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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 ..... er 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. Agra Bench of the Tribunal in the case of New Kalpana Ent. Udyog [ 2020 (3) TMI 672 - ITAT AGRA] under somewhat identical circumstances, have held that the payment made to the coal agents for purchase of coal and payment made to truck drivers for freight should not be disallowed u/s 40A(3) r.w. Rule 6DD of the IT Rules - we hold that the order of the CIT(A) sustaining the disallowance u/s 40A(3) of the Act is not justified. Accordingly, the same is directed to be deleted. Freight inward expenses find the same is mainly related to purchase of coal. As find, merit in the argument of the ld. Counsel that the assessee had to pay the cash to the truck drivers for expenses of freight on purchase of coal as a compulsion and exigency of transaction. Further, the lower authorities have not disputed the genuineness of the payment on account of freight charges s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iled by the assessee is directed against the order dated 30th July, 2019 of the CIT(A)-11, New Delhi, relating to assessment year 2016-17. 2. Facts of the case, in brief, are that the assessee is an individual having income from house property, business profession, capital gains and other sources. She filed her return of income on 12th October, 2016 declaring the total income at ₹ 18,21,460/-. During the course of assessment proceedings, the AO noted that the assessee has not disallowed any amount in excess of ₹ 20,000/-paid to a person in a day otherwise than by account payee cheque or account payee bank draft as per provisions of section 40A(3), the details of which are as under:- i) Freight charges paid to truck wala for transporting coal to assessee s factory at Sampla : ₹ 8,81,493/- ii) Machinery repairs : ₹ 1,72,408/- iii) Staff Welfare expenses : ₹ 57,800/- iv) Expenses on mobile : ₹ 32,400/- v) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ured it from agents appointed by suppliers to sell coal in their region against payment of commission. He has -further submitted that identity of the supplier is known only when the truck driver reaches his destination and before the coal is unloaded buyers has to pay to the truck driver the entire amount towards coal, freight Charges, enroute expenses and loading uploading expenses in cash. HE has also submitted that if he fails to make the cash payment, agent diverts the truck to some other buyers. Therefore; it becomes difficult to displease the agents as the truck drivers do not accept payment by cheque. With respect to machinery repairs amounting to ₹ 1,72,408/- he has submitted he has submitted that in case of machinery break down/replacement of parts to make the machine functional, the assessee had to .pay in -cash and payments were made to mechanic in cash. 5.2.2 I have carefully considered the observations of AO and submissions of appellant. Appellant has claimed that payments were made in cash as the other party insisted on payments in cash or otherwise the trucks would be diverted and that it was purchased from the agent of suppliers. Howe4ver, no evide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich Section 40A(3)of the Income Tax Act is not applicable. Hence, addition of ₹ 32,400/- may please be deleted. 3. That the ld. CIT(A) has erred in law and facts of the case by confirming the disallowance of ₹ 13,16,786/- u/s 40A(3) for purchase of coal and ₹ 8,81,493/- u/s 40(A)(3) for payment of freight made to the agent as a trade practice and business could not conducted if payment was not made in cash. Hence, addition of ₹ 21,98,279/- may please be deleted. 4. That the ld. CIT(A) has erred in law and facts of the case by confirming the disallowance of ₹ 1,72,408/- u/s 40A(3) of the Act for machinery repair against payment made to mechanic under compelling circumstances . Hence, addition of Rs l,72,408/-may please be deleted. 5. That the ld. CIT(A) has erred in law and on facts while confirming the assessment order passed by the Assessing Officer even though the Assessing Officer did not issue any show cause notice to the assessee before making the additions u/s 40(A)(3) of the Act. Therefore it s a clear violation of principles of natural justice and additions needs to be deleted. 6. That the ld. CIT(A) has erred in law and on facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted that under identical circumstances, it was held that the payment made to the coal agents for purchase of coal and payment made to truck drivers for freight should not be disallowed u/s 40A(3) of the Act r.w. Rule 6DD of the IT Rules, 1962. 8. So far as freight inward expenses of ₹ 8,81,493/- is concerned, he submitted that out of the total freight expenses of ₹ 25,74,906/-, the cash components includes ₹ 8,81,493/- which mainly relates to purchase of coal. He submitted that the assessee had to pay cash to the truck drivers for expenses of freight on purchase of coal under compulsion and exigencies of transaction. The lower authorities have not disputed regarding the genuineness of the payments as there is no disallowance out of that expense. He submitted that as per the proviso to section 40A(3), in the case of payment made for plying, hiring or leasing goods carriages, the amount has been enhanced to ₹ 35,000/- per day and not ₹ 20,000/-. Therefore, the payments which did not exceed ₹ 35,000/- are not coming within the purview of section 40A(3) of the Act. He submitted that in the instant case, only one payment of ₹ 44,556/- exceed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccordingly submitted that the order of the ld.CIT(A) being based on factual aspect and as per the provisions of the Act, the same should be upheld and the grounds raised by the assessee should be deleted. 12. I have considered the rival arguments made by both the sides, perused the orders of the AO and the CIT(A) and the paper book filed on behalf of the assessee. I have also considered the various decisions cited before me. I find, the AO, in the instant case made an addition of ₹ 24,60,887/- u/s 40A(3) of the Act on the ground that the assessee has made certain payments in excess of ₹ 20,000/- by cash other than by account payee cheque or bank draft or pay order and, therefore, has violated the provisions of section 40A(3) of the Act. I find, the ld.CIT(A) upheld the action of the AO in respect of payment of ₹ 8,81,493/- on account of freight charges, ₹ 13,16,786/- on account of purchase of coal and ₹ 1,72,408/- on account of machinery repairs. He also sustained the disallowance made by the AO on account of purchase of mobile amounting to ₹ 32,400/-. He, however, deleted the disallowance on account of staff welfare expenses. It is the submis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing/hiring or leasing goods carriages, the provisions of sub-section (3) and 3A shall have effect as if for the words twenty thousand rupees , the words thirty five thousand rupees have been substituted. From the details furnished by the ld. Counsel, I find, most of the payments are below ₹ 35,000/-. In view of the above and in view of the decision of the Agra Bench of the Tribunal in the case of New Kalpana Ent. Udyog vs. ITO (supra) in the preceding paragraph, I direct the AO to delete the addition. 15. So far as the machinery repair of ₹ 1,72,408/- is concerned, I find, out of the total machinery repairs of ₹ 27,49,934/- only ₹ 1,72,408/- had been incurred by the assessee in cash. In my opinion, the explanation of the assessee that certain expenses had to be incurred in cash due to certain breakdown of the machinery that requires immediate repairs by replacement of parts to make the machine functional to avoid production loss, is a commercial expediency and the genuineness of the expenditure has not been doubted. I, therefore, hold that due to the extraordinary nature of the expenditure the technicalities should not stand in the way and the disallow ..... 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