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Income Tax Appellate Tribunal, MUMBAI ‘A’ BENCH, MUMBAI.
Before: Shri B.R. Baskaran (AM) & Shri N.K. Choudhary (JM)
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI ‘A’ BENCH, MUMBAI.
Before Shri B.R. Baskaran (AM) & Shri N.K. Choudhary (JM)
I.T.A. No. 2415/Mum/2022 (A.Y. 2017-18) Vs. Axiom Cordages Limited DCIT, CC-5(2) Room No. 1906 Gut No. 114B/120C Air India Building Betegaon, Village Boisar Nariman Point East, Palghar Mumbai-400 021. Thane- 401501
PAN : AACCA0548G (Appellant) (Respondent)
Assessee by Shri Kunal Agrawal Department by Shri Manoj Kumar Sinha Date of Hearing 01.05.2023 Date of Pronouncement 29.05.2023
O R D E R Per B.R.Baskaran (AM) :-
The Revenue has filed this appeal challenging the order dated 30.6.2022 passed by the learned CIT(A)-53, Mumbai and it relates to A.Y. 2017-18. The Revenue is aggrieved by the decision of the learned CIT(A) in deleting the disallowance of Rs. 2.53 crores made by the Assessing Officer under section 40A(3) of the Act.
The facts relating to the issue are stated in brief. The assessee is manufacturer of synthetic rope. The Assessing Officer received information from GST Department that the assessee has incurred loading and unloading charges in two of its units to the tune of Rs. 2.53 crores. The GST department had conducted a search in the hands of the assessee, since the assessee had failed to pay services tax on the above said payments under Reverse charge mechanism. The GST Department has passed on the information that the assessee has incurred entire expenditure of Rs. 2.53 crores by way of cash and accordingly expressed the view that same requires
investigation from the income tax angel. On the basis of the above said information, the Assessing Officer reopened the assessment by issuing notice under section 148 of the Act.
In the reopened the assessment, the AO asked the assessee to explain as to why the loading and unloading charges should not be disallowed u/s 40A(3) of the Act. The assessee submitted that those charges were paid in cash to daily wages workers out of cash balances available with the assessee company. It was further submitted that the said payments per day to each person were within the limit prescribed under section 40A(3) of the Act and further they have been incurred wholly and exclusively for the purpose of business. The assessee also furnished sample copies of vouchers for incurring of loading and unloading expenses. However, the Assessing Officer observed that the assessee has furnished incomplete details and the some of the payments have been made to the same person. Accordingly the Assessing Officer took the view that the assessee has failed to furnish complete details of the payments made by way of cash. Accordingly the Assessing Officer held that the assessee has violated the provisions of section 40A(3) of the Act. Accordingly, he disallowed the entire payment of loading and unloading charges amounting to Rs. 2,53,41,420/- under section 40A(3) of the Act. The learned CIT(A) deleted the disallowance. Hence, the Revenue has filed this appeal.
Learned DR submitted that the assessee has not furnished complete details of loading and unloading expenses incurred by it by way of cash. Further the Assessing Officer has also noticed certain discrepancies in the sample vouchers produced by the assessee. The Ld D.R submitted that the Assessing Officer has noticed that most of the vouchers are self made vouchers and the amount of cash payment has been kept below Rs. 20,000/- in order to avoid violation of section 40A(3) of the Act. Further the Assessing Officer has noticed that the said vouchers suffer from many discrepancies,
i.e., there were no proper narrations, no contact details or address of recipients. Most of the vouchers are signed by the same person. Accordingly learned DR submitted that the assessee has failed to prove that it has not violated provisions of section 40A(3) of the Act. He submitted that the assessee may be directed to produce all the vouchers and accordingly submitted that this issue requires fresh examination at the end of the Assessing Officer. In support of this contention learned DR placed reliance on the decision rendered by Ahmedabad Bench of the Tribunal in the case of ITO Vs. Rahul Bharatbhushan Jain - [2022] 140 taxmann.com 478 (Ahmedabad-Trib.), wherein the Tribunal has restored the matter back to the file of the Assessing Officer for examining the claim of the assessee.
The Learned AR, on the contrary, submitted that the assessee has not violated the provisions of section 40A(3) of the Act. He submitted that loading and unloading charges are paid to daily labourers, who are engaged in day to day basis and the payment made to each other person in a day does not exceed threshold limit of Rs.20,000/- prescribed under section 40A(3) of the Act. The Learned AR submitted that the assessee has furnished sample copies of the vouchers evidencing the payment of loading and unloading charges. The assessee was ready to furnish complete vouchers before the Assessing Officer. He further submitted that, in the immediately succeeding year i.e. A.Y. 2018-19, the Assessing Officer has raised similar query with regard to the payment of loading and unloading charges in cash. However, after considering the reply furnished by the assessee, the Assessing Officer did not make any disallowance made under section 40A(3) of the Act. He submitted that the AO could not have taken different stand in this year. The Learned AR further submitted that the case law relied on by learned DR is distinguishable. He submitted that the assessee, in the above said case, has not produced any vouchers before the Assessing Officer and hence the Tribunal constrained to remit the matter back to the file of the Assessing
Officer for examining it afresh. However, in the instant case, the assessee has furnished sample copies of vouchers.
We have heard the rival contention and perused the record. We noticed that the learned CIT(A) has examined this issue in detail and has deleted the addition with following observations :- 6.3 The findings of the AO in the assessment order and the submissions of the appellant have been considered.
6.3.1 The facts of the case of the appellant are that the appellant had incurred expenses of Rs. 2,53,41,420/- in the nature of loading, unloading, shifting charges in its Unit-l and Unit- II during the relevant assessment year. The assessing officer had received information from department of revenue: GST Audit- 111, Mumbai to investigate these expenses from income tax angle. The said expenses were incurred in cash. The AO has made disallowance of said expenses u/s 40A(3) of The Income Tax Act, 1961. The AO had stated in its assessment order that the appellant has not provided proper details and documents and the voucher submitted are not reliable.
6.3.2 On the other hand, the appellant has submitted that it is engaged in the business of manufacturing and supply of Polypropylene ropes, HOPE (High density polyethylene) ropes, Nylon ropes, Polyester ropes, mixed ropes, yarn etc. The appellant is having a manufacturing unit located at GUT No. 114B & 120C, Betegaon Village, Boisar- East, Palghar - 401501, Maharashtra, India. Further, the appellant sales its final products in Domestic market and also Exports to various countries. It has incurred these loading and unloading expenses for movement of goods from vehicle to factory or factory to vehicle and various shifting within the factory premises. It is further submitted by appellant that these expenses were wholly and exclusively related to their business and necessary for their business operations. The said expenses were paid in cash to the daily wage workers which were hired by the appellant and the payment was made from the available cash balance in the hands of company. All the expenses were made within the limits as stated in section 40A(3). The books of accounts of the appellant are duly audited under the Companies Act as well as the Income Tax Act u/s 44AB of the act. The auditor has not given any adverse qualification in their audit report and specifically in the point related to compliance of section 40A(3) of the act.
The appellant has also contended that these expenses were incurred in the previous as well subsequent assessment years and looking after the principle of consistency, the said expenses were required to be accepted and had relied upon the decision in the cases of Radhasoami Satsang v. CIT [1992] 193 ITR 321 (SC), Sunil Kumar ganeriwal v. Deputy commissioner of Income tax [2011] 16 taxmann.com 311 (Mumbai),
Manish Karwa V. Assistant Commissioner of Income-tax -5(1), lndore [2014] 45 taxmann.com 351 (Indore -Trib.).
6.3.3 During the year, the appellant has incurred loading and unloading expenses of Rs. 2,53,04,869/- in cash in respect of Unit-l and Rs. 36,651 in respect of Unit-ll of the appellant company. During the assessment proceedings, the appellant had submitted documentary evidences such as purchase register, sales register, bank book, bank statements, wages register, transportation consignment note along with purchase and sale invoice (sample basis), relevant extract of cash book, ledger accounts of loading and unloading charges etc, cash payment vouchers (sample basis). It is explained by the appellant that the daily wage workers insist to pay in cash and such expenses have been regularly incurred in previous and subsequent assessment years. During the assessment proceedings for A.Y. 2018-19, the AO had raised a query as to why loading and unloading expenses paid in cash should not be disallowed u/s 40A(3). After considering the submission made by the appellant, in assessment order for the A.Y. 2018-19 the assessing officer had allowed these expenses on similar facts and circumstances.
The cash expenses of the nature of loading, unloading and shifting of goods were incurred by the appellant during the normal course of the business. The AO has not doubted the genuineness of such expenses. These expenses were incurred in cash and all the payments were within the limits of Rs. 20,000/- per person per day. The AO has not brought on record any instance of cash expenditure incurred exceeding Rs. 20,000/- par day in case of the single person. The provisions of section 40A(3) are very clear where they can be applied only in those cases where payment to any person in a single day exceeds Rs. 20,000/-.
During the period 09.11.2016 to 31.01.2017 (which includes the demonetization period), the appellant has not incurred such expenses. The reason for that is that the currency notes in the denomination of Rs. 500/- and Rs. 1000/-ceased to be the legal tender with effect from 09.11.2016 due to which it was not feasible for the appellant to pay the daily wage worker. Further, the vouchers were self-made cannot be the basis to invoke provisions of section 40A(3) of the act.
In view of the above discussion, the appellant has violated provisions of section 40A(3) of the Act, therefore, the disallowance of Rs. 2,53,41,420/- made by the AO u/s 40A(3) is deleted.”
A Perusal of the order passed by the learned CIT(A) would show that the learned CIT(A) has accepted the fact that loading and unloading charges have been paid to daily wages workers who are hired on daily basis and the said expenses incurred on each person in a day was within the limit prescribed under section 40A(3) of the Act. He further noticed that the
accounts of the assessee have been audited under Companies’ Act as well as under Income Tax Act under section 44AB of the Act and auditor has not reported any violation under section 40A(3) of the Act. He has also noticed that similar payments made by the in succeeding year has been examined by the Assessing Officer and the Assessing Officer has not made any disallowance under section 40A(3) of the Act. The learned CIT(A) has also observed that the Assessing Officer has not brought on record any instances of expenditure incurred by way of cash exceeding Rs. 20,000/- per day per person. Accordingly the learned CIT(A) has concluded that the provisions of section 40A(3) of the Act will not apply to the facts of the present case.
We notice that the Ld CIT(A) has passed a reasoned order. If the assessing officer was not satisfied with the production of sample copies of vouchers, nothing prevented him to call for more number of vouchers. Before us also, no material was placed by the Revenue to contradict the findings given by the learned CIT(A). Even though learned DR has pointed out that there were discrepancies in the vouchers maintained by the assessee, yet they are not relevant for the purpose of making disallowance under section 40A(3) of the Act, since the disallowance u/s 40A(3) of the Act could be made only in respect of expenses accepted to be genuine. In the instant case, the Assessing Officer has otherwise accepted the genuineness of the expenses. As rightly pointed out by learned AR the case law relied on by learned DR is distinguishable on facts and hence the Revenue cannot take support therefore. In view of the above, we uphold the order passed by the learned CIT(A) on this issue.
In the result, the appeal filed by the Revenue is dismissed. 9. Pronounced in the open court on 29.5.2023. Sd/- Sd/- (N.K. CHOUDHARY) (B.R. BASKARAN) Judicial Member Accountant Member Mumbai; Dated : 29/05/2023
Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. The CIT(Judicial) 4. PCIT 5. DR, ITAT, Mumbai 6. Guard File. BY ORDER, //True Copy// (Assistant Registrar) PS ITAT, Mumbai