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TMI Blog2021 (4) TMI 584X X X X Extracts X X X X X X X X Extracts X X X X ..... achinery repairs : Rs. 1,72,408/- iii) Staff Welfare expenses : Rs. 57,800/- iv) Expenses on mobile : Rs. 32,400/- v) Payments made for purchase of coal : Rs. 13,16,786/- 3. He further observed from Form No.3CD furnished by the assessee wherein it has been clearly mentioned that the assessee has made payments amounting to Rs. 24,60,887/- in cash to various parties. He, therefore, asked the assessee to explain as to why the addition should not be made invoking the provisions of section 40A(3) of the IT Act. 4. So far as purchase of coal/freight charge was concerned, it was submitted by the assessee that it is the trade practice to purchase coal through agents from different suppliers in the country which depends on its availability. The agents earned commission on the transactions made through them either from the buyer or from the seller. On the issue of payment of machinery repairs, it was submitted that the machines are prone to break-down and require immediate repairs. It was submitted that the assessee could not wait to comply with the procedural formalities of making payments through banking channels. So far as staff welfare expenses are concerned, it was submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the agent of suppliers. Howe4ver, no evidence has been submitted by appellant to establish his claim. Moreover, if the claim of appellant is accepted then it would amount to defeating the objective of enactment as appellant has not been able to make a claim of unavoidable circumstance and genuine difficulty so as to claim benefit of Rule 6DD. Moreover, it also not the case of appellant that her agent has made the payment on her behalf in case of expenditure on account of freight charges and purchase of coal. It is also to be noted that genuine and bonafide transactions are not taken out of sweep of section 40A(3). Reliance is placed on the judgment of Hon'ble Supreme Court in the case of Attar Singh Gurmukh Singh vs. ITO (SC) 191 ITR 667. With respect to the claim of appellant that no show cause notice was issued, it is noted that the amount of payment in cash which was in violation of section 40A(3) was already mentioned in Form 3CD of appellant's audit reports and therefore, he was well aware of the fact that there was violation of the provisions of section 40A(3). Further, disallowance u/s 40A(3) is an absolute disallowance which is mandatory in nature unless the case falls u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment order passed by the Assessing Officer as there is no finding by the AO and CIT Appeals that the expenses have not been incurred by the assessee. Further expenses in cash have been made in exceptional /unavoidable circumstances by the assessee. Thus additions needs to be deleted. 7. That, the appellant craves leave to add, alter, delete & modify any of the ground of appeal at the time of hearing." 7. The ld. Counsel for the assessee strongly challenged the order of the CIT(A) in sustaining the addition of Rs. 24,03,087/- u/s 40A(3) of the Act out of the total addition of Rs. 24,60,887/-. He submitted that the assessee is a manufacturer of textiles and it requires constant supply of coal. Referring to pages 37 to 58 of the paper book, the ld. Counsel submitted that the payments were made for purchase of coal. He submitted that without constant supply of coal the assessee could not have continued the manufacturing process. He submitted that the AO has not disputed the genuineness of the purchases or the payments, but, has disallowed only on account of violations of the provisions of section 40A(3) of the Act. He submitted that in this case since the suppliers are not known ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses are below Rs. 35,000/-. Therefore, the addition made u/s 40A(3) should be deleted. 9. So far as the machinery repairs of Rs. 1,72,408/- is concerned, he submitted that out of the total machinery repair expenses of Rs. 27,49,934/-, only an amount of Rs. 1,72,408/- has been incurred in cash which, again, are due to sudden breakdown of machinery that required immediate repair or replacement of parts to make the machine functional to avoid production loss. Therefore, no disallowance u/s 40A(3) is called for. 10. So far as the purchase of mobile phone amounting to Rs. 32,400/- is concerned, he submitted that the same has been shown under the fixed assets and not claimed as an expenditure in the P&L Account. Therefore, no disallowance u/s 40A(3) is called for. Referring to the decision of the Hon'ble Supreme Court in the case of Attar Singh Gurmukh Singh vs. ITO, reported in 191 ITR 667, he submitted that the provisions of section 40A(3) only empowers the AO to disallow the deduction claimed as expenditure in respect of which payment is not made by crossed cheque or crossed bank draft. The payment by crossed cheque is insisted to enable the assessing authority to ascertain whether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charges, machinery repairs, expenses on mobile and payments made for purchase of coal. 13. So far as the purchase of coal for Rs. 13,16,786/- is concerned, I find, out of the total purchase of Rs. 13,70,16,762/-, the cash purchases are only to the tune of Rs. 13,16,786/-. I find merit in the submission of the ld. Counsel that at certain times the coal has to be purchased through the agents which was supplied through the truck drivers of the suppliers. The assessee was bound to procure the coal to keep the furnace going to sustain the production. Therefore, procurement of coal against cash payment was a business necessity. Further, the assessee has also paid CST on purchases and the C-Form issued to the supplier is also produced before the lower authorities. The purchases are reflected in the VAT returns of the assessee and the VAT authorities have not found any discrepancy in the VAT/CST assessment for F.Y. 2015-16. Further, the purchase of coal has not been disputed or doubted by the lower authorities for which the genuineness of the purchase is also not in doubt. I further find, the Agra Bench of the Tribunal in the case of New Kalpana Ent. Udyog vs ITO, vide ITA No.49/Agra/201 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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