No disallowance can be made u/s 40A(3) if cash payments are made to “Broker” who is required to make cash payments on behalf of the assessee:

AO made disallowance u/s 40A(3) in respect of cash payments made towards freight charges since the same were in excess of limit prescribed u/s 40A(3). The said disallowance was confirmed by CIT(A). On appeal, Hon’ble ITAT observed that the assessee had not made such cash payments to individual truck owners. Rather, such payments were made to “Brokers” through whom the trucks were arranged and such brokers, in turn, made cash payments to individual truck owners. As per Rule 6DD(k), no disallowance u/s 40A(3) is called for if cash payments in excess of the prescribed limit are made to “Agent” who in turn is required to make cash payments on behalf of the assessee. It was thus held that the term “Broker” is akin to “Agent” and hence, disallowance u/s 40A(3) is unwarranted.

[Chartered Logistics Ltd. vs. ACIT – IT(SS)A Nos.37 to 40/Ahd/2013 &

 ACIT vs. Gyanchand Gandhi HUF - IT(SS)A Nos.41 to 44/Ahd/2013]