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October 2025

Business expenditure — Disallowance u/s. 40A(3) — Cash payment in excess of prescribed limit — Effect of s. 40A and rule 6DD — Payments to agents cannot be disallowed — Meaning of agent — Assessee’s supervisor acting as agent of assessee, and accounting to him for amounts received and disbursed to individual labourers — Supervisors not sub-contractors and payments made by them to labourers on assessee’s behalf not to be disallowed u/s. 40A(3).

By Keshav Bhujle | Ritu Punjabi, Advocates
Reading Time 10 mins

36. (2025) 477 ITR 95 (Calcutta)

Sk. Jaynal Abddin vs. CIT

A. Y. 2006-07 Date of order 02/04/2024

S. 40A(3) of ITA 1961 and Rule 6DD of ITR 1962 and S 182 of Indian Contract Act, 1872

Business expenditure — Disallowance u/s. 40A(3) — Cash payment in excess of prescribed limit — Effect of s. 40A and rule 6DD — Payments to agents cannot be disallowed — Meaning of agent — Assessee’s supervisor acting as agent of assessee, and accounting to him for amounts received and disbursed to individual labourers — Supervisors not sub-contractors and payments made by them to labourers on assessee’s behalf not to be disallowed u/s. 40A(3).

The appellant-assessee is engaged in the business of embroidery and stitching. The assessee paid a sum of ₹1,21,49,190 for payment to labourers. According to the assessee, the aforesaid amount was paid to the labourers through supervisors who were employees of the assessee. The assessee used to draw a lump-sum amount from bank by cheque through his employees, i.e., supervisors for payment to be made to labourers. The supervisors used to make payment to labourers and give an account to the assessee in the form of a list containing payments m

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