2024 (1) TMI 272 - HC - Income Tax

Disallowance u/s 40A(3) - assessee, who is the appellant, is a government contractor showed payments exceeding Rs. 20,000/- in cash on various dates for materials purchased - specific ground on which the disallowance was made by the Assessing Officer is with respect to no substantiating bills or vouchers having been produced - HELD THAT - The supplies admittedly have been obtained from a third party and it was delivered at the work site in trucks. If the payments are made to the different truck drivers, definitely there would have been vouchers obtained evidencing the receipt of such payments by the truck drivers. The Books of Accounts does not show the payments having been made by the appellant separately and not together as indicated in the Cash Book. If the payments were made at different points, definitely the Cash Book also would have indicated such payments having been made at the different sites in the registers maintained by the contractor at such different sites. It is the consolidated Day Book and Cash Book of the assessee which is produced before the AO which does not indicate such payments having not been made on a consolidated basis; which is the only inference available from the Cash Book of the assessee, which has been entered on a daily basis. We find that the Accounts Book cannot be relied on to challenge the disallowance made and the amendment made with effect from 01.04.2009 is not at all applicable in the above case. We specifically notice that Sunil Kumar 2016 (4) TMI 637 - PATNA HIGH COURT was a case in which the AO had disallowed the aggregate payments made on a single day by several vouchers to a single person which aggregate amounts exceeded Rs. 20,000/-. It was specifically noticed by the Division Bench that in the present case not a single payment has been made through any voucher exceeding Rs. 20,000/- and hence it was not open to the AO to have aggregated the said payments. Such aggregation of payments would have been possible after 01.04.2009 is the corollary to the declaration made in the decision. We bow to the proposition as laid down by the Division Bench and notice specifically that there are no vouchers produced to substantiate the claim of separate payments having been made on a single day at the work spots where the delivery of the goods supplied were made. No reason to entertain the appeal and the question of law is decided against the assessee and in favour of the Revenue. The disallowance made by the Assessing Officer on the ground of no substantiating documents having been furnished to the Assessing Officer by way of bills/vouchers is found to be perfectly in order, on the facts available in the instant case, which is in accordance with the provision even as it existed prior to the amendment of 01.04.2009. Appeal dismissed.

Summary

Issues:
The judgment involves the interpretation of Section 40A(3) of the Income Tax Act, 1961 regarding the disallowance of deductions for cash payments exceeding Rs. 20,000 made by a government contractor for material purchases during the Assessment Year 2004-05.

Details of the Judgment:

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

The Assessing Officer disallowed deductions for cash payments exceeding Rs. 20,000 made by the appellant for material purchases, citing Section 40A(3). The appellant contended that the payments were made to individual truck drivers for materials brought in different trucks, each payment being below Rs. 20,000. However, the Assessing Officer insisted on substantiating bills or vouchers, which the appellant failed to produce. The First Appellate Authority reduced the disallowance, but the Tribunal upheld the original disallowance due to lack of evidence supporting separate transactions.

Issue 2: Applicability of Rule 6DD and Pre-amendment Provisions

The appellant argued that the disallowance provision under Section 40A(3) was amended to include payments "to a person in a day" only from 01.04.2009, and therefore should not apply to the relevant assessment year. The appellant relied on the Day Book and previous court decisions to support their claim. However, the Senior Standing Counsel for the Income Tax Department supported the assessment order, stating that Rule 6DD exceptions did not apply in this case.

Issue 3: Judicial Precedents and Interpretation of Accounts

The appellant cited various court decisions to challenge the disallowance, emphasizing the importance of factual correctness and challenging estimates in civil contract businesses. The court examined the appellant's arguments, previous court decisions, and the specific facts of the case to determine the validity of the disallowance under Section 40A(3).

Conclusion:

The court dismissed the appeal, upholding the disallowance made by the Assessing Officer due to the lack of substantiating documents for the cash payments exceeding Rs. 20,000. The court found that the amendment to Section 40A(3) from 01.04.2009 did not apply in this case, and the disallowance was in accordance with the law as it existed before the amendment. The judgment highlights the importance of maintaining proper documentation and adherence to tax laws in claiming deductions for business expenses.