2013 (12) TMI 483 - HC - Income Tax

Cash payment to lorry driver - disallowance u/s 43A(3) - Held that - There is hardly any material to substantiate the case of the assessee that the lorry driver acted in the dual capacity one of which happened to be as the agent of the assessee - A reading of the affidavit extracted filed show that the lorry owner collected the freight from the assessee through the driver for the concerned lorry - Lorry freight was paid in cash by the assessee to the lorry drivers because they needed cash to purchase diesel, tyres and spare parts and for repairs en route - The lorry drivers acted only on behalf of the lorry owners and collected the freight from the assessee - The reason why they collected cash was that they do not have any bank in that place like Virudhanagar - The payers were not in a position to furnish the affidavit that the lorry payments had already been recorded in their books of accounts and they were assessed to tax before their respective Assessing Officer - The assessee s only claim before the authorities was that the driver acted in dual capacity, for which there is no evidence - Being pure question of fact without any material to substantiate the case of the assessee - Decided against assessee.

Summary

Issues:
1. Interpretation of Rule 6DD(k) of the Income Tax Rules regarding payment to driver of lorry.
2. Disallowance of cash payment under Section 40A(3) of the Income Tax Act.

Issue 1: Interpretation of Rule 6DD(k) of the Income Tax Rules regarding payment to driver of lorry:
The appellant firm, engaged in the business of manufacturing and selling dhalls and grains, made cash payments exceeding the limit under Section 40A(3) of the Income Tax Act to lorry drivers for freight. The Assessing Officer disallowed the payments, leading to penalty proceedings. The appellant contended that the cash payments were made through agents, the lorry drivers, and thus should not be disallowed under Section 40(A)(3) read with Rule 6DD(k) of the Income Tax Rules. However, the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal held that the lorry drivers were not acting as agents of the appellant but rather on behalf of the lorry owners/transport operators. The Tribunal rejected the appellant's case, emphasizing the lack of evidence showing the drivers acted as agents of the appellant.

Issue 2: Disallowance of cash payment under Section 40A(3) of the Income Tax Act:
The First Appellate Authority and the Income Tax Appellate Tribunal both upheld the disallowance of the cash payments under Section 40A(3) of the Income Tax Act. The appellant argued that the transactions were genuine and that the drivers acted in dual capacity, citing a Delhi High Court decision. However, the Court found that the appellant failed to provide substantial evidence to support their claim that the drivers acted as agents. The Court differentiated the present case from the Delhi High Court decision, emphasizing the lack of evidence in the appellant's case to establish the dual capacity claim. Consequently, the Court dismissed the Tax Case (Appeal) without costs.

In conclusion, the judgment delves into the interpretation of Rule 6DD(k) of the Income Tax Rules and the disallowance of cash payments under Section 40A(3) of the Income Tax Act concerning payments to lorry drivers. The Court emphasized the importance of substantial evidence to support claims of agency relationships and dual capacities, ultimately dismissing the appeal due to the lack of such evidence in this case.