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2016 (8) TMI 694 - AT - Income TaxAddition u/s 40A(3) - payments to the hawkers and vendors - Held that - The payments to the hawkers and vendors by cash by the assessee firm other than account payee cheques was never doubted by the Revenue. The assessee firm is following prevailing business practice from earlier years. Further, provisions of Sec. 40A(3) of the Act must not be read in isolation or exclusion of Rule 6DD of Income Tax Rules, 1962. The section must be read alongwith Rule and on reading together, it is very clear that provisions are not intended to restrict the business activities. The ld. Assessing Officer cannot restrict the Business of the assessee firm on application of the Rule 6DD, further provisions of Sec. 40A(3) of the Act empowers the ld. Assessing Officer to disallow deduction claimed as expenditure were payments are not by account payee cheque/draft. The ld. Assessing Officer should analysis the payments either by Crossed Cheque or Bank Draft and ascertain whether the payments are genuine considering business expediency, genuineness and bonafide peculiar transactions of the business. The assessee firm makes cash payments in the circumstances as per the intention of the vendors/supplier who transact on cash basis and no credit facility is available in the remote villages. So, considering the apparent facts and nature of business of the assessee being laying of roads, building bridges and culverts in the remote village and purchase of sand, jelly from the local vendors and lorry brokers who are illiterate and does not have permanent place of Business and also vendors and Hawkers deliver the sand, jelly at the working sites of assessee during odd hours in remote areas and we support our opinion with the decision of Anupam Tele Services vs. ITO (2014 (2) TMI 30 - GUJARAT HIGH COURT ) and we set aside the order of the Commissioner of Income Tax (Appeals) and delete the addition made by the ld. Assessing Officer on this ground. Disallowance being expenses for tea, coffee, freight charges and diesel expenditure - Held that - The fact that nature of expenditure being tea, coffee, freight charges and diesel expenditure, the assessee has claimed these expenditure incurred wholly and exclusively for the purpose of activities of the business and the findings of the ld. Assessing Officer they are not supported with vouchers and doubted the genuineness and disbelieved the transactions. The ld.CIT(A) has confirmed the findings of the ld. Assessing Officer. Considering the apparent facts and material, we are of the opinion that the consent cannot be a reasons for sustaining the addition in exceptional circumstances of the working conditions of the firm and the nature of expenditure incurred. Further their shall not be laxity on the part of the assessee firm in maintenance of vouchers for due compliance of Income Tax provisions. we found that it would be reasonable to restrict the disallowance to 50% due to external circumstances of works and we direct the ld. Assessing Officer to restrict the disallowance of said expenses to 50% only and the ground of the assessee is partly allowed. Disallowance of expenses on account of labour charges, jelly purchase, sand purchase and gravel purchase and vouchers are self made could not be verified - Held that - The fact that labour charges, jelly purchase, sand purchase and gravel purchase incurred wholly and exclusively for the purpose. Since, the vouchers are self made the ld. Assessing Officer has doubted the transactions and made disallowance. The ld.CIT(A) has confirmed the findings of the ld. Assessing Officer. Considering the facts and nature of expenditure and the laxity on the part of the assessee firm on non maintenance of record and compliance of Income Tax provisions, we found it Reasonable to restrict the disallowance at 50% due to Business activities at remote areas as discussed. We direct the ld. Assessing Officer to restrict the disallowance to 50% only and the ground of the assessee is partly allowed.
Issues Involved:
1. Delay in filing the appeal. 2. Disallowance under Section 40A(3) of the Income Tax Act. 3. Disallowance of expenses for tea, coffee, freight charges, and diesel expenditure. 4. Disallowance of expenses on account of labor charges, jelly purchase, sand purchase, and gravel purchase. Detailed Analysis: 1. Delay in Filing the Appeal: The appeal filed by the assessee was delayed by 148 days. The assessee's counsel provided an affidavit explaining the reasons for the delay, and the Departmental Representative had no serious objections. The Tribunal found the reasons for the delay to be sufficient and reasonable, thus condoning the delay and admitting the appeal for adjudication. 2. Disallowance under Section 40A(3) of the Income Tax Act: The assessee, a partnership firm engaged in civil contract works in rural and remote areas, was disallowed a sum of ?19,09,420/- by the Assessing Officer (AO) for making cash payments exceeding ?20,000/- on various occasions, invoking Section 40A(3) of the Income Tax Act. The assessee argued that the cash payments were due to business exigencies, lack of banking facilities, and the nature of transactions with local vendors and lorry brokers who insisted on cash payments. The AO, however, disallowed the claim, stating that there was no necessity for such cash payments. The Commissioner of Income Tax (Appeals) confirmed the AO's order. The Tribunal, after considering the business exigencies and the nature of transactions, found that the payments were genuine and necessary due to the peculiar circumstances of the business. The Tribunal set aside the order of the Commissioner of Income Tax (Appeals) and deleted the addition made by the AO on this ground. 3. Disallowance of Expenses for Tea, Coffee, Freight Charges, and Diesel Expenditure: The AO disallowed ?5,13,267/- claimed by the assessee for expenses on tea, coffee, freight charges, and diesel expenditure, citing lack of supporting vouchers. The assessee explained that these expenses were incurred for labor welfare and fuel expenses at remote work sites, where vouchers often got damaged. The Commissioner of Income Tax (Appeals) confirmed the AO's disallowance. The Tribunal, considering the nature of the business and the necessity of such expenses, found it reasonable to restrict the disallowance to 50% due to the external circumstances of the work. Thus, the Tribunal directed the AO to restrict the disallowance to 50% of the claimed expenses. 4. Disallowance of Expenses on Account of Labor Charges, Jelly Purchase, Sand Purchase, and Gravel Purchase: The AO disallowed ?13,00,000/- claimed by the assessee for labor charges, jelly purchase, sand purchase, and gravel purchase, citing that the vouchers were self-made and could not be verified. The assessee argued that these expenses were necessary for carrying out works in remote areas, where vendors did not issue separate bills, necessitating internal vouchers. The Commissioner of Income Tax (Appeals) confirmed the AO's disallowance. The Tribunal, acknowledging the business activities in remote areas and the necessity of such expenses, found it reasonable to restrict the disallowance to 50% due to the nature of the business and the lack of proper maintenance of records. The Tribunal directed the AO to restrict the disallowance to 50% of the claimed expenses. Conclusion: The Tribunal partly allowed the appeal, condoning the delay in filing, deleting the disallowance under Section 40A(3), and restricting the disallowance of expenses for tea, coffee, freight charges, diesel expenditure, labor charges, jelly purchase, sand purchase, and gravel purchase to 50%. Order Pronounced: The order was pronounced on Thursday, the 30th day of June, 2016, at Chennai.
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