Disallowance u/s 40A(3)--Direct deposit into Bank

Hi Manish,

Consider the following judgment of the Bangalore bench of theTribunal:[The Hon'ble Supreme Court in Attar Singh Gurmukh Singh v. ITO[1991] 191 ITR 667 noted that the intention to make payment bycrossed cheque or crossed DD is to enable the assessing authority toascertain that the payment is genuine and not out of the undisclosedsource. It is also noted that section 40A(3) is intended to regulatebusiness transactions and to prevent the use of unaccounted moniesor to reduce the chances of use of black money for businesstransactions. In the present case it is seen that the assessee forpurchase of rice, paid the amount directly to the bank account ofthe payee. The effect of issue of crossed cheque/DD is that thepayee named therein receives the payment through banking channels.The purpose is dual. In the first instance it is to see that thepayee and payee alone receives the payment and to ensure that thepayment is routed through banking channel so as to trace the originand conclusion of the transaction. In the case before us, it is seenthat instead of issuing cheque/DD the assessee prepared a challanand along with the cash the challan was presented to the bank of thepayee for the credit of the same in the account of payee. As aresult, it is ensured that the payee and payee alone receives thepayment and the origin and conclusion of transaction is traceable.Thus payment of sum directly in the bank account of payee fulfilsthe criteria for ensuring the object of introduction of section 40A(3).This is not a direct payment to the payee but only to the credit ofhis bank account without the payee actually receiving the cash. Weaccordingly hold that such payment is not in violation of provisionsof section 40A(3) and hence no disallowance is called for]--SriRenukeswara Rice Mills v. Income-tax Officer [2005] 93 ITD 263(Bang.)Thanks,CA Sanjeev Bedi--- In http://finance.groups.yahoo.com/group/ICAI_CIRC_MEERUT_CA/post?postID=yRNlgqjbNcRysMq8zaCTjyCQVqPShQ5mU_fA5HSwBEA7mr7dc5LBBJxmP7onAUZcLPU75i9fLVqvQ6MhJhba5_nD6ORKLMUKdIsEIwA, Manish Garg wrote:>> dear members>>> please advise me whether direct cash payment in the CBS bank a/cof supplier forrs. more than 20000 will covered u/s 40 A 3>>>>> thanks> regards>> CA MANISH GARG> 9837219043>