2016 (9) TMI 438 - AT - Income Tax

Disallowances of dehusking charges - inflation in the expenses - self-made vouchers - cash expenditures - Held that - AO has not recorded the statement of labourers produced before him, but simply wrote their names against the signature. The CIT(Appeals) was of the view that there would be some inflation in the expenses claimed by the assessee and made a fair estimate that 20% of dehusking charges to be excessive and therefore upheld the addition to the extent of 20% of dehusking charges. We are of the opinion that in this kind of business where labour is employed and vouchers are prepared by the assessee, there ought to be certain inflation in the expenses and therefore we find no infirmity in the order of the CIT(Appeals) in determining 20% of dehusking charges to be excessive. We find that the addition sustained by the CIT(Appeals) is reasonable and therefore we confirm the same. We dismiss the ground raised by the department in its appeal as well as by the assessee in its CO on this issue. Disallowance of hamali, loading and unloading charges - Held that - We subscribe to the view of the CIT(Appeals) that in the self-made vouchers, the probability of inflation has to be taken into account. The CIT(A) has reasonably restricted the disallowance to the extent of 10% of the total expenditure. Hence, we confirm the order of the CIT(Appeals) and dismiss the respective grounds raised by the department in its appeal as well as by the assessee in its CO on this issue. Cash payments in contravention of provisions of section 40A(3) - Held that - We find the fact remains that the coconuts are products of farmers in rural areas and they need to be paid in cash only and each payment on the reverse of the bill is less than ₹ 20,000, even though each transaction mentioned in the voucher was more than ₹ 20,000 since the vouchers were prepared for transactions in respect of 3 to 4 farmers. Provisions of section 40A(3) shall not apply to purchases from farmers in rural areas as it is covered by exemption under proviso to section 40A(3). Further, the CIT(Appeals) has found that the assessee has been in this business for the past 30 years and for the AY 2008-09, no disallowance was made u/s. 40A(3), whereas in the AY 2009-10 the assessee s claim was accepted by the AO in the set aside proceedings. Since coconuts purchases are from farmers and in the present year, each payment is less than ₹ 20,000, provisions of section 40A(3) is not applicable. Accordingly, we confirm the order of the CIT(Appeals) on this issue and dismiss the ground raised by the department.

Summary

Issues Involved:
1. Disallowance of dehusking charges.
2. Disallowance of hamali, loading, and unloading charges.
3. Disallowance under section 40A(3) for cash payments exceeding ?20,000.

Issue-wise Detailed Analysis:

1. Disallowance of Dehusking Charges:
The assessee, a partnership firm engaged in trading coconuts, claimed dehusking charges of ?13,95,106, which the Assessing Officer (AO) disallowed. The AO doubted the necessity of employing laborers for dehusking when the husk, a valuable raw material for the assessee's coir industry, was allegedly left with sellers. The AO's decision was based on statements from laborers and the presumption that the husk would be used by the assessee's coir unit. On appeal, the CIT(A) noted that the AO did not record laborers' statements and relied on assumptions. The CIT(A) partially upheld the disallowance, estimating 20% of the charges as excessive, granting the assessee relief of ?11,16,080. The Tribunal confirmed the CIT(A)'s decision, acknowledging potential inflation in expenses and finding the 20% disallowance reasonable.

2. Disallowance of Hamali, Loading, and Unloading Charges:
The AO disallowed 25% of the claimed loading and unloading charges (?5,77,854) and hamali charges (?6,59,863), totaling ?3,09,429, due to self-made vouchers and lack of detailed records. The assessee contended that these were consistent practices over 30 years, with no scrutiny issues in the previous year. The CIT(A) reduced the disallowance to 10%, recognizing the possibility of inflated expenses but finding the sample vouchers in order. The Tribunal upheld the CIT(A)'s decision, agreeing that self-made vouchers could lead to inflated claims and finding the 10% disallowance reasonable.

3. Disallowance under Section 40A(3) for Cash Payments Exceeding ?20,000:
The AO disallowed ?63,79,700 for cash payments exceeding ?20,000 per transaction, suspecting purchases from traders rather than farmers. The assessee argued that payments were made to multiple farmers, each below ?20,000, and provided supporting vouchers. The CIT(A) found the purchases genuine, noting the assessee's long-standing business and similar past assessments without disallowance. The Tribunal confirmed that payments to farmers in rural areas, each below ?20,000, were exempt under section 40A(3), dismissing the department's appeal.

Conclusion:
The Tribunal dismissed both the department's appeal and the assessee's cross-objection, confirming the CIT(A)'s partial disallowances and recognizing the legitimacy of the assessee's practices within the scope of the law. The judgment highlights the importance of detailed records and the reasonable estimation of expenses in cases involving self-made vouchers and cash transactions in rural trades.