2018 (12) TMI 1998 - AT - Income Tax

Disallowance u/s 40A(3) - cash in excess of Rs. 20,000/- to a single party in a day - HELD THAT - CIT (A) has examined the claim of the assessee and the circumstances under which the payment in excess of Rs. 20,000/- was made to single party in a day. As considered that ld. CIT (A) has already given relief to the assessee where there is such payment less than 20,000/- and has also excluded the payment which were made to the road expenses/RTO, maintenance expenses and payment which were made on Saturdays, Sundays and holidays and other circumstances as elaborated during the course of appellate proceedings before us. The ld. counsel has failed to controvert the finding of ld. CIT (A) and also failed to point out that how the expenses are allowable in his case as per rule 6DD of the IT rules. We have also noticed that the jurisdictional summary referred by the assessee are distinguishable from the facts of the case of the assessee considering the judicial pronouncements referred by the CIT (A) in his elaborated findings demonstrating that due relief have been provided under the different circumstances cited by the assessee according to the provision of law and rule. Therefore, considering the detailed findings of the ld. CIT(A), we do not find any merit in the appeal of the assessee, therefore, the same is dismissed. Disallowance of loading and un-loading expresses - no TDS was deducted - assessee explained that payment made against the loading and unloading expenses were not more than Rs. 20,000/- for a day to a group of 4 to 5 persons - HELD THAT - Ais undisputed fact that these expenses were made at the loading and unloading destinations to small workers in cash on self made vouchers because of nature of expenses, it is difficult to check and verify such payment, therefore, due to non-verifiable nature of these expenses, we observed that CIT (A) has restricted the said disallowance to a very reasonable level of 15% of the aforesaid expenses of Rs. 12,12,400/- on lump sum basis. Considering the reasonableness of the disallowance made by the ld. CIT (A) on the basis of non-verifiable nature of expenses, we do not find any merit in the appeal of the assessee, therefore, the same is dismissed.

Summary

Issues Involved:
1. Disallowance under Section 40A(3) of the Income Tax Act.
2. Disallowance of loading and unloading expenses.

Issue-wise Detailed Analysis:

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

The assessee's appeal arose from the order of the CIT(A)-XX, Ahmedabad, where the CIT(A) partly confirmed the addition of Rs. 1,77,20,947/- made by the AO under Section 40A(3) of the Act, reducing it to Rs. 65,20,741/-. The AO had disallowed cash payments exceeding Rs. 20,000/- made to a single party in a day. The assessee argued that these payments included various expenses like driver salaries, diesel, and other incidental expenses, which were not the assessee's responsibility but that of the vehicle owners. The AO rejected this explanation, stating that the payments were expenses disguised as advances to circumvent Section 40A(3).

The CIT(A) reviewed the case and admitted additional evidence under Rule 46A, noting that the AO had not provided sufficient opportunity for the assessee to present these details. The CIT(A) categorized the cash payments under different heads:

- Payments below Rs. 20,000/-: The CIT(A) found that payments totaling Rs. 20,73,420/- were below Rs. 20,000/- each, thus not violating Section 40A(3). Relief of Rs. 5,66,270/- was granted.

- Road/RTO Expenses: Payments totaling Rs. 5,23,790/- were segregated as Road/RTO expenses, which did not attract disallowance under Section 40A(3) due to Rule 6DD(b). Relief of Rs. 5,23,790/- was granted.

- Payments on Non-Banking Days: Payments totaling Rs. 49,26,891/- made on Saturdays, Sundays, and holidays were considered under Rule 6DD(j), granting relief of Rs. 23,04,950/-.

- Transporter Office Non-Availability: Payments totaling Rs. 79,79,711/- were made where transporters had no office near loading points. Relief of Rs. 47,08,211/- was granted after verifying the necessity of cash payments for en-route expenses.

- No Presence/Bank Account: Payments totaling Rs. 22,52,135/- were made where the assessee had no presence or bank account. Relief of Rs. 5,51,200/- was granted.

- Insistence on Cash Payments: Payments totaling Rs. 25,45,385/- were made at the insistence of parties, and relief was granted as these were genuine and unavoidable.

The CIT(A) provided detailed findings and relief totaling Rs. 1,12,00,206/- under various heads after verification. The Tribunal upheld the CIT(A)'s decision, noting the detailed verification and the assessee's failure to provide further evidence to counter the findings.

2. Disallowance of Loading and Unloading Expenses:

The AO disallowed Rs. 12,12,400/- claimed by the assessee for loading and unloading expenses, stating that these were not reflected in the purchase register. The assessee explained that these payments were made in cash to small workers and were difficult to verify.

The CIT(A) restricted the disallowance to Rs. 1,81,800/- (15% of the total expenses) on a lump sum basis, considering the non-verifiable nature of these expenses. The Tribunal upheld the CIT(A)'s decision, finding the disallowance reasonable given the circumstances.

Conclusion:

The Tribunal dismissed the assessee's appeal, affirming the CIT(A)'s detailed examination and partial relief granted. The disallowance under Section 40A(3) was reduced significantly, and the loading and unloading expenses disallowance was reasonably restricted.