2016 (3) TMI 1301 - AT - Income Tax

Addition u/s 40A - truck loading wages charges paid in cash in excess of 20, 000/- - Held that - The nature of the business of the assessee is such that assessee has no other alternative except to make payment to labours in cash because that area is not served by any bank and the labours do not receipt the payments by cheque or any other mode except in cash. The assessee s payments are genuine and not doubted by revenue. The revenue could not controvert that the assessee s mine is in tribal area of Orissa where no banking facility is available and labourers do not have any bank account to whom assessee has made payment. Accordingly in the given facts and circumstances of the case we delete the disallowance made by AO and confirmed by CIT(A) by invoking the provisions of section 40A(3) of the Act - Decided in favour of assessee

Summary

Issues:
Disallowance of truck loading wages charges paid in cash in excess of Rs. 20,000 in violation of section 40(A)(3) of the Income Tax Act, 1961.

Analysis:

Issue 1: Disallowance of Expenses
The appellant's appeal was against the CIT(A)'s order confirming the AO's disallowance of truck loading wages charges paid in cash exceeding Rs. 20,000 in violation of section 40(A)(3) of the Act. The appellant contended that the payments were made under exceptional circumstances and should not fall under section 40(A)(3). The AO disallowed expenses amounting to Rs. 1,08,24,239 based on cash payments made. The Tribunal examined the nature of expenses and found that the payments were made to group leaders who distributed wages among laborers. The AO treated the entire payment as made to a single person, but the Tribunal observed that the payments were collected by group leaders on behalf of all laborers.

Issue 2: Exception under Rule 6DD
The appellant argued that the area where the business operated lacked banking facilities, necessitating cash payments to laborers. The appellant cited Rule 6DD(g) of the Income Tax Rules, 1962, exempting payments in areas without banking services. The Tribunal noted that the appellant's business was in a tribal area without banking facilities, and laborers preferred cash payments. The Tribunal referenced a High Court order supporting genuine payments made in similar circumstances.

Conclusion
The Tribunal found the appellant's payments genuine and not disputed by the revenue. Considering the absence of banking facilities in the tribal area and the necessity of cash payments, the disallowance under section 40(A)(3) was deleted. The Tribunal allowed the appellant's appeal, emphasizing the genuine nature of the payments and the unique circumstances of the business location.

Judgment Outcome:
The Tribunal allowed the appellant's appeal, ruling in favor of the appellant and deleting the disallowance made by the AO and confirmed by the CIT(A) under section 40(A)(3) of the Act. The decision was based on the genuine nature of the payments, the absence of banking facilities in the area, and the specific circumstances of the business operations in a tribal region.