INCOME TAX ACT, 1961

Section 40A(3)

Business disallowance under section 40A(3) - Applicability of provisions - Assessee made payments to transporters in violation of provisions of section 40A(3) -

Assessee was engaged in manufacturing of various types of PVC pipes and fittings. AO observed that assessee made payments to transporters in violation of the provisions of section 40A(3). Assessee submitted that his case was covered under rule 6DD(k) of Income Tax Rules, 1962. AO found that the prescription of rule 6DD(k) applies only where the payment was made by any person to his agent who, in turn, was required to pay in cash for goods or services on behalf of such principal. Since relationship between assessee and the transporters was not that of principal and agent, AO made disallowance under section 40A(3). Held: Delivering goods by a transporter on behalf of assessee to customers was one thing, which was entirely different from paying freight by assessee to such transporter. Further, exception carved out in the rule applies where payment was made by assessee to his agent for making further payment in cash and not for the self-consumption by agent. Since no principal-agent relation exists between assessee and transporters to whom the assessee made payments in violation of section 40A(3), therefore, assessee could not get shelter of clause (k) of rule 6DD and order of AO was upheld.

REFERRED : National Plastics Industries v. ITO (2009) 177 Taxman 139 (Bom) : 2009 TaxPub(DT) 0809 (Bom-HC) CIT v. Acrow India Ltd. (2008) 298 ITR 447 (Bom.) : 2008 TaxPub(DT) 0411 (Bom-HC)

FAVOUR : Against the assessee

A.Y. :

INCOME TAX ACT, 1961

Section 14A read with Rule 8D

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