Bearer Cheque Payments Disallowed: Builder's Rs. 44,70,556 Disallowance Upheld

The Tribunal upheld disallowances under section 40A(3) for payments made through bearer cheques by a Builder and Developer to family members and contractors. The payments did not meet Rule 6DD exemptions, leading to disallowances totaling Rs. 44,70,556. Despite claims of commercial expediency and agency relationships, the Tribunal followed High Court precedent, sustaining disallowances for cash payments exceeding limits and confirming the disallowances.

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Issues:
- Disallowance under section 40A(3) of the Income-tax Act, 1961 for payments made through bearer cheques.
- Interpretation of Rule 6DD(k) in relation to payments to contractors.

Analysis:
1. Issue 1: Disallowance under section 40A(3) for payments made through bearer cheques:
- The appeal arose from an order by the CIT(A)-2, Nashik for the assessment year 2010-11, confirming disallowances made by the Assessing Officer under section 40A(3).
- The assessee, a Builder and Developer, made payments through bearer cheques to Kharjul family members, claiming commercial expediency. The AO disallowed Rs.24,65,500 under section 40A(3), which was upheld by the CIT(A).
- The Tribunal noted that payments were made through bearer cheques, not falling under any exemption clause of Rule 6DD. Various High Court decisions were cited, some deleting disallowances based on genuine business transactions, while others upheld disallowances for cash payments exceeding limits.
- Upholding the disallowance, the Tribunal followed the judgment of the jurisdictional High Court, which sustained disallowances for cash payments exceeding limits, despite genuine transactions. The ground failed.

2. Issue 2: Interpretation of Rule 6DD(k) in relation to payments to contractors:
- The second disallowance of Rs.20,05,056 under section 40A(3) was for payments made through bearer cheques to labour contractors. The assessee contended that these payments were covered under Rule 6DD(k) as payments to an agent.
- The Tribunal found that the payments to contractors did not qualify under Rule 6DD(k) as the contractors were not acting as agents of the assessee. The payments were made on a principal-to-principal basis, not involving any agency.
- Since the payments did not meet the requirements of Rule 6DD(k), they were held to be in violation of section 40A(3), and the disallowance was rightly confirmed by the authorities.
- Consequently, the appeal was dismissed, and the disallowances under section 40A(3) were upheld for both sets of payments made through bearer cheques.

In conclusion, the Tribunal upheld the disallowances made under section 40A(3) for payments made through bearer cheques, citing lack of exemption under Rule 6DD and following the jurisdictional High Court's precedent. Additionally, the Tribunal interpreted Rule 6DD(k) in the context of payments to contractors, concluding that the payments did not qualify as per the rule, leading to the confirmation of the disallowance for those payments as well.

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