2016 (12) TMI 449 - AT - Income Tax

Addition made u/s.40A(3) - cash payment to transporters - Held that - Contention of the assessee that the payments were effected to lorry drivers cannot be accepted since each of the parties mentioned above were transport companies having their own PAN number and sales tax number. It is not been disputed by the assessee that atleast some of the payments were made by account payee cheques. No doubt the paramount reason which Sec. 40A(3) of the Act was enacted was to reduce the possibilities of black money transactions as held by Gujarat High Court in the case of Anupam Tele Services (2014 (2) TMI 30 - GUJARAT HIGH COURT ). But in the said case payments effected by the concerned assessee to a party which had issued a circular instructing the assessee to deposit cash. The recipient company had also instructed assessee not to make payments by cheque or demand draft. Thus, there were certain peculiar circumstances which called for relaxing the rigours of Sec. 40A(3) of the Act. On the other hand, in the case before us, there was no record to show that concerned transport operators had insisted an cash payments. If the assessee had paid money to the lorry drivers, as argued by it, vouchers would have been given by the lorry drivers and not by the transport companies. Considering clause (k) of Rule 6DD, rule of exemption, assessee has to show that the person to whom he had paid payments was his agent and such agent was required to make payment in cash. None of these could be proved by the assessee. In such circumstances, we are of the opinion that Sec. 40A(3) of the Act stood attracted to the cash payments made by the assessee. We do not find any reason to interfere with the orders of the lower authorities. - Decided against assessee.

Summary

Issues Involved:
Appeal against addition made under section 40A(3) of the Income Tax Act, 1961 for cash payments exceeding ?35,000 per person per day for freight and cartage expenses.

Detailed Analysis:

1. Addition under Section 40A(3):
The appellant, engaged in the business of spinning material, contested the addition of ?9,28,000 under section 40A(3) of the Income Tax Act, 1961. The Assessing Officer disallowed the amount due to cash payments exceeding ?35,000 per person per day for freight and cartage expenses. The appellant justified the cash payments citing business expediency and extraordinary circumstances during the cotton season. However, the Assessing Officer found no valid reason for cash payments and applied section 40A(3) of the Act, leading to the disallowance.

2. Appeal to CIT (Appeals):
The appellant appealed to the Commissioner of Income Tax (Appeals) but was unsuccessful. The Commissioner noted that the appellant had made some payments to truck transport contractors by cheque, undermining the claim of exceptional circumstances for cash payments.

3. Arguments Before ITAT:
During the appeal before the ITAT, the authorized representative argued that the nature of business operations, involving purchases from distant states, necessitated higher freight charges and cash payments to lorry drivers due to their insistence. The representative contended that the payments were genuine, made under extraordinary circumstances, and not doubted by the Revenue. Citing a judgment of the Gujarat High Court, the representative argued that practical cash payments should not attract section 40A(3) of the Act.

4. ITAT Decision:
The ITAT examined the payments exceeding ?35,000 per person per day made by the appellant to various transport companies. It noted that the recipients were transport companies with PAN and sales tax numbers, not individual lorry drivers as claimed by the appellant. The ITAT found no evidence that the transport operators had demanded cash payments. Additionally, the appellant failed to prove that the payments were made to agents as per Rule 6DD. Consequently, the ITAT held that section 40A(3) of the Act applied to the cash payments, dismissing the appeal and upholding the lower authorities' orders.

In conclusion, the ITAT upheld the disallowance of ?9,28,000 under section 40A(3) of the Income Tax Act, 1961, emphasizing the lack of evidence supporting the appellant's claims of exceptional circumstances and agent payments. The judgment was pronounced on November 16, 2016, in Chennai.