Here is an interesting case before ITAT, Kolkata on section 40A(3) as under:

Gouri Shankar Jain

Vs

CIT

ITA No. 351/Kol/2021

Let us have a short overview of the case:

Assessee was engaged in the business of transport in the name of Proprietary concern M/s. Madanlal Gourishankar (Transport Division).

Assessee has filed its return of income on 27.09.2013 declaring total income of Rs. 5,34,130/-.

The assessment u/s 143(3) was concluded vide order dated 31.12.2015 determining the total income of Rs. 6,03,630/-.

While passing the assessment order, the AO made disallowance of repairs & maintenance expenses to the extent of Rs. 69,500/- u/s 40A(3) of the Income Tax Act in view of payment of the same by cash in contravention of the provisions of said section.

Against the same assessment order, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre which was dismissed on 15.04.2021.

On appeal, the issue before Tribunal was whether disallowance u/s 40A in respect of cash payments made over the statutory limit, merits being sustained where such payment is not made by the assessee but rather by an agent of the assessee?

The issue was answered in negative with following observation:

++ the issue relates to disallowance of Rs. 69,500/- u/s 40A(3) of the Act incurred in cash exceeding twenty thousand rupees on account of repairs and maintenance which includes payment of Rs. 34,500/- on 12.10.2012 towards body making charges and Rs. 35,000/- towards altinator repairing works on 08.01.2013. However, going through the material facts and circumstances of the case, we find force in the contention of the assessee that the alleged amount was not paid in cash by the assessee but was paid by the driver acting as an agent of the assessee;

++ keeping in view all the facts and circumstances of the case as well as the exception provided under Rule 6DD(k) of the IT Rules and Relying on the decision of the coordinate bench in the case of M/s. Pramod Kumar Singh, we are of the view that the disallowance made by the AO is not sustainable and, therefore, we set aside the orders of the CIT(A) and allow the ground raised by assessee challenging the disallowance of Rs. 69,500/- u/s 40A(3) of the Act.