AO can’t invoke sec. 154 to make disallowance for cash payments: ITAT

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  • Last Updated on 3 June, 2022

disallowance for cash payments

Case Details: Smt. Poonam Mittal v. ITO - [2022] 138 380 (Amritsar-Trib.)

Judiciary and Counsel Details

    • Ravish Sood, Judicial Member & Dr M.l. Meena, Accountant Member
    • Ashray Sarna, CA for the Appellant.
    • Rohit Mehra, DR for the Respondent.

Facts of the Case

In the instant case, the Assessing Officer (AO) issued a notice under section 154 calling upon the assessee to explain why the bonus of Rs. 2,47,380 paid in cash should not be disallowed under section 40A(3). Later, rejecting the assessee’s contention, AO passed the order under section 154 making disallowance.

The assessee carried the matter before the CIT(A). However, the CIT(A) confirmed the action of AO and upheld the order passed under section 154. Aggrieved-assessee filed the instant appeal before the Tribunal.


The Tribunal held that section 40A(3) contemplates disallowance of certain expenditure which is incurred by an assessee in cash beyond the prescribed limit. Further, rule 6DD carves out a set of exceptions wherein the payments despite having been made in cash beyond the aforesaid prescribed limit are not to be disallowed.

AO had invoked his powers under section 154 for making disallowing under section 40A(3).
It is only a mistake apparent from the record, i.e., one which is obvious and patent and not something that can be established by a long drawn process of reasoning on points on which there may conceivably be two opinions that can be rectified within the meaning of section 154.

The disallowance of an amount under section 40A(3) by no means can be brought within the realm of a mistake that could be held as being a mistake that is glaring, patent, apparent and obvious from record.

Thus, AO had grossly erred in invoking the provisions of section 154 to disallow the aforementioned amount under section 40A(3). Thus, the order therein passed by him couldn’t be sustained and was accordingly liable to be vacated.

List of Cases Referred to

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