2020 (3) TMI 672 - AT - Income Tax

Addition u/s 40A(3) - cash payments were made to truck drivers and to the agents of coal suppliers who had supplied coal through trucks at the brick kilns of the assessee firm - HELD THAT - Banking facility at village Ballarpur were not there as has been rightly observed by the CIT(A) at para 5.2.2 of his appellate order.It is also noticed that since, the truck drivers and the coal agents deliver the coal at night because of heavy vehicles cannot ply during the daytime and insistance for cash payments, hence the assessee was obliged to do the cash payments as per business practice in that area where lots of brick kilns are there. A.O. has not found any fault with the payment nor has disbelieve the payment made for the coal suppliers who are duly registered with the VAT department. The payment has not been doubted by the A.O. or by the Ld. CIT(A), hence looking to the facts that the payments were made after the banking hours and that too at village Ballarpur, where there are no banking facilities, we are of the considered opinion that even this amount should not have been disallowed u/s 40A(3) read with Rule 6DD of the Income-Tax Rules as the CIT(A) had observed in respect of payments made to truck drivers where he deleted the part cash payment. In that matter, the CIT(A) was not justified in confirming part additions under the same set of facts. - Decided in favour of assessee.

Summary

Issues:
1. Disallowance of cash payments to agents of coal suppliers under section 40A(3) of the Income-tax Act, 1961.
2. Disallowance of cash payments to truck drivers under section 40A(3) of the Income-tax Act, 1961.
3. Applicability of Rule 6DD(g) and Rule 6DD(j) of the Income Tax Rules.
4. Consideration of business expediency in cash payments.
5. Admissibility of revised and additional grounds of appeal.

Issue 1: Disallowance of cash payments to agents of coal suppliers under section 40A(3) of the Income-tax Act, 1961:
The Assessing Officer (A.O.) disallowed cash payments made to agents of coal suppliers, citing violation of section 40A(3). The CIT(A) partially sustained the disallowance, observing that suppliers did not insist on cash payments. The appellant argued that payments were for business expediency and covered by exceptions in Rule 6DD(g) and Rule 6DD(j). The Tribunal found that the absence of banking facilities in the village, coupled with the business practices in the area, justified the cash payments. The Tribunal held that the disallowance was not warranted under section 40A(3) and allowed relief to the assessee.

Issue 2: Disallowance of cash payments to truck drivers under section 40A(3) of the Income-tax Act, 1961:
The A.O. disallowed cash payments to truck drivers, alleging non-compliance with section 40A(3). The CIT(A) partially deleted the disallowance, considering the absence of banking facilities in the village. The appellant contended that payments were necessary due to business practices and lack of banking options. The Tribunal agreed, emphasizing that the cash payments were justified under Rule 6DD(g) and Rule 6DD(j) exceptions. Consequently, the Tribunal allowed relief to the assessee regarding the disallowance.

Issue 3: Applicability of Rule 6DD(g) and Rule 6DD(j) of the Income Tax Rules:
The appellant argued that the cash payments fell within the exceptions provided in Rule 6DD(g) and Rule 6DD(j) due to the absence of banking facilities in the village and the necessity of payments on non-banking days. The Tribunal accepted these contentions, holding that the payments were justified under the specified rules and hence not liable for disallowance under section 40A(3).

Issue 4: Consideration of business expediency in cash payments:
The appellant justified the cash payments as necessary for business expediency, citing the operational requirements of the brick kiln business and the prevalent business practices in the area. The Tribunal acknowledged the business necessity of the cash payments, especially in the absence of banking facilities in the village, and ruled in favor of the assessee.

Issue 5: Admissibility of revised and additional grounds of appeal:
The appellant sought to revise and add grounds during the appeal process. The Tribunal permitted the revised and additional grounds for judicious disposal of the appeal, considering the material already on record and the interests of substantial justice. The Tribunal admitted and adjudicated upon the revised and additional grounds, ultimately allowing the appeal of the assessee.

In summary, the Tribunal ruled in favor of the assessee, allowing relief from the disallowance of cash payments to agents of coal suppliers and truck drivers under section 40A(3) of the Income-tax Act, 1961. The Tribunal considered the exceptions provided in Rule 6DD(g) and Rule 6DD(j), along with the business expediency justifications for the cash payments. Additionally, the Tribunal admitted and adjudicated upon the revised and additional grounds of appeal, ensuring a fair and comprehensive resolution of the case.