Ahmedabad tribunal ruling wherein it was held that cash payments made through agent for an amount exceeding INR 10,000 will fall within the ambit of Rule 6DD(k) of Income Tax Rules, 1962 and will be considered as an exception to the applicability of section 40A(3) of Income Tax Act, 1961 (‘ITL’).

Brief facts and key excerpts of the case

• Assessee has made payment made to an agent of uneducated sellers for purchase of old vehicles in cash exceeding the limits specified under section 40A(3) of ITL;
• Revenue, on the basis of adverse remark in audit report made disallowance under Section 40A(3) read with Rule 6DD on the ground that payments made in cash exceeds limits of Section 40A(3) of ITL;
• The Assessee contended that the payments were made to agents of the sellers and would fall under Rule 6DD(k) which carves out exception to the applicability of Section 40A;
• ITAT observes that it is undisputed fact that assessee had furnished all evidences to prove the genuineness of the transaction by giving all details of the seller and vehicles were purchased through agents; It also observed that revenue has not disputed that assessee made payment in cash not directly to the seller, but through its agents;
• ITAT rejects Revenue’s contention and held that Assessee’s case directly falls within Rule 6DD(k) as it carves out an exception to the applicability of Section 40A(3) in case the payments are made to an agent who is required to make payment in cash or on behalf of such person.