2015 (9) TMI 998 - AT - Income Tax

Disallowance of claim of the assessee for shortage - claim of double deduction at the time of purchase and the shortage at the time of sale - Held that - We are unable to accept the contention of the learned D.R. The shortage at the time of purchase and the shortage at the time of sale are two different issues and it cannot be said by any stretch of imagination that once the assessee has claimed shortage at the time of purchase, he cannot claim shortage at the time of sales. In the present case, the claim of the assessee for shortage at the time of sale was duly supported by the certificate issued by the concerned customer confirming the shortage and the Ld. CIT(A) in our opinion was not justified in confirming the disallowance made by the A.O. on account of such shortage. We, therefore, set aside his impugned order on this issue and direct the A.O. to delete the addition made on account of shortage. - Decided in favour of assessee. Disallowance under section 40A(3) - cash payment - Held that - The work of unloading maize from lorries and loading the same into railway wagons some times was done in the late evenings and since the payments on account of Hamali Charges were required to be made by the concerned contractor to Hammals immediately after the completion of the work, he demanded payments in cash which the assessee was compelled to make. - In our opinion, this stand taken by the assessee before the Ld. CIT(A), which was duly supported by cogent evidence in the form of confirmation certificate issued by the concerned contractor, is sufficient to show that the impugned payments in cash were made by the assessee in the exceptional circumstances as specified in Rule 6DD of the I.T. Rules, 1962 and therefore, no disallowance under section 40A(3) is called for such cash payments.- Decided in favour of assessee.

Summary

Issues Involved:
1. Addition of Rs. 7,01,536 due to disallowance of the assessee's claim for shortage.
2. Disallowance of Rs. 1,49,242 under section 40A(3) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Addition of Rs. 7,01,536 due to disallowance of the assessee's claim for shortage:

The assessee, a partnership firm engaged in rice trading, filed its return of income declaring a total income of Rs. 5,45,790. The Assessing Officer (A.O.) noticed a deduction claim of Rs. 12,06,896 on account of differences in quality and rate of maize supplied, which included a shortage claim of 1177.74 quintals of maize. The A.O. disallowed Rs. 7,01,536 of this claim, considering the shortfall of 1122.45 quintals in a single supply to M/s. PEC Limited as unreasonable. The Ld. CIT(A) upheld this disallowance, noting that the assessee failed to provide sufficient evidence for the higher shortfall rate of 4.8% compared to the 0.57% allowed for purchases.

Upon appeal, it was argued that the assessee had provided a certificate from PEC Limited confirming the shortage and the corresponding deduction of Rs. 7,01,536. The Tribunal found that this certificate was overlooked by the Ld. CIT(A) and held that the shortage at the time of sale was a separate issue from the shortage at the time of purchase. The Tribunal directed the A.O. to delete the addition, concluding that the evidence provided was sufficient to support the assessee's claim.

2. Disallowance of Rs. 1,49,242 under section 40A(3) of the Income Tax Act:

The A.O. disallowed Rs. 1,49,242, being 20% of cash payments totaling Rs. 7,47,120 made to Mr. K. Narendra Babu for 'Coolie charges,' under section 40A(3) which restricts cash payments exceeding Rs. 20,000. The assessee argued that these payments were made due to business exigency, as the work often occurred in the late evenings and required immediate cash payments to the hamalies (laborers).

The Ld. CIT(A) upheld the disallowance, stating that the assessee failed to provide a valid reason for not making the payments through cheques, especially since Mr. K. Narendra Babu had a bank account. The Tribunal, however, found merit in the assessee's explanation, supported by a confirmation certificate from Mr. K. Narendra Babu, indicating that cash payments were necessary due to the nature of the work and timing. The Tribunal concluded that these payments fell under the exceptional circumstances specified in Rule 6DD of the I.T. Rules, 1962, and thus, no disallowance under section 40A(3) was warranted. The Tribunal directed the deletion of the disallowance.

Conclusion:

The Tribunal allowed the appeal of the assessee, directing the deletion of both the addition of Rs. 7,01,536 and the disallowance of Rs. 1,49,242. The order was pronounced in the open Court on 5.6.2015.