23 July 2025
You’re looking for Sri Renukeswara Rice Mills vs. ITO (2005) — a landmark case under Section 40A(3). Here's a detailed summary:
📘 Case Summary – Sri Renukeswara Rice Mills v. ITO (2005) 🔁 Facts: Assessee (Rice Mill) purchased agricultural produce.
Payments exceeding ₹20,000 were made in cash, but deposited directly into the payee’s bank account, via bank challan—not by debit to the payee’s pocket.
AO disallowed the expenditure under Sec 40A(3) on grounds of cash payment >₹20k.
⚖️ Legal Holding: The Bangalore Tribunal held in favour of the assessee, stating:
“Payment in cash made directly to bank account of payee … fulfils the intent of Section 40A(3). The origin and conclusion of the transaction are traceable, and the payee alone receives the payment. Hence, no disallowance is warranted.” taxguru.in +15 casemine.com +15 bangaloreicai.org +15 indiankanoon.org +1 incometaxquery.com +1 taxguru.in caclubindia.com
📌 It emphasized:
The spirit behind Sec 40A(3) is to prevent use of unaccounted money and curb black money, ensuring traceability—not necessarily restrict cash.
A bank-deposit via challan meets this objective under Rule 6DD partially.
✅ Takeaway: Payment Method 40A(3) Implication Cash in hand to seller ❌ Disallow deduction if > ₹20K Cash deposit into seller’s bank ✅ Allow deduction (as per this case)
The ruling provides relief where cash is routed through banking channel, even without an account payee cheque, as long as the transaction remains traceable and paid to the correct party.
📚 Case References: Sri Renukeswara Rice Mills v. ITO (2005) 93 ITD 263 (Bang-Trib) caclubindia.com +2 casemine.com +2 indiankanoon.org +2 indiankanoon.org +6 indiankanoon.org +6 taxguru.in +6 taxguru.in +7 incometaxquery.com +7 taxguru.in +7
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