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2024 (4) TMI 316 - CALCUTTA HIGH COURTAddition u/s 40A - Cash expenditure exceeding the threshold of Rs. 20,000/- - Lump sum amount paid to the leader of each group of workers for the purpose of disbursement to the individual workers - Assessee draw a lump sum amount from bank by cheque through his employees i.e., supervisors for payment to be made to labours and supervisors used to make payment to labours and give an account to the assessee in the form of a list containing payments made to each individual labour - HELD THAT:- The payment so made by the supervisors had not exceeded Rs. 20,000/- to any individual labour. As per provision of Section 211 of the Indian Contract Act, agent is bound to conduct the business of his principal according to the direction given by the principal or in the absence of such direction according to the customs which prevail in doing business of the same kind at the place where the agent conducts such business. In the present set of facts the supervisors acted as agent of the assessee in conducting the assessee’s business. There is no material or evidence of record to indicate or establish that the supervisors were sub-contractors. The finding recorded by the ITAT that the supervisors were sub-contractors is perverse and contrary to law. Consequently, the said finding is hereby set aside. As found that the supervisors acted as agent of the assessee to disburse the amount to individual labours which in no case exceeded Rs. 20,000/- to any individual labour. Therefore, in view of the circumstances prescribed in the second proviso to Section 40A(3) read with Rule 6DD(l) of the Income Tax Rules, 1962 and the above-referred provisions of the Indian Contract Act, the aforesaid payment cannot fall within the scope of Section 40A(3). Disallowance to the extent of 20% made by the ITAT and to add it in the income of the assessee cannot be sustained and is hereby set aside. Decided in favour of assessee.
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