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TMI Blog2017 (4) TMI 532X X X X Extracts X X X X X X X X Extracts X X X X ..... e revenue is taken up for adjudication. 4. The brief facts of this issue is that the assessee is a limited company engaged in the business of transportation, operating as a transport contractor for transport of goods by road, for its clients. The company has 37 branches in different locations in India. The assessee company, as per the contract with its clients, collects goods and arranges delivery of the same from their sites to different destinations, normally, as per the annual contract. The deliveries are handled by assessee's branches and offices and payments to truck owners are made by branch offices, partly from branch and partly through middle man, say agents / through local body of truck owners association. The ld AO observed from the books of accounts of the assessee company that huge cash payments were made towards transportation of goods on behalf of the clients far in excess of stipulation laid down in section 40A(3) of the Act. He made the detailed analysis of such payments in the assessment order and showcaused the assessee for invoking the provisions of section 40A(3) of the Act in that regard. The assessee replied that it obtains vehicles for particular destination ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces in the field of transportation, the agent supply trucks to the transporters giving details such as Owners name, Driver's name, License No. and takes guarantee of Truck Driver and also ultimately becomes a link between unknown truck owner / driver and the transporter. The transporter is supposed to make advance payment to the agent and as such Rule 6DD(k) of the Rules would be applicable where assessee makes payment to his agent who is required to make payment in cash for goods or services rendered, on behalf of the assessee. The advance payments are paid to the transport contractors / commission agents and are in relation to trucks hired by the assessee in the course of its regular activities. Such payments are to be made in cash because then and there the agent is supposed to make advance payment to the truck driver. Based on these submissions, it was pleaded that the assessee would fall outside the rigours of section 40A(3) of the Act. 5. The ld AO observed that the assessee's case does not fall under any of the exceptions provided in Rule 6DD of the Rules so as to provide immunity to the assessee from the provisions of section 40A(3) of the Act. The ld AO also observed cert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Payment: First Payment is shown in the challan/consignment note as advance out of the total hire charges due. Balance payment of Hire Charges: Balance of hire charges are paid after producing the challan showing delivery of goods to the party. These payments are also made by branches during office hours and payments to truck owner who come after offices hours are made through agents or members of local body of truck owners. Payment beyond office hours: The Id. Assessing Officer did not consider that the truck hire charges are paid partly on loading and balance on delivery of goods to the consignor‟s premises and many a times truck drivers come beyond office hours and also at midnight and nonpayment to them will cause genuine difficulties to the payee and the appellant and so the services of the agents are utilized in such situations also. Payment of Commission to Agents Payments to agents who contacts our branch manager on behalf of trucks owners are paid their commission or brokerage by the truck owners as it is included in total freight payments. The agents or members of local body of truck owners are persons known to the branch managers and can be contacted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es existing at the place of operation but within the provisions of rule 6DD. Secondly the Id A. O. disallowed the said freight payments on the ground that the said payments are bogus. However, we have filed the statement of said freight payments and corresponding freight receipts which shows that these is a receipt against each freight payment and is offered as income for assessment." The assessee stated that: "a) The ld. Assessing Officer rejected the appellant‟s explanation regarding cash payments of the Truck Hire Charges through local agents without making proper enquiries and without giving proper and reasonable opportunity to the appellant to explain with documents the compelling circumstances prevailing in the branch which forced the appellant to take the service of local agents and also to make payment in cash b) In support of our case we hereby submit the copies of Memorandum of Arrangements between the Factory Management & Association of Truck Owners & Association of agents duly agreed in the presence of District Authorities c) On the basis of the said arrangements the Office Bearers of the said Association issued rate charge and amount of the total freight ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rough local associations and agents. He also produced cash book along with vouchers which were test checked. On examination of the books produced it seems that the income has been taken into consideration but the corresponding expenses have not been considered." 6.3. The assessee filed further objections to the second remand report of the ld AO. The ld CIT(A) after considering the same deleted the disallowance by observing as under:- "4.7 I have considered the assessment order, the submission of the A.R. of the appellant as well as the remand report. Two issues have to be considered here. Firstly, is the issue whether the appellant has inflated his expenditure on hiring and plying of goods vehicles and thereby concealing his actual income. I am of the view that this issue has been put to rest by the Remand Report of the A.O. dt.1.10.2013 wherein he has duly examined the receipts and payments made by the appellant on hiring of goods vehicles. The A.O. has also examined in course of remand the cash book and supporting vouchers, No infirmity was noticed by the A.O. The A.O. has further noted in his remand report that on examination of the books produced by the appellant it seems th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dispatch and receipt of .goods have to follow a time schedule and cannot wait for cheque clearances. In that sense, I am in agreement with the issue of commercial expediency raised by the A.R. of the appellant. The A.O. has also accepted that the appellant has not paid directly to any trucker and all the payments have been made to the Associations which function as an agent of the appellant. Rule 6DD comes with the heading "Cases and circumstances in which a payment or aggregate of payments exceeding twenty thousand rupees may be made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft." Therefore, the circumstances under Rule 6DD have to be carefully considered before arriving at any conclusion. Reference here is being made to the Guwahati High Court Judgement in the case of Walford Transport (Eastern India) Ltd. vs CIT 240 ITR 902 (Guwahati), which held:- "The purpose of section 40A(3) of the Act is to check evasion of tax and the flow of unaccounted money. But in cases where the authorities are satisfied about the genuineness of the transaction and the identity of the payee, there would be no occasion to disallow such ki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orced to do business through certain Associations on the terms set by such Associations. This being the case, if the appellant had to survive in business, then, it had to adapt itself to the local circumstances. I am of the view that the case of the appellant is covered by Rule 6DD(k) and addition made on this account should stand deleted. 6.4. Aggrieved, the revenue is in appeal before us. 7. The ld DR argued that the ld CIT(A) had granted relief that the subject mentioned payments fall under the exception provided in Rule 6DD(k) of the Rules . In the instant case, the assessee had not made payment to his agent. There is no evidence that is brought on record to prove that the said agent had to make payment in cash on behalf of the principal. The agent is not appointed by the assessee. The agents in the instant case were appointed by the truck owners and commission to the agents were paid by the truck owners to the agents. He argued that normally principal also directs the agents as to how the work should be done. Here association of truck owners are not directed to send trucks from such and such person. The genuineness of the transaction is absolutely not relevant for the purpos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee have been accepted by the ld AO for the Asst. Year 2011-12 u/s 143(3) of the Act dated 17.12.2013. He placed reliance on the decision of the co-ordinate bench of Ahmedabad Tribunal in the case of Chartered Logistics Ltd vs ACIT in IT(SS) A No. 37 to 40/Ahd/ 2013 and IT (SS) A No 115 to 118/Ahd/ 2013 for the Asst. Years 2007-08 to 2010-11 dated 15.11.2013. He placed reliance on the following decisions:- a) Hon‟ble Jurisdictional High Court in the case of Goenka Agencies vs CIT reported in (2003) 263 ITR 145 (Cal) ; b) Hon‟ble Gujarat High Court in the case of Anupam Tele Services vs ITO reported in (2014) 366 ITR 122 (Guj) ; c) Hon‟ble Gauhati High Court in the case of Walford Transport (Eastern India) Ltd vs CIT reported in (1999) 240 ITR 902 (Gau) ; 9. We have heard the rival submissions and perused the materials available on record including the paper book of the assessee. The facts stated hereinabove remain undisputed and hence the same are not reiterated for the sake of brevity. The fact that assessee was forced to carry on its transportation activity through the assistance of agents is proved beyond doubt. Hence we hold that it does not make any d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee has also brought this fact to the notice of the AO as well as ld. CIT(A) that payments were made to brokers vide its written submissions, copies of which are placed at page no.11 to 26 of the paper book. In view of the above, it was contended that there was no violation of provisions of section 40A(3) r.w.s. Rule 6DD of the Income Tax Rules, since the cash payments have been made to brokers. Reliance was placed at page no.11 of the CIT(A)‟s order and page no.1 of the paper book. It was further submitted that even the learned CIT(A) has recorded a finding that the assessee has not made payments to individual truck owners but to various brokers through whom the trucks are engaged. Reliance was placed at page no.12, para 6 of the learned CIT(A)‟s order. It was further submitted that ultimate recipient of the payment viz. the drivers/owners of the truck have insisted for cash payments as they have to travel huge distance and cash was required for meeting with the expenditure and exigencies during the trips. For this, reliance was placed para 2.2. of the assessment order. It was further submitted that as per clause-„k‟ of Rule 6DD of the IT Rules, no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned DR argued and supported the order of the AO, and submitted that the payments were not made to the brokers, but to the parties. 8. We have heard rival submissions and perused the orders of the lower authorities and material available on record. In the instant case, the AO observed that the assessee has made cash payments for freight charges to brokers, which was in excess of the limit prescribed under section 40A(3) of the Act. He, therefore, by invoking the provisions of section 40A(3) of the Act, made disallowance of 10,69,899/- for A.Y.2007-2008, 7,05,198/- for A.Y.2008- 2009 6,92,47,389/- for A.Y.2009-2010 and for A.Y. 2010-2001 94,85,912/-. On appeal, the learned CIT(A) has confirmed the action of the AO, on the ground that the entire freight charges from customers have been included in the books of accounts of the assessee, as the turnover and freight payments have been made to the drivers are part of the business expenses, and therefore, the provisions of section 40A(3) are applicable to the assessee. The learned CIT(A) has also observed that the arguments of the assessee that the payments were made to truck drivers, who insisted for payment in cash was not exception ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aspect, we do not find any reason to interfere in the order of the learned CIT(A). Accordingly, we confirm his order on this aspect, we do not find any reason to interfere in the order of the learned CIT(A). Accordingly, we confirm his order on this aspect." 9. We find that in the instant case also, it is not in dispute that the payments were made by the assessee to the brokers from whom the trucks were hired on payment, and in turn was required to make the payment in cash to the truck- drivers in each. As per Oxford Dictionary & Thesaurus-II Page no.15, an agent is: i) person acting for another in business etc. ii) person or thing producing effect iii) broker, delegate, envoy, executor, functionary, go-between, intermediary, mediator, middleman, negotiator, proxy, representative, surrogate, trustee. Therefore, a broker is akin to an agent. Thus, the facts of the case are identical to the facts, which were in the case of Vijay kumar P. Desai (supra), and therefore, the decision in that case is squarely applicable to the facts of the assessee‟s case. Hence, respectfully following the above-cited decision of the Tribunal, we set aside the orders of the lower authorit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isted that cheque payment from a cooperative bank would not do, since the realization takes a longer time-If assessee had not made cash payment, it would have received the recharge vouchers delayed by 4/5 days and thereby would severely affect its business operations- Rigors of s 40A(3) to be lifted-Further the exceptions contained in r 6DDD are not exhaustive and that rule must be interpreted liberally- Impugned order set aside-Assessee‟s appeal allowed. 9.4. We also find that the Hon‟ble Gauhati High Court in the case of Walford Transport (Eastern India) Ltd vs CIT reported in (1999) 240 ITR 902 (Gau) wherein the head notes are reproduced as below:- Business expenditure-Disallowances under s. 40A(3)-Exceptional and unavoidable circumstances-Assessee explained that its financial positions was very bad at the relevant time and it had to resort to cash transaction in order to avoid the risk of bouncing of cheques- Explanation accepted by AO in majority of transaction-Same however not accepted in some transactions only on the basis that the names of payees were not indicated in the vouchers-On appeal, CIT(A)- Where the transaction is found to be genuine and the identit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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