2014 (7) TMI 171 - AT - Income Tax

Payment of freight u/s 40A(3) Cash payment towards truck transport charges - Expenses below limit Held that - The AO had made addition on the ground that the assessee had made payment on account of freight and cartage on different dates to the transporters - out of which the aggregate of sums of were paid in contravention of provisions of section 40A(3) of the Act as the payments made exceeded ₹ 20,000/- to a single person on a single date - each payment made to the transporter is a single payment which does not exceed ₹ 20,000/- and as such, provision of section 40A(3) is not applicable - assessee has not been able to substantiate its claim for further relief in as much as relief allowable to the assessee has already been granted by the CIT(A) there was no reasonable basis to give any further relief, as such the order of the CIT(A) is upheld Decided against Assessee.

Summary

Issues involved:
1. Disallowance of payments of freight under section 40A(3) of the Income Tax Act.
2. Applicability of section 40A(3) to truck transport charges payments.

Analysis:

Issue 1: Disallowance of payments of freight under section 40A(3)
The appellant, an individual trading matchboxes and biris, filed a return declaring income of &8377; 2,35,200 for the assessment year 2009-10. During assessment, it was found that the appellant made payments of &8377; 4,30,579 under "freight and cartage" to transporters, with &8377; 4,12,579 exceeding &8377; 20,000 to a single person in contravention of section 40A(3) of the Act. The Assessing Officer disallowed this amount, adding it to the appellant's income. The appellant contended that each payment to the transporter was below &8377; 20,000, thus section 40A(3) did not apply. The Commissioner of Income Tax (Appeals) partially allowed relief to the appellant after considering arguments, case laws, and relevant provisions. However, the AO's addition of &8377; 1,43,449 was confirmed due to conscious splitting of payments to circumvent the law. The appellant's appeal for further relief was dismissed by the ITAT Delhi, upholding the CIT(A)'s order.

Issue 2: Applicability of section 40A(3) to truck transport charges payments
The Range JCIT reported that payments to a specific entity violated section 40A(3), which the appellant contested citing case laws. However, the appellant failed to prove exceptional circumstances for cash payments or compliance with Rule 6DD of the IT Rules, 1962. The ITAT confirmed the AO's addition of &8377; 1,43,449 under section 40A(3) due to deliberate splitting of payments. The appellant's claim for deletion of the addition was rejected by the ITAT, as the relief granted by the CIT(A) was deemed sufficient, and no further substantiation was provided by the appellant.

In conclusion, the ITAT Delhi dismissed the appellant's appeal, upholding the CIT(A)'s order and confirming the disallowance of payments under section 40A(3) for both freight and truck transport charges.