2015 (2) TMI 9 - AT - Income Tax

Disallowance of freight and lorry hire charges - Held that - The assessee had furnished the primary evidence of the transaction but had failed to furnish the confirmation from the said party nor could the said party be produced for cross-examination. The expenditure incurred by the assessee was ₹ 3,12,300/- and though the same has been discharged by making cash payment on different dates, we find merit in the plea of the assessee where, the primary evidence of incurring the expenditure has been filed by the assessee i.e. the lorry receipt numbers, name of consignor, consignee, place of discharge, vehicle numbers, invoice number and date of sale between consignor and consignee; merely because the person could not traced during the course of assessment proceedings and the confirmation from the said party could not be filed does not establish the case of the Revenue that the said expenditure had not been incurred by the assessee. Accordingly, we direct the Assessing Officer to allow the expenditure of ₹ 3,12,300/-. - Decided in favour of assessee. Disallowance u/s 40A(3) - cash payment made on account of freight and lorry hire charges in excess of ₹ 20,000/- in a day - Held that - Merely because while deducting the tax at source, the assessee had deducted the tax under section 194C of the Act, does not establish the case of the Revenue, especially, in the circumstances where the assessee had claimed that the deduction of tax was made under a wrong section. The payment made for hired vehicles through commission agents was though paid in cash exceeding ₹ 20,000/- falls within the exception provided in clause (k) to the Rule 6DD of the Rules and we find no merit in the orders of authorities below in disallowing the said payment as not allowable under section 40A(3) of the Act. Further in the statement recorded, the Director of assessee company had stated that advance lorry charges were paid in cash to parties. No query was raised as to the persons to whom payments are being made. In the said circumstances, we find no merit in orders of authorities below. Reversing the order of CIT(A), we direct the Assessing Officer to delete the disallowance made under section 40A(3) of the Act at ₹ 64,60,549/- - Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance of Rs. 3,12,300 on account of freight and lorry hire charges.
2. Disallowance of Rs. 64,60,549 under Section 40A(3) of the Income Tax Act, 1961.

Detailed Analysis of Judgment:

1. Disallowance of Rs. 3,12,300 on account of freight and lorry hire charges:
The assessee, engaged in the business of booking parcels, cargoes, and luggage, claimed freight and lorry hire charges of Rs. 3,12,300 paid to M/s. Sarvodaya Road Lines. The Assessing Officer (AO) issued a notice under Section 133(6) to verify the existence of the creditor, which could not be served as the party was not traceable. The assessee failed to provide confirmation or PAN details of the said party. Despite providing primary evidence like collection memos, lorry receipts, and other documents, the AO considered the transactions non-genuine and added Rs. 3,12,300 to the income of the assessee. The CIT(A) upheld the AO's decision due to the non-submission of details by the assessee.

The Tribunal noted that the assessee provided substantial evidence of the transactions, including lorry receipts, weighbridge slips, and sale bills. The assessee argued that the transactions were genuine and that the party was untraceable, which should not lead to the disallowance of the expenditure. The Tribunal found merit in the assessee's plea, stating that the primary evidence of incurring the expenditure was filed, and the inability to trace the party did not invalidate the transactions. Consequently, the Tribunal directed the AO to allow the expenditure of Rs. 3,12,300, thus allowing ground No.1 raised by the assessee.

2. Disallowance of Rs. 64,60,549 under Section 40A(3) of the Income Tax Act, 1961:
The assessee had debited freight and lorry hire charges amounting to Rs. 1,74,51,790. The AO observed that payments exceeding Rs. 20,000 were made in cash in a single day, violating the amended provisions of Section 40A(3). The assessee contended that the payments were made to commission agents and were covered under Rule 6DD(k), which provides exceptions to the disallowance under Section 40A(3). The AO rejected this plea, noting that the payments were made to brokers who did not own the hired goods and that the classification of sub-contractors or agents was an afterthought.

The CIT(A) upheld the AO's addition, rejecting the assessee's claim that the payments were made to commission agents and thus covered by Rule 6DD. The Tribunal examined the facts and noted that the assessee had declared in the audit report that the payments were made to commission agents. The Tribunal found that the payments were indeed made to commission agents who booked trucks for the assessee, and tax was deducted at source accordingly. The Tribunal concluded that the payments fell within the exceptions provided under Rule 6DD(k) and did not violate Section 40A(3). Therefore, the Tribunal directed the AO to delete the disallowance of Rs. 64,60,549, allowing ground No.2 raised by the assessee.

Conclusion:
The appeal of the assessee was allowed, with the Tribunal reversing the disallowances made by the AO and CIT(A) for both issues. The Tribunal emphasized the importance of primary evidence and the applicability of exceptions under Rule 6DD in the context of Section 40A(3).