GALI SUBBA RAJU,DOWLESWARAM vs. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-1(1), RAJAMAHENDRAVARAM

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ITA 610/VIZ/2019Status: DisposedITAT Visakhapatnam07 April 2021AY 2015-20166 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that since individual payments to labourers were below Rs. 20,000/- and supported by attendance and acquaintance registers, Section 40A(3) was not applicable. The AO did not dispute the genuineness of the expenditure.

What were the facts?

The assessee made labour payments of Rs. 18,00,000/- in cash. The Assessing Officer (AO) disallowed this amount under Section 40A(3) for violating cash payment limits. The Commissioner (Appeals) sustained the addition.

What were the issues?

Whether cash payments exceeding Rs. 20,000/- in aggregate on a single day to multiple labourers, where individual payments are below the limit, attract disallowance under Section 40A(3).

Which sections of the Income-tax Act were involved?

Section 40A(3)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, VISAKHAPATNAM BENCH, VISAKHAPATNAM

Before: SHRI N.K.CHOUDHRY, HON’BLE & SHRI D.S. SUNDER SINGH, HON’BLE

For Appellant: Shri G.V.N.Hari, AR
Hearing: 23.03.2021Pronounced: 07.04.2021

O R D E R

Per D.S.Sunder Singh, Accountant Member :

1.

Condonation of Delay : This appeal is filed by the assessee against the order of the Commissioner of Income Tax (Appeals)[CIT(A)], Rajamahendravaram in ITA.No.10081/2017-18/CIT(A)/RJY dated 01.07.2019 for the Assessment Year (A.Y.) 2015-16 with the delay of 6 days. The assessee has filed the petition for condonation of delay stating that the assessee along with his family members were on pilgrimage out of the country and returned to India on 18.10.2019 and hence the appeal could not be filed before the due date. He further stated that the delay was neither intentional nor deliberate and it was due to no intimation, hence , requested to condone the delay. We have heard both the parties and condone the delay and admit the appeal.

2.

All the grounds of appeal are related to the addition made by the Assessing Officer (AO) u/s 40A(3) of the Income Tax Act, 1961 (in short ‘Act’) which was sustained by the Ld.CIT(A). The assessee filed the return of income admitting total income of Rs.15,53,860/-. During the course of assessment proceedings, the AO found that the assessee has made the labour payment of Rs.18,00,000/- on 22.12.2014 in cash in violation of the provisions of section 40A(3) of the Act and hence made the disallowance u/s 40A(3) of the act.

3. Against the order of the AO, the assessee went on appeal before the CIT(A) and submitted that the payment of Rs.18,00,000/- recorded on 22.12.2014 was the expenses incurred in project sites, wherein lot of labour charges were paid to number of labourers working in the project sites. It was not the payment made on 22.12.2014 to a single person and it was a transfer entry for labour charges paid to various workmen at site. In support of the assessee’s claim, the assessee has produced the site ledger details of labour payments, before the AO as well as the CIT(A). The Ld.CIT(A) examined the attendance register and ledger copy of labour charges and observed from the ledger copies that all the payments were made below Rs.20,000/- per transaction, however, the Ld.CIT(A) could not find the valid reason for payment of the sum of Rs.18,00,000/- on a single day i.e. on 22/12/2014., therefore, confirmed the addition made by the AO.

4. Against the order of the Ld.CIT(A), the assessee filed appeal before this Tribunal. During the course of appeal proceedings, the Ld.AR submitted that payment of Rs.18,00,000/- was made to labourers working throughout the month at the project sites on various dates. The assessee has furnished the attendance register, the acquaintance register, vouchers for making the individual payment which shows that it was less than Rs.20,000/- to each individual. The payments were made to various labourers, who were stated to be engaged in construction of hostel building at Govt.Junior College, Rajavommangi and Musurumilli. The Ld.AR submitted that it was the payment made at site by the site manager and submitted that the AO was not correct in making the addition of Rs.18,00,000/- as agreed addition, since the AR had never accepted for addition. The Ld.AR further stated that the assessee has undertaken the civil works during the F.Y.2014-15 in the agency area of Rajavommangi and Musurumilli of East Godavari Dist and there is no easy access to reach the place, and the labour force did not accept payments other than cash. Though the payment was related to multiple sites and number of labourers, the accountant has made the single transfer entry on 22.12.2014, instead of making entries in subsidiary books in respect of two sites at Rajavommangi and Musurumilli, East Godavari Dist. Therefore, submitted that since the payment is genuine and substantiated by the evidences such as attendance register as well as the acquaintance register and the each payment was less than Rs.20,000/- to each individual, the question of disallowance u/s 40A(3) does not arise and hence requested to set aside the order of the Ld.CIT(A) and to delete the addition made by the AO.

5.

On the other hand, the Ld.DR heavily placed reliance on the orders of the lower authorities.

6.

We have heard both the parties and gone through the orders of the lower authorities. The AO made the disallowance u/s 40A(3) of the Act. The AO did not disbelieve the genuineness of the expenditure. The grievance of the AO was only for making the payment of Rs.18,00,000/- on a single day on 22.12.2014. The assessee has stated that the entire payment was not made on the same day and it was only the transfer entry of the payments made at the sites. The assessee has produced the attendance register as well as the acquaintance register, wherein, it is seen that the payment was made to several labourers which was duly acknowledged by the recipient on Rs.1/- revenue stamp. All the payments were below Rs.20,000/- to each individual. The assessee has stated that the cash payment was made at agency area to labourers, where free mobility is not available. The disallowance u/s 40A(3) attracts, if the assessee makes the payment in excess of Rs.20,000/- in a day to any person with regard to the expenditure incurred. Since each payment was less than Rs.20,000/-, the question of application of section 40A(3) does not arise. The lower authorities could not find any defect in the books of accounts or in the attendance register and the labour payments. Since the AO has not suspected the genuineness of the payment and the payment made to each individual is less than Rs.20,000/-, section 40A(3) does not apply in this case, hence we delete the addition made by the AO and allow the appeal of the assessee.

7.

In the result, appeal filed by the assessee is allowed.

Order pronounced in the open court on 7th April, 2021.

Sd/- Sd/- (एन के चौिरी) (धड.एस .सुन्दरधसंह) (N.K.CHOUDHRY) (D.S.SUNDER SINGH) न्याधयक सदस्य/ JUDICIAL MEMBER लेखा सदस्य/ACCOUNTANT MEMBER Dated : 07.04.2021 L.Rama, SPS आदेशकीप्रतितितिअग्रेतषि/Copy of the order forwarded to:- 1. तिर्धाररिी/ The Assessee–Gali Subba Raju, D.No.18-140/9, Old NPCC Yard Dowleswaram 2. रधजस्व/The Revenue –Asst. Commissioner of Income Tax, Circle-1(1) Rajahmundry 3. The Pr.Commissioner of Income Tax, Rajamahendravaram 4. The Commissioner of Income Tax (Appeals), Rajamahendravaram 5. तवभधगीय प्रतितितर्, आयकर अिीिीय अतर्करण, तवशधखधिटणम/DR, ITAT, Visakhapatnam 6.गधर्ाफ़धईि / Guard file आदेशधिुसधर / BY ORDER // True Copy //

Sr. Private Secretary ITAT, Visakhapatnam

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