Aqua World Exports Private Limited Vs DCIT (ITAT Chennai)
Section 40A(3) Disallowance Unsustainable When Cash Payments Do Not Exceed ₹20,000 Per Person Per Day
The Chennai ITAT held that disallowance under Section 40A(3) cannot be made by merely aggregating total cash expenditure, without examining whether individual cash payments exceeded the prescribed threshold per person per day. In this case, the assessee, engaged in the seafood export business, incurred expenditure on purchase of ice, an essential input for preservation of fish. Although a substantial portion of the payments was made in cash, the assessee contended that each cash payment to individual vendors on a single day did not exceed ₹20,000, the statutory limit applicable for AY 2017–18.
The Tribunal noted that the Assessing Officer mechanically disallowed the entire cash component by aggregating yearly cash payments, without identifying any specific instance of violation of the per-day, per-person limit under Section 40A(3). The ledger extracts produced by the assessee, showing transaction-wise payments, were not rebutted by the Revenue with any contrary evidence. The ITAT emphasized that Section 40A(3) operates transaction-wise and not on a cumulative basis.
Further, while not resting its decision solely on business expediency or Rule 6DD, the Tribunal observed that the nature of the assessee’s business involves frequent purchases from small vendors, where cash payments are commercially practical. In the absence of any finding that the statutory monetary limit was breached, mere cash payment cannot justify disallowance.
Accordingly, the ITAT set aside the orders of the AO and CIT(A) and deleted the disallowance of ₹30.72 lakh, allowing the assessee’s appeal in full
FULL TEXT OF THE ORDER OF ITAT CHENNAI
