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TMI Blog2016 (1) TMI 248X X X X Extracts X X X X X X X X Extracts X X X X ..... out 80 years trading in iron and steel filed return of income on 23-09-09 declaring total income of Rs. 2,70,530/-. The assessment was framed u/s 143(3) by making addition of Rs. 23,87,940/- u/s 40A(3) of the Act. The addition u/s 40A(3)of the Act was made by rejecting the assessee's explanation that the payments made to agent were covered by exceptions of rule 6DD(j)(k). Assessee's proprietorship concern M/s Bhagwan Sahai Om Prakash had appointed his son Shri Ram Avtar Gupta (prop. M/s Ramu Iron Steel Sales, Sikandara) as his agent for purchase of iron and steel from market by a written agreement dtd. 1-4-2008. The cash payments exceeding Rs. 20,000/- aggregating to Rs. 23,87,940/- were made. Assessee filed a detailed explanation along ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed under Rule 6DD of the Income-tax Rules. The assessee explained before the ld. CIT(A) that assessee and his son were unable to remain present before the AO the as the assessee is old person aged about 80 years and during the period of proceeding he was very sick and bedridden, son Ramavatar Gupta was also struggling with gastro surgery problems consequently they were not able to attend before the AO. It was also contended that both the persons are assessed with the same AO and their transactions were verifiable from respective books and returns of income. The assessee being old could not go to market off and on and it is natural that the son will offer to help the father by acting as an agent; the agreement was executed to avoid any lega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it should have been appreciated that the assessee being 80 years old being fit was earning member and promoting his business with the help of his son. These appreciable circumstances themselves clearly demonstrate business expediency and it has been arbitrarily held by lower authorities that there is no business expediency for agreement. Keeping this agreement all the terms of section 40A(3) of rule 6DD(k) are complied with and no addition is required to be made. The ld. AR submitted that the AO doubted the agreement simply on the ground that the assessee and his son could not attend his office without appreciating that the inability due to medical grounds was well communicated to ld. AO. It is contended that the assessee is located in Ban ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts for goods and services. Claims are also made for deduction of expenses in large amounts shown to have been paid in cash, often with a view to frustrating investigation as to the identity of the recipients and the genuineness of the claim. To plug these loopholes, I propose to provide that payments made in businesses and professions to relatives or associate concerns will have to pass the test of reasonableness in order to qualify for deduction. Further, I propose to provide that payments made in amounts exceeding Rs. 2,500 after a date to be notified later will be allowed as a deduction only if these are made by crossed cheques or by crossed bank drafts." Thus the very purpose of introducing this new section was to have a check over th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e by any person to his agent who is required to make payment in cash for goods or service on behalf of such person.'' The assessee's cash payment in question being fully covered by exception carved out in Section 6DD (k) cannot be added u/s 40A(3)of the Act. 2.5 The ld. DR relied on the orders of the authorities below and contended that when the AO in remand proceedings asked the assessee to remain present but they did not avail of the opportunity. Therefore, adverse inference had been drawn and the addition made is justified. 2.6 The ld. Counsel for the assessee in rejoinder contends that the assessee before the AO only explained his inability for attendance due to medical illness which has not been disputed by any of the lower authorit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 (supra) and other judgments cited above, we delete th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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