - SUPREME COURT] as decided in case of Anupam Tele Services [2014 (2) TMI 30 - GUJARAT HIGH COURT] if section 40A(3) is read together with rule 6DD it will be clear that the provisions are not intended to restrict business activities. The payment by crossed cheque or crossed bank draft is insisted to enable the assessing authority to ascertain whether the payment was genuine or whether it was out of income from undisclosed sources. Considerations 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. The Hon’ble High Court further observed that provision of section 40A(3) and Rule 6DD are intended to regulate business transactions and to prevent the use of unaccounted money or reduce the changes to use black money for business transactions. Therefore, if the assessee has brought on record to establish genuineness of the transactions and payment as well as identity of the payee to the satisfaction of the AO then the benefit of Rule 6DD is available. Hon’ble High Court has observed that section 40A(3) was intended to penalize the tax evader and not honest transactions and that is why after framing Rule 6DD(j) the CBDT steps in by issuing the circular dated 31st May 1977. Therefore, the disallowance u/s 40A(3) cannot be made without considering the business expediency and other relevant factors falling in the exceptions given in Rule 6DD of I.T. Rules. Decided in favour of assessee. Disallowance on account of salary/remuneration paid to the directors - AO question the justification and reasonableness of such huge amount paid two directors in view of the provisions of section 40A(2)(b) and asked the assessee to furnish the specific details supporting documentary evidences and finally made disallowance of 30% also confirmed by CIT(A) - HELD THAT:- For the year under consideration both directors are paying maximum marginal rate of tax and therefore, there is no revenue loss on this account. Accordingly following the earlier order of this Tribunal in assessee’s own case [2023 (7) TMI 1322 - ITAT INDORE] adhoc disallowance made by the AO without determining the fair remuneration/salary paid to the directors having regard to their services rendered to the assessee company is not justified and the same is deleted. Appeal of assessee is allowed.
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