TMI Blog2024 (4) TMI 316X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. - HON BLE JUSTICE SURYA PRAKASH KESARWANI AND HON BLE JUSTICE RAJARSHI BHARADWAJ Appearance: For the Appellant : Mr. J. P. Khaitan, Senior Advocate Ms. Anupa Banerjee, Advocate Mr. Sourav Chunder, Advocate Mr. P. Sharma, Advocate. For the Respondent : Ms. Smita Das De, Adv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imes for few month even for a few days. Thus the labour welfare measures are not take up nor it is participle . These workers are quite illiterate, partly homeless and fast changing the employer and work on piece rate on the condition on no work no pay. It is therefore inferred that the assessee could not produce satisfactory explanation for violation of the Provision of sec. 40A(3). 20% of Rs. 12149191/- that is Rs. 2429838/- is therefore disallowed. U/S 40A(3). 4. Aggrieved with the aforesaid assessment order, the appellant/assessee filed an appeal No. 261/CIT(A)-XXX/Circle-48/2008-09 which was allowed by order dated 03.05.2010. The CIT(A) has recorded the following finding of fact: I have carefully gone through the assessment order and explanation given by the appellant. The A.O. has stated that the payments to the Supervisor workers are in excess of Rs. 20,000/- in cash for which he has disallowed the expenses in terms of section 40A(3) of I.T. Act. It has already been held in the preceding paragraphs that the so called sub-contractors are actually Supervisor worker and employees of the appellant firm. The payments made to them are meant for disbursement amongst the workers. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing Officer that so-called group leaders or supervisors are nothing but sub-contractors of assessee and the workers whose names are mentioned in the work sheet to whom the payments were made through respective so-called group leaders, who were working not under the assessee but under the said so-called group leader. 6. Aggrieved with the aforesaid order of the ITAT dated 12.08.2011 in ITA No. 1647/Kol/2010, the appellant/assessee has filed the present appeal. Submissions: 7. Learned senior advocate for the appellant/assessee submits that the supervisors were the employees of the assessee. The payments to be made to labours were withdrawn by the assessee from bank through the supervisors for disbursement to individual labours and the supervisors, after disbursement, gave an account in the form of a list of payments made to individual labours. Payments so made to individual labours in no case exceeded Rs. 20,000/-. Non-payment of EPF or PF is not relevant for the purposes of Section 40A(3) of the Act, 1961. The supervisors acted as agent of the assessee and, therefore, the payments made to labours is payment made by the assessee which in no case exceeded Rs. 20,000/- to any indivi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the nature and extent of banking facilities available, considerations of business expediency and other relevant factors.] Income Tax Rules, 1962 6DD. No disallowance under sub-section (3) of section 40A shall be made where any payment in a sum exceeding [twenty thousand] rupees is made otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft in the cases and circumstances specified hereunder, namely :- (a) . . . . . . (l) 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; Contract Act 182. Agent and principal defined.- An agent is a person employed to do any act for another, or to represent another in dealings with third persons. The person for whom such act is done, or who is so represented, is called the principal . 185. Consideration not necessary.- No consideration is necessary to create an agency. 186. Agent s authority may be expressed or implied.- The authority of an agent may be expressed or implied; 188. Extent of agent s authority.- An agent, having an authority to do an act, has authority to do every lawful thing which is necessary in order to do such act. An a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as referred in the aforesaid second proviso to Section 40A(3) of the Act, 1961 have been prescribed in Rule 6DD of the Income Tax Rules, 1962. Rule 6DD(l) clearly provides that no disallowance under sub-section (3) of Section 40A shall be made where any payment in a sum exceeding twenty thousand rupees is made otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft in the cases and circumstances 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. Supervisors of the assessee acted as agent of the assessee. The word agent and principal has been defined in Section 182 of the Indian Contract Act. An agent is a person employed to do any act for another, or to represent another in dealings with third persons. The person for whom such act is done, or who is so represented, is called principal . Undisputed facts of the present case are that the appellant withdrawn amount from his bank account through his employees i.e., supervisors for disbursement to individual labours and the supervisors gave an account of the money so received for payment to labours. Thus, the appellant/assess ..... X X X X Extracts X X X X X X X X Extracts X X X X
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