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TMI Blog2016 (9) TMI 438X X X X Extracts X X X X X X X X Extracts X X X X ..... 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’ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore the A.O. stated that they are employed to issue husk to the coir industry run by the assessee. In view of the above, the sum of ₹ 13,95,106/- claimed towards de-husking charges was disallowed and added back to the total income by the AO. 4. During the appellate proceedings before the CIT(Appeals), the assessee filed written submissions as under:- a. The assessee produced all the 1173 number of vouchers for AOs perusal. b. The Husk, after de-husking, goes to the seller/farmer for being used as fuel. c. De-husking is done at purchasers point and labour of the assessee who accompanied the trucks do de-husking. d. De-husked coconuts are more economical than un-husked coconuts since the cost of transportation is more in the case of latter. e. The labourers who have produced before the AO admitted the fact of having travel in the trucks to the place of farmers for the he-husking. f. The AO instead of recording there statements simply took their signature against their names. g. The AO came to the conclusion that the expenses were not genuine on the basis of the presumption and assumptions. 5. The CIT(Appeals) observed that the assessee has brought ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es 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. 9. The next issue relates to disallowance of hamali, loading and unloading charges. The AO found an amount of ₹ 5,77,854/- and ₹ 6,59,863/- was claimed as expenditure towards loading and unloading charges and Hamali charges respectively. The assessee produced 805 vouchers for Hamali payments and 244 vouchers for the loading unloading charges before the AO for examination. It was subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 15. The next issue is regarding cash payments in contravention of provisions of section 40A(3). The AO noted that all the payments made towards purchase of coconuts are made by cash and the payment in 239 cash bills/vouchers exceeds ₹ 20,000/- totalling to ₹ 63,79,700/-. The assessee s contention was that wherever bills exceed ₹ 20,000/-, the name of the route is mentioned and on the reverse of the bill a list of sellers and amounts paid to them are noted. The AO was of the opinion that the assessee does not purchase coconuts directly from farmers and that the nuts are brought to the assessee by a trader or agent. Moreover, the 18 farmers produced before the A.O. have filed a copy of RTCs. On verification of the same, it was seen that only in six RTCs the crop grown is shown as coconut and all the RTCs show that the land held are dry lands and various other crops including areca ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entioned which are less than ₹ 20,000/- in each case. These vouchers were submitted to the AO during the assessment proceedings. 18. The CIT(Appeals) held that the assessee is into this business for the past over 30 years. This is for the second time that the provisions of sec. 40A(3) has been applied in the year (apart from A.Y. 2009-10 wherein in the set aside proceedings the assessee s claim was accepted) and there was no disallowance u/s. 40A(3) for the A.Y. 2008-09. In view of the above, the CIT(A) came to the conclusion that coconuts are purchased from farmers and also the value of each purchase is less than ₹ 20,000/- hence, sec.40A(3) is not applicable for the purchases made from farmers. Accordingly, the CIT(A) deleted the addition. 19. We have heard the rival submissions and perused the orders of lower authorities. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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