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2019 (1) TMI 397 - AT - Income TaxAddition u/s 40A - expenses incurred in cash in excess of INR 20,000/- otherwise than by account payee cheques/ bank drafts - when the payments were made on bank holidays, when the payments were made to agent of the assessee namely M/s. Surya Marbles and other payments - Held that:- So far as the payments made in cash in excess of ₹ 20,000/- on bank holidays/ national holidays are concerned, Assessing Officer in the remand report has admitted that such payments have been made on bank holidays. The provision of rule 6DD(J) provides that provisions of section 40A(3) shall not be applicable where the payment was required to be made on a day on which the banks were not open on account of holidays or strike. Since the assessee in the instant case has admittedly made the payments on a day on which the banks were not open on account of holidays and the Assessing Officer has also admitted that such payments were made on bank holidays therefore under the facts and circumstances of the case we are of the considered opinion that provision of section 40A(3) are not applicable to the payments made in excess of ₹ 20,000/- on bank holidays. Thus set aside the order of the CIT(A) and direct the Assessing Officer to remove the above expenses from the purview of provision of section 40A(3) as these expenses are covered under Rule 6DD(J) of the IT Rules. Payments made to the agent of the assessee M/s. Surya Marbles is concerned, we find from the copy of the agreement dated 01.04.2004 that there is an agreement between the assessee and Surya Marbles wherein Surya Marbles was appointed as agent for the assessee company. CIT(A) rejected the same on the basis of remand report of the AO who had stated that rule 6DD(K) is applicable in exceptional or unavoidable circumstances. Further he had reported that M/s. Surya Marbles was supplier of the assessee company and not an agent. At no point of time either the agreement dated 01.04.2004 or the certificate dated 19.02.2013 are found to be false or untrue. The assessee in the instant case has demonstrated by documentary evidence that M/s. Surya Marbles was the agent of the assessee company. Under these circumstances when the payment was made to the agent of the assessee for the purchases of materials on behalf of the assessee, therefore, we are of the considered opinion that the provisions of section 40A(3) are not applicable, in view of Rule 6DD(K) which provides that where the payment is made by any person to his agent who is required to make payment in cash for goods or services on behalf of such person, following payments are covered under rule 6DD (K) and the provisions of section 40A(3) will not be applicable. Balance expenses no merit in the arguments of assessee are that the provision of section 40A(3) are not applicable to such payments made in cash in excess of ₹ 20,000/-. Assessee could not satisfactorily substantiate as to why provision of section 40A(3)are not applicable to the above payments. Provision of section 40A(3) are applicable for the remaining payments. AO is accordingly directed to modify the order and recompute the disallowance to be made u/s 40A(3) on account of the remaining payments. - Decided partly in favour of assessee.
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