ITAT Quashes Revision Order: No Section 40A(3) Disallowance When Income Estimated via Gross Profit Rate

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has quashed a revision order that sought to make a disallowance under Section 40A(3) of the Income Tax Act. The tribunal held that when an assessee's income is estimated on a presumptive basis by applying a standard Gross Profit (GP) rate, a separate disallowance for cash payments exceeding the prescribed limit cannot be made. The ITAT reasoned that the estimation of income by applying a GP rate is a comprehensive assessment that already accounts for all potential disallowances and leakages. Making a separate, specific disallowance under Section 40A(3) for cash payments would amount to double taxation and is not permissible. This ruling provides important clarity, preventing the tax department from making piecemeal additions once they have chosen to reject the books of accounts and assess the income on an estimated basis.