2016 (1) TMI 248 - AT - Income Tax

Disallowance u/s 40A(3) - purchasing material for old father on cash payments - Held that - The assessee is an aged person of around 80 years and was doing business of Iron and Steel, his son was also in the same trade; both are assessed to income tax. Except drawing an assumed adverse inference due to the nonattendance of the assessee and his son in remand proceedings, existence and validity of the agreement dated 01-04-2008 has not been disputed or denied by the lower authorities with reference to material available on record and confirmation. Thus on the basis of an inference and without considering the material available on record, relationship between principal and agent has been denied. The reasons for non-attendance have been duly explained by the assessee before ld. AO being ailment of father and son which has also not been disputed. In our considered view the interpretation of the agreement indicates the son was appointed as an agent to perform the work of purchasing material for old father on cash payments. No circumstantial infirmity can be attributed if an aged person who desires to remain in gainful avocation appoints his son as an agent to render necessary help. In our considered view the agreement cannot be ignored on ifs and buts; the same clearly stipulates the relationship between the principal and agent which cannot be ruled out on implication more so when transactions are on day to day basis. The purchases and sales are not in any way doubted and fully held to be genuine by both the authorities below. Thus in view of the facts and circumstances of the case, we hold that the assessee and his son were acting in the relationship of principal and agent and the impugned cash payments are clearly covered under exception carved out by rule 6DD(k). Respectfully following the decision of Hon ble Rajasthan High Court in the case of Smt. Harshila Chordia vs. ITO (2006 (11) TMI 117 - RAJASTHAN HIGH COURT ) we delete the addition confirmed by the ld. CIT(A). - Decided in favour of assessee

Summary

Issues:
Disallowance under section 40A(3) of the Act.

Analysis:
The appellant, an elderly individual engaged in the iron and steel trade, filed an appeal against the order of the ld. CIT(A) confirming the disallowance of a specific amount under section 40A(3) of the Act for the assessment year 2009-10. The disallowance was made due to cash payments exceeding a certain limit, despite the appellant's explanation that the payments to the agent were covered by exceptions of rule 6DD(j)(k). The appellant's son was appointed as an agent for purchasing iron and steel, and cash payments were made based on a contractual obligation for business expediency. The AO rejected the explanation, emphasizing the absence of the father and son during proceedings. The ld. CIT(A) upheld the addition, disregarding the genuine sales and business expediency aspects.

The appellant contended that both lower authorities acknowledged the agreement's existence and validity, and the cash transactions aligned with the agreement's clauses. The appellant's inability to attend proceedings due to health reasons was explained, and the relationship of principal and agent was evident from the agreement. The appellant emphasized compliance with section 40A(3) and rule 6DD(k) and cited relevant case laws to support their argument. The purpose of introducing section 40A(3) to prevent false deductions on cash expenditures was highlighted, emphasizing the genuineness of the transactions and the identity of the recipient.

During the proceedings, the ld. DR supported the lower authorities' orders, citing adverse inferences drawn from the appellant's non-attendance. The appellant's counsel reiterated the health-related reasons for non-attendance and the verifiability of the principal-agent relationship from available records. The Tribunal observed that the agreement's validity was not disputed, and the relationship between the appellant and his son as principal and agent was evident. The genuineness of transactions and the business expediency were acknowledged, leading to the deletion of the addition under section 40A(3) based on rule 6DD(k) exceptions and precedents cited.

In conclusion, the Tribunal allowed the appeal, emphasizing the relationship between the appellant and his son as principal and agent, compliance with rule 6DD(k) exceptions, and the genuine nature of the transactions. The decision aligned with relevant legal principles and upheld the appellant's position, leading to the deletion of the addition confirmed by the ld. CIT(A).

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