2018 (8) TMI 1191 - AT - Income Tax

Disallowance u/s 40A(3) - cash payments for hiring trucks beyond the limits prescribed - disallowance of conveyance expenses - disallowance based on surmises - Held that - the fact that the truck drivers, insist on cash payments for smooth supply of trucks, is not denied by the revenue. It is also not disputed that to ensure that at no point of time, the assessee is deprived of trucks, he was forced to pay in cash. The Assessing Officer in this case has not doubted the business expediency or genuineness of these transactions. We also find that the copies of the bills produced evidence that payments were made though agents. - Additions made u/s 40A(3) deleted - Decided in favor of assessee. On the issue of disallowance of conveyance allowance the ld. Assessing Officer has erroneously held that conveyance allowance is same as Travelling Allowance . Both these expenditures are different. In any event, as there are no vouchers produced, we restrict the disallowance to 25% of the expenditure claimed. - Decided partly in favor of assessee.

Summary

Issues Involved:
1. Disallowance under Section 40A(3) of the Income Tax Act, 1961.
2. Disallowance of conveyance expenses.

Issue-wise Detailed Analysis:

1. Disallowance under Section 40A(3) of the Income Tax Act, 1961:

The primary issue in this case revolves around the disallowance made under Section 40A(3) of the Income Tax Act, 1961, which mandates that payments exceeding a specified limit must be made through crossed cheques or bank drafts to ensure the genuineness of the transactions and curb the use of unaccounted money. The assessee, a transport contractor, made payments in cash for hiring trucks, which exceeded the prescribed limit, leading to the disallowance.

The assessee contended that the payments were made in cash due to business expediency, as truck drivers insisted on cash payments for smooth operation and continuity of business. The Assessing Officer (AO) did not doubt the genuineness of the transactions but made a technical disallowance based on the provisions of Section 40A(3).

The Tribunal examined the facts and circumstances, noting that the payments were made through agents and were covered under Rule 6DD(k) of the Income Tax Rules, which provides exceptions to the disallowance under Section 40A(3). The Tribunal cited various judgments, including the case of "DCIT vs. Maruti Freight Movers Ltd." and "Chartered Logistics Ltd vs ACIT," where similar issues were addressed, and it was held that payments made through agents or under business expediency should not attract disallowance under Section 40A(3).

The Tribunal concluded that the assessee's case fell under the exceptions provided in Rule 6DD(k) and that the disallowance under Section 40A(3) was not justified. The Tribunal emphasized that the purpose of Section 40A(3) is to prevent tax evasion and ensure the genuineness of transactions, and in this case, the transactions were genuine and made under business expediency.

2. Disallowance of Conveyance Expenses:

The second issue pertains to the disallowance of conveyance expenses claimed by the assessee. The AO disallowed the entire conveyance expenses, treating them as "Travelling Allowance," which was not substantiated with vouchers.

The Tribunal observed that conveyance allowance and travelling allowance are distinct expenditures. However, due to the lack of vouchers, the Tribunal decided to restrict the disallowance to 25% of the claimed expenditure, allowing the remaining 75%.

Conclusion:

The Tribunal allowed the appeal in part. The disallowance under Section 40A(3) was deleted, as the payments were made under business expediency and fell under the exceptions of Rule 6DD(k). Regarding conveyance expenses, the Tribunal allowed 75% of the claimed expenses, restricting the disallowance to 25% due to the absence of vouchers.