Piprani Equipment P. Ltd. Vs ITO (ITAT Ahmedabad)
ITAT Ahmedabad held that clause (k) of Rule 6DD specifies that where payment for expenses are made by a person to an agent who is required to make payment in cash on behalf of such person, then rigours of section 40A(3) are not applicable.
Facts-
A.O. observed that the assessee had made payment in cash exceeding the limit specified u/s 40(A)(3) of the Act on purchase of five old vehicles/JCB Machines on various dates.
A.O. held that since the payments to these persons were made in cash and in violation of the provisions of section 40A(3) of the Act read with Rule 6DD of the Income Tax Rules,1962 the same were not allowable.
A.O. rejected these contentions and held that the exceptions provided in Rule 6DD of the Rules are not applicable to the transactions made by the assessee. He accordingly made disallowance of Rs.37,01,314/- after considering the submissions made by the assessee.
Conclusion-
As is evident, the clause (k) of Rule 6DD specifies that where payment for expenses are made by a person to an agent who is required to make payment in cash on behalf of such person, then rigours of section 40A(3) are not applicable. In the present case, the Revenue does not dispute the fact that the assessee had made payment in cash not directly to the seller, but through his agent i.e. he had paid cash to the agent, who in turn paid to the seller for procuring vehicles from them.
Even otherwise, in view of the above, we hold that the assessee has sufficiently demonstrated existence of circumstance specified in clause (k) of Rule 6DD to be eligible for exemption from the rigours of section 40A(3) of the Act. Accordingly, disallowance made by invoking section 40A(3) of the Act of Rs.37,01,314/- is directed to be deleted. This ground of appeal is allowed.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
The present appeal has been filed by the assessee against order passed by the Commissioner of Income Tax(Appeals)-9, Ahmedabad in short referred to as ld.CIT(A)) under section 250(6) of the Income Tax Act, 1961 (“the Act” for short), dated 18.6.2019 pertaining to Asst.Year 2015-16.
2. Sole issue in the present appeal relates to disallowance of expenses incurred in cash amounting to Rs.37,24,414/- as per provisions of section 40A(3) of the Act. The grounds raised by the assessee in this regard are as under:
“1. The ld.CIT(A) has erred in confirming the addition of Rs.37,01,314/- made by AO in his order u/s.143(3) by way of disallowance made under section 40(3) in respect of cash purchase of old vehicles from unknown sellers for business of dealing of old vehicles, equipment’s and machineries.”
3. Brief facts relating to the case are that the assessee company was engaged in the business of purchase and sale of used vehicles and construction equipments/machineries and old vehicles were purchased from the individual persons who were working as small roadside contractors and were residents of distant and separate states. The gross sales/receipts of the business were of Rs.64,71,100/- and purchases were of Rs.72,20,414/-. Thus, the appellant company was not subjected to audit as per the provisions of section 44AB of the Act. However, the assessee-company had obtained the tax audit report and furnished the same voluntarily. Based on the remarks made in the said tax audit report, the A.O. observed that the assessee had made payment in cash exceeding the limit specified u/s 40(A)(3) of the Act on purchase of five old vehicles/JCB Machines on various s dates as under:
