2020 (9) TMI 322 - AT - Income Tax

Addition u/s 40A (3) - expenditure in cash exceeding permissible limit - HELD THAT - What the expression means is expenditure incurred exceeding the particular amount in rupee terms. Therefore, even if the expenditure is incurred in cash and in foreign currency, still the provision of section 40A(3) would be applicable if it exceeds the specified quantum in rupee term. Merely because the expression rupee has been mentioned in section 40A(3) it would not debar applicability of the provision to the expenditure incurred in cash in foreign currency. Undisputedly, the expenditure incurred in cash has been booked in India by debiting to the profit and loss account, that too, in rupee terms. AO has all the powers to examine the allowability of such expenditure under the provisions of the Act while making assessment of the assessee. That being the case, it cannot be said that the provisions of section 40A(3) would not be applicable. Contention of AR regarding the applicability of rule 6DD, we find the same to be totally misplaced. On a reading of rule 6DD we do not find any specific clause therein which can come to the aid of the assessee. Even, accepting that the assessee could not have issued a cheque to the payee, however, there are many other ways open to the assessee for making the payment through proper banking channel. Since, the assessee has failed to do so, the provisions of section 40A(3) of the Act is clearly attracted and the expenditure incurred in cash deserves to be disallowed. The decisions relied upon by the learned counsel for the assessee, on careful examination, were found to be of no help to the assessee. Accordingly, we uphold the decision of learned Commissioner (Appeals) on the issue while dismissing the ground raised by the assessee. Disallowance of vehicle, conveyance and telephone expenses @ 10% - HELD THAT - AO has disallowed 10% of the expenditure claimed by the assessee purely on ad hoc basis assuming personal use. However, what is the nature of enquiry conducted by the Assessing Officer to establish personal use is not forthcoming from the assessment order. It is also not clear whether the Assessing Officer has called upon the assessee to furnish evidence that there is no personal element involved in the expenditure. Learned Commissioner (Appeals) has also confirmed the addition purely on the basis of the observations made by the Assessing Officer. In our view, without establishing the fact that a part of the expenditure incurred by the assessee is towards personal use, no disallowance can be made purely on presumption and surmises. - Decided in favour of assessee.

Summary

Issues involved:
1. Disallowance of expenditure under section 40A(3) of the Income Tax Act, 1961.
2. Part disallowance of vehicle, conveyance, and telephone expenses.
3. General grounds raised by the assessee.

Issue 1: Disallowance of expenditure under section 40A(3):
The appeal challenged the disallowance of expenditure incurred in cash under section 40A(3) of the Income Tax Act, 1961. The Assessing Officer disallowed an amount of ?31,53,902 incurred in cash in foreign currency abroad by the assessee, a partnership firm engaged in garment manufacturing and export. The Assessing Officer invoked section 40A(3) due to cash expenditure exceeding ?20,000 in a day. The first appellate authority confirmed the disallowance. The assessee contended that section 40A(3) does not apply to expenditure in foreign currency and cited rule 6DD exceptions. The Departmental Representative argued that the provision applies to cash expenditure exceeding ?20,000 in rupee terms, regardless of currency. The Tribunal held that section 40A(3) applies to cash expenditure exceeding ?20,000 in rupee terms, irrespective of the currency. The Tribunal rejected the contention that the Act's provisions apply only in India, as the expenditure was booked in India. Rule 6DD was deemed inapplicable as the assessee could have used banking channels for payment. The Tribunal upheld the disallowance under section 40A(3).

Issue 2: Part disallowance of vehicle, conveyance, and telephone expenses:
The Assessing Officer disallowed 10% of the total expenditure claimed by the assessee for vehicle, conveyance, and telephone expenses, suspecting personal use. The first appellate authority upheld the disallowance without clear evidence of personal use. The Tribunal found the disallowance made on an ad-hoc basis without proper reasoning. It was noted that no evidence of personal use was established, and the disallowance was based on presumption. Therefore, the Tribunal deleted the disallowance of ?1,73,365, allowing the full expenditure claimed by the assessee.

Issue 3: General grounds raised by the assessee:
The general grounds raised by the assessee were deemed not requiring adjudication and were dismissed. The appeal was partly allowed, with the Tribunal pronouncing the order on 03.09.2020 through the notice board under rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1963.