1. Disallowance u/s. 40A(3)

Payment exceeding twenty thousand rupees made otherwise than by account payee cheque drawn on a bank or account payee bank draft shall neither be disallowed u/s. 40A(3)(a) nor it shall be deemed to be profits and gains of business or profession u/s. 40A(3)(b) in the following circumstances:

1. Payment made to:
    

1. RBI or any banking company as defined in the Banking Regulation Act, 1949
    

2. SBI or its subsidiary
    

3. any co-operative bank or land mortgage bank
    

4. primary agricultural credit society or any primary credit society as defined in the Banking Regulation Act, 1949
    

5. Life Insurance Corporation of India
    

2. Payment to the Government if it is required to be made in legal tender.
    

3. Payment made by
    

1. letter of credit arrangements through a bank
    

2. a mail or telegraphic transfer through a bank
    

3. a book adjustment from any account in a bank to any other account in that or any other bank
    

4. a bill of exchange made payable only to a bank
    

5. the use of electronic clearing system through a bank account
    

6. a credit card
    

7. a debit card
    

4. Payment made by the way of adjustment against the amount of and liability incurred by the payee for any goods supplied or services rendered by the assessee to such payee.
    

5. Payment made to the cultivator, grower or producer for the purchase of
    

1. agricultural or forest produce, or
    

2. the produce of animal husbandry (including livestock, meat, hides and skins) or dairy or poultry farming, or
    

3. fish or fish products, or
    

4. the products of horticulture or apiculture
    

6. Payment to the producer for the purchase of the products manufactured or processed without the aid of power in a cottage industry.
    

7. Payment made in a village or town, which on the date of such payment is not served by any bank, to any person who ordinarily resides, or is carrying on any business, profession or vacation, in any such village or town,
    

8. Payment made to any employee or the heir of any such employee, on or in connection with the retirement, retrenchment, resignation, discharge or death of such employee, on account of gratuity, retrenchment compensation or similar terminal benefit and the aggregate of such sums payable to the employee or his heir does not exceed fifty thousand rupees,
    

9. Payment of salary to his employee after deducting the income-tax when such employee:

1. is temporarily posted for a continuous period of fifteen days or more in a place other than his normal place of duty or on a ship, and
    

2. does not maintain any account in any bank at such place or ship.
    

10. Payment on a day on which the banks were closed either on account of holiday or strike.
     

11. Payment made to an agent who is required to make payments in cash for goods or services on behalf of such person.
     

12. Payment by an authorized dealer or a money changer against purchase of foreign currency or travellers' cheques in the normal course of his business.

[Notification No. 208 of 2007 dated 27th June, 2007 (210 CTR (St.) 46) (292 ITR (St.) 21) (162 Taxman (St.) 37)]

2. Scrutiny of cases on the basis of data of AIR returns

Scrutiny selected on the basis of data of AIR returns for the A.Y. 2005-06 should be limited to only that aspect. If the A.O. feels that other areas are required to be looked into, he may do so with the approval of ACIT/JCIT range who shall monitor such a case.

[Instruction F. No. 225/26/2006-ITA-II(PT) dated 23rd May, 2007 (162 Taxman (St.) 40)]

3. Clarification on telephone interception by Income-tax department

There are some misconceptions regarding telephone interception by the investigation wing of the Income-tax Department. Phone interception is done only in very exceptional and the rarest of cases after obtaining due authorization from the appropriate authority. Reports suggesting that the interception facility is used for routinely tapping corporate conversations or keeping a tab on top bracket tax-payers are totally baseless.

{Press Release dated 13th June, 2007 (161 Taxman (St.) 329)}