9911796707
TMI Blog2016 (7) TMI 382X X X X Extracts X X X X X X X X Extracts X X X X ..... ieved by the order of assessment dated 29.12.2011 for A.Y. 2009-10, the assessee preferred an appeal before the CIT(A)-24, Mumbai. The learned CIT(A) disposed off the assessee's appeal by the impugned order dated 25.03.2013, dismissing the grounds raised by the assessee in respect of the disallowances listed at (ii) and (iii) at para 2.1 of this order, and enhanced the disallowance on the issue at (i) above from Rs. 30,40,357/- made by the AO to Rs. 81,05,294/- under section 40A(3) of the Act. 3. Aggrieved by the order of the CIT(A)-24, Mumbai dated 25.03.2013, the assessee has preferred this appeal raising the following grounds: - "1) On the facts and circumstances of the case the learned Assessing Officer erred in disallowing 20% of cash paid on account of stevedoring expenses paid on behalf of your appellants principle. Your appellant states that they have not claimed any expenditure in their Profit & Loss Account on account of stevedoring charges or handling charges. All payments of stevedoring charges or handling charges are on behalf of principles. The disallowance of cash expenses by Assessing Officer is Rs. 30,40,357/-. The learned Commissioner Appeal erred in enhancing t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pal to Rs. 81,05,294/- on totally different items, being the actual payment of loading charges of Rs. 69,16,056/- and sweeping labour charges of Rs. 11,89,238/-. It is submitted that the aforesaid disallowance be deleted. 5.2 Per contra, the learned D.R. supported the impugned order of the learned CIT(A) on this issue. The learned D.R. submitted that in the impugned order, the learned CIT(A) has correctly held that the action of the AO in disallowing Rs. 30,40,357/- i.e. 20% of payments of stevedoring charges under section 40A(3) of the Act on presumptions, without verifying the details of actual cash paid above Rs. 20,000/-, was erroneous and baseless. In this regard the learned CIT(A) in appellate proceedings had called upon the assessee to file details of stevedoring charges, handling charges and sweeping labour charges. On an examination thereof, the learned CIT(A) was of the view that in respect of stevedoring charges of Rs. 75,32,257/- since it appeared that payments were made by the assessee to the labourers directly, no payment to a single person was made in excess of Rs. 20,000/- and therefore the AO's addition was not upheld. It is submitted that, however, with respect t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t has also been submitted that these stevedoring and handling charges have been paid to gang leader (15 to 20 gangs each consisting of 13 to 15 labourers who work on clearing consignments of goods). Assessee has also paid banking cash transaction tax on withdrawals of cash from the banks. Assessing Officer held that assessee violated the provisions of section 40A(3) of I.T. Act, 1961 and since payments in cash exceeded Rs. 20,000/-, disallowance u/s 40A(3) of I.T. Act, 1961 was justified in the facts of the case. 4.3.2 It appears from records that assessee has incurred expenses in cash exceeding Rs. 20,000/- to various persons for getting goods cleared from docks on behalf of its clients/principals and has billed these to its principals and does not have any proof by way of bills/invoices/recipient signed vouchers in respect of these expenses. Assessee has paid banking cash transaction tax in respect of withdrawal of cash from banks and has termed these payments as speed money incurred in the process of carrying on its business. It is further observed that assessee has shown outstanding creditors in its books to whom cash payments have been made and assessee has accounted for gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c basis has disallowed 2096 of the total amount withdrawn from bank assuming that the amount withdrawn from the bank is for the expenditure of the appellant business to which the provisions of Section 40A(3) are applicable. We submit that provisions of Section 40(A)3 can be applied only in case of an assessee who has claimed deduct/on and the expenditure is incurred in contravention of Section 40A(3). Please refer to Section 40A. This section says that while computing the income under the head "Profits & Gains of Business or Profession" the provisions of Sections 40 A will be applicable. Section 40A(3) is one of the sub-section of Section 40 A. While computing a taxable income under the head "Profits & Gains of Business or Profess/on" the provision of Section 40A(3) are invoked. Our client has not claimed any expenditure to which the Assessing Officer has made reference. We therefore submit that no disallowance can be made in the hands of our client u/s 40A(3). Without prejudice to above we submit that the Assessing Officer on adhoc basis has assumed that total withdrawal from the bank is spent on expenditure to which the provisions of Section 40A (3) are applicable. he has disal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see received amounts from the principals and the same are reflected in the above statement. In fact, the assessee should have shown/ accounted all gross receipts in its trading/ P&L A/c but the assessee did not show these amounts. The assessee has excluded these amounts received from the principals and payments made to the persons in cash in its financial statements and consequently in the return of income; which is not factually and legally correct. In order to ascertain the facts I have also called for TDS certificates issued by the principals, and the assessee produced one sample TDS certificate wherein the TDS has been made on the gross amount i.e. whatever amount the assessee reflected in the gross receipts. The assessee's AR also informed that TDS has been made by the principals on the gross amount only. This finding of the fact goes to prove that the assessee's principals made payment to the assessee only and not to the individual parties. Therefore, the assessee is statutorily obliged to adhere to the provisions of the Act while conducting his business affairs, particularly in the context of payment of cash in excess of Rs. 20,000/- as the same is in violation of pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ges and labour payments. The provisions of sec. 40A(3) are as under :- "Where the assessee incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft exceeds twenty thousand rupees, no deduction shall be allowed in respect of such expenditure." 4.4.3 It is also important to note that the provisions of sec. 40A(3) have undergone a substantial change from A.Y. 2008-09 wherein the changes made are that there are no exceptions to the violation of provisions u/s 40A(3). In other words the provisions have become more stringent than before. Thus, if any payment made above Rs. 20,000/- in cash to a person in a day such amount will attract the provisions of this section for disallowance. 4.4.4 In view of the fact provisions of section 40A(3) of I.T. Act, 1961 are clearly attracted in this case and the disallowance is enhanced to the actual payment of sum of Rs. 81,05,294/- (Rs. 69,16,056/- Handling charges & Rs. 11,89,238/- sweeping labour charges) u/s. 40A(3) of I.T. Act, 1961. In this connection, reliance is also placed on the following decisions:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be made in its hands. 5.3.4 As per the provisions of section 251(1)(a), the learned CIT(A) while disposing an appeal against an order of assessment, shall have the powers to confirm, reduce, enhance or annul the assessment. Section 251(2) of the Act stipulates that the learned CIT(A) shall not enhance an assessment, or a penalty, etc. unless the appellant has had a reasonable opportunity of showing cause against such enhancement. As per the relevant portion of the learned CIT(A)'s finding in the impugned order extracted above (supra), we find that the learned CIT(A) did not afford the assessee in the case on hand any opportunity whatsoever, let alone reasonable opportunity of showing cause against such enhancement and in our considered view this failure on the part of the learned CIT(A) being in violation of the basic principles of natural justice would render his enhancement unsustainable in law. We, therefore, in the interest of substantial justice set aside the learned CIT(A)'s finding enhancing the assessee's income by Rs. 81,05,294/- under section 40A(3) of the Act, comprising the total actual payment of handling charges plus sweeping labour charges and restore the matter t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the year, i.e. Advocate, Lawyer, etc. had included the same in their respective returns of income; was also brushed aside without being addressed by the learned CIT(A) while recording his finding. We, therefore, in the interest of equity and justice set aside the findings of the authorities below and restore this issue to the file of the learned CIT(A) for de novo examination and adjudication thereon in accordance with law by way of a speaking order, after affording both the AO and the assessee, adequate opportunity of being heard and to file details/submissions required in this regard. It is accordingly ordered. Consequently, ground No. 2 of the assessee's appeal is treated as allowed for statistical purposes. 7. Ground No. 3 - Disallowance of clearing and forwarding charges 7.1 In this ground, the assessee contends that the authorities below have erred in disallowing Rs. 1,95,395/- being 30% of clearing and forwarding expenses amounting to Rs. 6,51,318/-. It is prayed that this disallowance be deleted, since the nature of the expenses are such that it has to be paid in cash to dock authorities during the course of its business activity. 7.2 The learned D.R. placed strong reli ..... X X X X Extracts X X X X X X X X Extracts X X X X
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