2014 (1) TMI 948 - AT - Income Tax

Disallowance made u/s 40A(3) of the Act lorry hire charges paid in cash Held that - The assessee has paid lorry freight charges in cash in violation of provisions of sec. 40A(3) of the Act - The disallowance is prescribed under sec. 40A(3) under a legal fiction and hence the tax authorities have to necessarily comply with it unless it is shown by the assessee that the impugned payments falls within any of the exceptions given under the Act or Rules - The lorry drivers are collecting payments on behalf of the lorry owners and they cannot be considered as the agents of the assessee - The assessee is neither the owner of the vehicle nor the owner of the goods carried Thus, the contention of the assessee that the lorry drivers are acting as the agent of the assessee is not correct the assessee failed to show that the payments made by it in violation of the provisions of sec. 40A(3) of the Act is covered by any of the exceptions provided under Rule 6DD of the Income Tax Rules order of the CIT(A) in confirming the disallowance made by the Assessing Officer u/s. 40A(3) of the Act upheld Decided against Assessee.

Summary

Issues:
Challenge to disallowance under section 40A(3) of the Act.

Analysis:
The appellant, a partnership firm engaged in transport contracting, contested the disallowance under section 40A(3) of the Act concerning lorry hire charges. The Assessing Officer disallowed a cash payment of Rs.1,06,69,600 made by the appellant, which was confirmed by the Ld. CIT(A), leading to the appeal. The appellant argued that due to business expediency and lack of direct contracts with lorry owners, cash payments were necessary. Reference was made to the proviso to section 40A(3) exempting payments under specific circumstances. The appellant also invoked Rule 6DD(k) of the Income Tax Rules, contending that lorry drivers acted as agents, thus qualifying for an exemption. However, the Revenue argued against this, stating that lorry drivers were not agents and highlighted a violation of section 194C for not deducting tax at source. The appellant countered by citing the treatment of lorry drivers as agents under the Kerala Sales Tax Act.

The Tribunal examined the contentions and the legal provisions. It was noted that the proviso to section 40A(3) allowed exemptions based on prescribed circumstances, considering banking facilities, business expediency, and other factors. Rule 6DD of the Income Tax Rules was established to provide specific cases for exemption. The Tribunal found that the appellant failed to demonstrate eligibility for any exemption under Rule 6DD. The Ld. CIT(A)'s view that lorry drivers were not agents of the appellant was upheld, supported by the factual scenario of the case. The Tribunal rejected the appellant's argument regarding the treatment of lorry drivers as agents under the Kerala Sales Tax Act, as it did not align with the specific requirements for exemption under Rule 6DD(k). Consequently, the Tribunal upheld the disallowance under section 40A(3) made by the Assessing Officer and confirmed by the Ld. CIT(A), resulting in the dismissal of the appeal.

In conclusion, the Tribunal dismissed the appeal, emphasizing the failure of the appellant to establish eligibility for exemptions under Rule 6DD of the Income Tax Rules, leading to the confirmation of the disallowance under section 40A(3) of the Act. The judgment was pronounced on 18-07-2013.