Cash commission and salary paid via supervisors as agents-s.40A(3) disallowance and r.46A evidence objections dismissed

Disallowance under s.40A(3) for cash payment of commission and salary was held unsustainable because the amounts were withdrawn through supervisors acting as agents for onward payment to workers, and individual payments did not exceed the statutory threshold; applying the HC ratio that such agency payments fall outside s.40A(3), the deletion of 20% disallowance was upheld and the Revenue's challenge failed. On admission of additional evidence, the appellate authority found that the material was already before the AO and was misappreciated, rendering r.46A inapplicable; consequently, the Revenue's objection on this ground was rejected and its appeal was dismissed.

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1. ISSUES PRESENTED AND CONSIDERED

(i) Whether the appellate authority wrongly admitted and relied upon additional evidence in breach of Rule 46A of the Income-tax Rules, 1962, by not granting reasonable opportunity to the Assessing Officer to examine/rebut such evidence.

(ii) Whether disallowance under section 40A(3) of the Income-tax Act, 1961 was sustainable in respect of commission, salary and bonus expenditure, on the ground that cash payments allegedly exceeded the prescribed per-day limit.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Rule 46A-admission of "additional evidence" and opportunity to the Assessing Officer

Legal framework (as discussed): The Revenue relied on Rule 46A to contend that evidence produced before the appellate authority should not be considered unless the Assessing Officer is allowed reasonable opportunity to examine such evidence, cross-examine, or rebut it.

Interpretation and reasoning: The Court accepted the appellate authority's recorded finding that the relevant evidences were already before the Assessing Officer and that the Assessing Officer had mis-appreciated the facts. On that factual premise, the Court held that the case did not involve admission of "additional evidence" attracting Rule 46A, and therefore the objection founded on lack of opportunity under Rule 46A did not survive.

Conclusion: Rule 46A was held inapplicable on the facts, since the appellate authority found the material was already before the Assessing Officer and was misunderstood/misappreciated; hence no violation of Rule 46A was made out.

Issue (ii): Section 40A(3)-cash payments towards salary/bonus/commission and per-day threshold

Legal framework (as discussed): The disallowance was made by applying section 40A(3) on the premise that the expenditure was paid in cash beyond the permissible limit in a single day, warranting disallowance.

Interpretation and reasoning: The Court noted that the Assessing Officer disbelieved the expenditure on an assumption that the cash payments were in contravention of section 40A(3), i.e., exceeding the threshold per day. The appellate authority, on examination of the ledger accounts of employees and recovery agents and the daily cash book, concluded that each actual cash payment was below the prescribed limit and that the Assessing Officer had misunderstood the earlier e-submitted details as representing the actual cash paid per person per day. The Court agreed that the ledger accounts "clearly vindicate" that no cash payment to employees/recovery agents exceeded the per-day limit, and therefore section 40A(3) could not be applied to disallow the commission/salary/bonus expenditure. The Court also treated the appellate order as reasoned and requiring no interference.

Conclusion: The disallowance under section 40A(3) in respect of the impugned commission and salary/bonus payments was correctly deleted, as the factual finding accepted by the Court was that no single-day cash payment exceeded the threshold; consequently, the Revenue's challenge failed.

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