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TMI Blog2019 (9) TMI 908X X X X Extracts X X X X X X X X Extracts X X X X ..... ot apply to the unexplained capital/revenue receipts or unexplained investments but so far as the year to year business transactions is concerned the principal of res judicata should be applied to estimate the profits of the assessee. AO has not rejected the books of account u/s 145(3) of the Act which shows that he was satisfied with the book results and gross revenue is not in dispute. Expenditure incurred by the assessee which is purely for the business expediency not raising any doubt of genuineness but certainly the assessee could have avoided to make cash payment at certain point of time. But still to meet the end of justice and being fair to both the parties and without setting a precedent, we direct the AO to sustain disallowance u/s 40A(3) to the extent of 5% of the alleged amount. So the disallowance u/s 40A(3) TDS u/s 194A - disallowance u/s 40(a)(ia) - HELD THAT:- No information is provided by the assessee for the amount paid at ₹ 37,148/-. So the disallowance u/s 40(a)(ia) of the Act for the amount of ₹ 37,148/- stands confirmed. As regards the remaining amounts which are paid to Non- Banking Finance Company, we observe that when a person taken loan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the identity, genuineness and creditworthiness should decide in accordance with law, after providing reasonable opportunity of being heard to the assessee Disallowance u/s 40(a)(ia) for freight payment - HELD THAT:- We direct the Ld. AO to verify the PAN No. and if contention of the assessee is found to be correct then should decide in accordance with law. This ground of the assessee is partly allowed for statistical purposes. Disallowance of freight expense - assessee submitted that the payment was made through banking channel. PAN No. of the one of the payee Mr. Ranchhodbhai was provided - HELD THAT:- Since some of the issues relating to freight payment has been set aside to the file of Ld. AO for afresh examination, we deem it fit appropriate to give one more opportunity to the assessee to satisfy the Ld. AO for the claim of freight expenses after being provided necessary evidences. - ITA No.577/Ahd/2012 And ITA No.969/Ahd/2015 - - - Dated:- 20-9-2019 - Shri Manish Borad, Accountant Member And Shri Amarjit Singh, Judicial Member For the Appellant : Shri Tej Shah, AR For the Revenue : Shri Vinod Tanwani, CIT- DR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Being aggrieved and dissatisfied by the order passed by the Ld. CIT(A), the appellant begs to prefer this appeal to your Honour on the following amongst other grounds: 1. That the CIT(A) erred in law and on the facts of the case in sustaining the addition of ₹ 2,43,98,279/- u/s 40 A(3) of the Act. 2. That the CIT(A) erred in law and on the facts of the case in sustaining the disallowance/addition of ₹ 34,71,554/- u/s 40 (a)(ia) of the Act. 3. That the CIT(A) erred in law and on the facts of the case in sustaining the addition of ₹ 78,13,987/- on account of unexplained cash credits u/s 68 of the Act. 4. That the CIT(A) erred in law and on the facts of the case in sustaining the addition of ₹ 27,050/- being 10% of the interest on vehicle loan and depreciation on such vehicle. 5. That the CIT(A) erred in law and on the facts of the case in sustaining the addition of ₹ 19,515/- being 10% of telephone expenses as personal use. 6. That the CIT(A) erred in law and on the facts of the case in charging interest u/s 234A/B/C of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The appellant has relied upon Board Circular 220 dated 31st May 1977 for stating that where there are exceptional or unavoidable circumstances the payment can be made in cash. First of all this Board Circular is of 1977 (when the limit for cash payments was just ₹ 2.500) since then Section 40A(3) has undergone many changes. Then this Board Circular states that the assessee should furnish evidence to the satisfaction of the ITO as to the genuineness of the payment and identity of the payee. In this case no such evidence were furnished before the AO during the assessment proceedings nor during the remand report stage proceedings. The case of the appellant is not covered by the Board circular No.220 of 1977. 11.12. Even at the remand report stage the appellant could not substantiate his claim: In the remand report the AO has observed as under: (b) Disallowance u/s.40A(3) amounting to Rg.2.42.98.279 The AO during the course of assessment proceedings, found that the assessee has made cash payments exceeding ₹ 20,000 on contravention of provisions of Section 40A(3) of the Act. After goin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10 crore in the return do not support the contention of liquidity crunch. Thus for the reasons summarized in para 11 above the addition made by the AO u/s.40A(3) of ₹ 2,42,98,279 is upheld. , It is pertinent to point out here that this amount ₹ 2,42,98,279 of cash payments exceeding ₹ 20,000 is just a small percentage of ₹ 10,37,22,648 debited in the P L account as Expenses . 11. We have heard rival contentions and perused the record placed before us and carefully gone through judgments referred and relied by the assessee. The issue for consideration before us is that whether the Ld. CIT(A) was justified in confirming the disallowance u/s 40A(3) of the Act at ₹ 2,42,98,279/-. Before proceeding further we would like go through the provisions of u/s 40A(3) of the Act which reads that; 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... standing demand of ₹ 8,38,523/- within 5 days else the company shall become entitled to repossession of the vehicle in question. Similar letters were also issued by Kotak Mahindra Bank, ICICI Bank, for recalling their loans due to default in payments of loans amount which shows that the assessee was not able to pay the installment on time, since the post dated cheques issued by him were returned by the Bank. The assessee has made payment in cash on various occasions to the finance companies. 17. We further observe that the assessee is having running account with Petrol Pump dealers through which the assessee purchased diesel for its vehicles. The business of the assessee is running under his self name as well as under sole proprietorship concern M/s Sun Moon Roadways. At paper book pages 109 to 297 of paper book No.3 dated 10.07.2017 contains date-wise details of diesel sold by M/s Rajmoti Petroleum and individual purchase items are below the limit of 20,000/-. Periodic payment is made with M/s Rajmoti Petrolium which is through bank as well as in cash as per the vouchers. However, the details of the payments are entered in the books of Sun Moon Roadways wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness, the assessee needs to be allowed the claim of expenditure incurred for running such business. In the proviso to section 40A(3) of the Act clearly specify that if the assessee prove that the expenditure has been incurred for business expediency; then the provisions should be applied liberally and no disallowance u/s 40A(3) of the Act should be made. 21. Hon ble High Court of Allahabad in the case of CIT vs. Raja Pal Automobiles (supra) confirm the view of the Tribunal which found that the assessee had fully explained details of payment made in cash; that entire evidence in form of bills, cash memos etc. has been furnished by assessee and that departmental authorities had not disputed genuineness of transactions nor identity of person/seller to whom payments had been made- Tribunal held that in such circumstances, if payments were made in cash, same would fell within exception provide under rule 6DD and such transactions could not be disallowed . 22. Similarly in the case of ITO vs. Pranay Towers (supra) Coordinate Bench Delhi observed that where the seller of goods insisted for cash payments because he doubted credibility of assessee and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made by a crossed cheque drawn on a bank or a crossed bank draft then it will be easier to ascertain, when deduction is claimed, whether the payment was genuine and whether it was out of the income from disclosed sources. In interpreting a taxing statute the Court cannot be oblivious of the proliferation of black-money which is under circulation in our country. Any restraint intended to curb the chances and opportunities to use or create black-money should not be regarded as curtailing the freedom of trade or business. 24. From perusal of the above judgment we infer that the assessee should not be subject to the rigorous provision of u/s 40A(3) of the Act if he has incurred the expenditure for business expediency and if genuineness of such expenditure is not in dispute. In the instant case if alleged disallowance is added to the profits of the assessee resultant figure will be very abnormal and the net profit rate of the assessee will surge to around 27% which cannot be practically possible in this type of business. Also looking to the consistency of net profit earned by the assessee in the preceding years which is 1.85% in the year under appeal as against 1.33% i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. G Mac Finance Service ₹ 98,828/- 5. India Bulls Finance Sec. Ltd. ₹ 52,084/- 6. Magma Sharachin Fin Ltd. ₹ 5,17,058/- 7. Others ₹ 37,148/- Total ₹ 34,71,554/- 29. In the above list no information is provided by the assessee for the amount paid at ₹ 37,148/-. So the disallowance u/s 40(a)(ia) of the Act for the amount of ₹ 37,148/- stands confirmed. As regards the remaining amounts which are paid to Non- Banking Finance Company, we observe that when a person taken loans from these companies post dated cheques are issued for the installment which comprises of the principle as well as the interest component. Many times the installment are paid as chequ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AN No. were provided but no inquiry was conducted by the Ld. AO. 35. Per contra Ld. DR supported the order of lower authorities. 36. We have heard rival contentions and perused the record placed before us. The assessee has challenged the addition for unexplained cash u/s 68 of the Act at ₹ 78,13,987/- received from following parties Sr. No. Name of Party Amount 1 Ashapura Carriers Dabba loan ₹ 15,00,000 2 Bhikhabhai ₹ 12,00,000 3 Hand loan Irshabhai ₹ 10,000 4 Rajmoti Road Movers Dabba Loan ₹ 22,95,000 5 Rajmoti Road Movers Hand loan ₹ 21,28,987 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reasonable opportunity of being heard to the assessee. In the result ground no.3 of the assessee s appeal is partly allowed for statistical purposes. 40. Ground No.6 is consequential and ground no.7 is general in nature which needs no adjudication. 41. Now we take up ITANo. 969/Ahd/2015 for A.Y. 2010-11, the assessee has raised following grounds of appeal: Being aggrieved and dissatisfied by the order passed by the Ld. CIT(A), the appellant begs to prefer this appeal to your Honour on the following amongst other grounds: 1. That the CIT(A) erred in law and on the facts of the case in sustaining the addition of ₹ 16,47,203/- disallowance of interest payment of NBFCS u/s 40 (a)(ia) of the Act. 2. That the CIT(A) erred in law and on the facts of the case in sustaining the disallowance/addition of ₹ 4,55,802/- of freight payment u/s 40 (a)(ia) of the Act. 3. That the CIT(A) erred in law and on the facts of the case in sustaining the addition of ₹ 8,39,747/- on freight expense. 4. That the CIT(A) erred in law and on the facts of the case in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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