Case Law Details
Shree Buildcon & Associates Vs JCIT (ITAT Pune)
It is found as an admitted position that the assessee paid the amounts in question to the labour contractors in violation of section 40A(3) of the Act. The case of the assessee is that the payments were covered under clause (k) of Rule 6DD, which provides that no disallowance will be made where the payment is made by any person to his agent who is required to make payment in cash for goods or services on behalf of such persons.
The important point to be noted in such cases is that the payment must be by the assessee to his agent, who, in turn, pays to some third person on behalf of the assessee for goods or services. It means that the agent to whom the payment is made must represent the principal in making the payments for goods or services.
Adverting to the facts of the instant case, it is seen that the assessee made payment to contractors and such payments were as such recorded as expenditure in the books of account of the assessee. In such circumstances, it cannot be said that the contractors were agents of the assessee for the provision of labour. Had the payments been made by the assessee to contractor and then, in turn, to the labourers and the transaction of payments to labourers had been considered as expenditure of the assessee, then the case would have been covered by clause (k) of Rule 6DD. Here is a case in which the assessee paid to the contractors on principal-to-principal basis and no agency of any sort was involved in this transaction.
We, therefore, hold that the authorities below were justified in coming to the conclusion that clause (k) of Rule 6DD was not attracted. If Rule 6DD is taken out of purview, then the payment is otherwise in violation of section 40A(3) of the Act. As such payments were made in violation of the provision, we hold that the disallowance u/s.40A(3) has been rightly confirmed in the first appeal.
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