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Income Tax Appellate Tribunal, AGRA BENCH: AGRA
Before: SHRI LALIET KUMAR,AND DR. MITHA LAL MEENA
Per Dr. M.L. Meena, A.M.:
This appeal by the assessee,is directed against the order of Ld. CIT(A), dated 17-10-2014 passed u/s 143(3) of the Income Tax Act, 1961
for AssessmentYear 2010-2011, wherein assess has raised the following grounds.
“01. That the learned CIT(A)-I, Agra has erred in law and on facts in confirming disallowance of Rs.27,07,320/- u/s 40A(3) of the Income Tax Act, 1961 being cash paid to the agents of coal suppliers ignoring
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the fact that these cash payments are covered by Rule 6DD(g) and Rule 6DD(h) of the Income Tax Rules, 1962.
That the learned CIT(A)-I, Agra has erred in law and on facts in not considering the fact that where the individual payments were below Rs.20,000/- there was no violation of the provisions of Section 40A(3) of the Income Tax Act, 1961.
That the learned CIT(A)-I, Agra has erred in law and on facts in not considering the material placed on record and various submissions made by the assessee and more so in not considering the audit report u/s 44AB filed by the assessee certifying that the assessee has not made any violation of the provisions of Section 40A(3) of the Income Tax Act, 1961.
Because in any view of the case the additions made are highly excessive and liable tobe deleted.
The assessee craves leave to add, alter, amend or withdraw any of the above ground(s) ofappeal during the course of hearing.”
The assessee has raised the revised/additional ground as follows:
“The aforesaid appeal has been fixed for hearing on 04.05.2017. In the aforesaid appeal in Ground no. 1 Rule 6DD(h) was inadvertently typed in place of Rule 6DD(j). Thus, the assessee (appellant) wishes to revise the Ground no. 1 as above. Further, the assessee also wishes to raise an additional ground for judicious disposal of the appeal. All the
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necessary material relating to this ground of appeal is already on record. No new facts are to be investigated.
The appellant prays and seeks your honours permission and leave to raise the revised and additional grounds of appeal as per "Annexure - A" and humbly prays that in the interest of substantial justice, the revised and additional ground of appeal filed by fie appellant be kindly admitted and adjudicated upon and oblige.
Thanking You,
- That the learned CIT(A)-I, Agra has ignored the fact that the cash payments have been incurred for reasons of com mere/a/ expediency and as a matter of commonly adopted trade practice in the assessee's fine of business".
The assessee craves leave to add, alter, amend or withdraw any of the above ground(s) of appeal during the course of hearing.”
The assessee firm is engaged in the business of running a brick kiln.During the course of assessment proceedings, the Ld. A.O. has disallowed a sum of Rs.29,87,114/- u/s 40A(3) of the Income Tax Act,
holding that cash payments were made to truck drivers and to the agents of coal suppliers who had supplied coal through trucks at the brick kilns of the assessee firm. According to the Ld.A.O. the assessee on its own convenience made payment in cash violating the provisions of section
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40A(3) and no exceptional circumstances as enumerated in Rule 6DD
could be found applicable in those cases where the payments were made
in cash exceeding Rs.20,000/-. Thus, he disallowed a sum of
Rs.29,87,114/- u/s 40A(3) read with Rule 6DD.
The assessee went in appeal before the Ld. CIT(A), Agra who
allowed part relief to the assessee and sustained the addition at
Rs.27,07,320/-. The relief provided of Rs.2,58,194/- was in respect of
payment made to truck drivers as the Ld. CIT(A) observed that the nature
of the payments coupled with the fact of non - existence of banking facility
in village Ballarpur, the appellant could take advantage of Rule 6DD of the
Income Tax Rules and hence disallowance to the extent of Rs.2,58,194/-
was deleted by the Ld. CIT(A). The Ld. CIT(A) in respect of payment made
to agents of coal suppliers of Rs.27,07,320/- observed that the suppliers
had not insisted for cash payments and hence he upheld the addition to
that extent.
Apropos the first three and the additional grounds, the Ld.A.R. of the
appellant Shri Deependra Mohan has submitted a written synopsis and has
further stated that the payments made by theappellant are covered within
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the exception laid down in Rule 6DD(g) and (j) of the Income Tax Rules for the following reasons-
(i) The assessee is engaged in the business of running a brick kiln. The primary fuel used in the brick kilns is coal. The area from where the assessee operates is a hub of hundreds of other Brick Kiln owners. Similar business practices are followed by all the brick kiln owners as well as by the assessee. There are no coal suppliers in the area. The coal suppliers make the supplies through their agents and truck drivers who continuously roam in the area. The assessee depends on various agents of coal suppliers and truck drivers who bring coal from Varanasi etc.for making supplies in the area. These agents and truck drivers insist for making cash payments against purchase of coal. These agents and truck drivers also do not have any bank account in the area and insist on cash payments. (ii) Rule 6DD(g) and (j) which contain exceptions to Section 40A(3) read as under – Rule 6DD(g) –“where the payment is made in a village or town, which on the date of such payment is not served by any bank, to any person who ordinarily resides, or is carrying on any business, profession or vocation, in any such village or town” Rule 6DD(j) – “where the payment was required to be made on a day on which the banks were closed either on account of holiday or strike” As regards clause (g) of Rule 6DD it is submitted that the village Ballapur from where the assessee operates was not having banking facilities on the said date. To substantiate this fact the certificate of
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Gram Pradhan was also submitted. Even the assessee was having a bank account in SBI, Auraiya which is 30 kms far from the assessee’s business place.
As regards applicability of clause (j) it is submitted that the payments have also been made on Sundays and Bank Holidays. These cases clearly fall in exception provided in clause (j).
1.1 The assessee has mostly made payments below Rs.20,000/- and these payments are specifically excluded from the ambit of disallowance as mentioned in Section 40A(3) of the Income Tax Act, 1961. 1.2 That the auditors in their audit report have clearly mentioned in the audit report that the assessee has not made any violation of provisions of Section 40A(3) of the Income Tax Act, 1961. 1.3 That the payments have been made on account of business expediency. In this regard the following facts were also submitted : a. The primary fuel used in the brick kilns is coal. There are no coal suppliers in the area. The assessee procures coal from the agents and truck drivers of coal suppliers who continuously roam in the area. The assessee depends on various agents of coal suppliers and truck drivers who bring coal from far flung areas for making supplies in the area. b. These agents and truck drivers insist for making cash payments against purchase of coal. These agents and truck drivers also do not have any bank account in the area and insist on cash payments. c. The area from which the assessee operates is a hub of hundreds of other Brick Kiln owners who run brick kilns in the area. Similar business practices are followed by all the brick kiln owners as well as by the assessee.
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d. If the assessee insists on making payment through account payee cheque he will not be able to procure coal and as such he will not be able to carry on business. e. The truck drivers make delivery during the night because of ‘NO ENTRY’ of heavy vehicles during day time and insist for cash payments at that point of time only. f. Thus, if the assessee is not an exception to generally followed business practices in the area and of he does not adopt the same business practices he will not be able to run the business. Thus, the payments made by the assessee fall within the proviso to Section 40A(3) which clearly states “Provided that no disallowance shall be made and no payment shall be deemed to be the profits and gains of business or profession under sub-section (3) and this sub- section where 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, in such cases and under such circumstances as may be prescribed, having regard to the nature and extent of banking facilities available, considerations of business expediency and other relevant factors” The Ld. A.R. also stated that while deleting the addition of Rs.2,58,194/- the Ld. CIT(A) took the fact into consideration about the non-existence of banking facility in village Ballarpur and hence deleted the said cash payments, however for the other cash payments he disbelieved his own notion that there was no banking facility in village Balapur, hence the stand of the Ld. CIT(A) was self contradictory. In support, he further submitted the following case laws in his favour: - CIT vs. Raja Pal Automobiles (2010) 320 ITR 185 (All)
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- CIT vs. Suresh Kumar Agarwal (2001) 249 ITR 113 (All) - CIT vs. Chaudhary & Co., (1996) 217 ITR 0431 - Dy. CIT vs. K.C.P. Shivaraman (2017) 49 CCH 193 (Chenai Trib.)
The Ld. DR on the other hand, has in the hearing before us stated that the action of Ld. A.O. in disallowing Rs.27,07,320/- u/s 40A(3) was correct and he further submitted a few judgements namely Associated Engineers vs CIT 216 ITR 366, and Hotel Nagas Private Limited vs CIT T.C.A. No. 317 of 2008 of Hon’ble Madras High Court, however we find that in both these judgements, the fact that banking facilities were not available is not there, hence, the fact of these two cases is different from the facts in hand in this appeal. Thus, these case laws are of no help to the revenue. The Ld. DR also could not controvert the fact that the Ld. CIT(A) had in similar circumstances allowed part relief to the assessee stating that banking facilities were not there at village Ballarpur, whereas for the other part disallowance was upheld by the Ld. CIT(A).
We have heard both the sides on this issue and have perused the relevant material on record with regard thereto. The assessee firm is engaged in the business of running a brick kiln where coal is used as a primary fuel. As per the Ld. A.R. coal is supplied to these brick kilns by
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agents of the coal supplier at the brick kiln itself and these agents ask for
cash payments, as they have to make the payment to the truck drivers for
the fare as well as for the coal amount to their principals. The auditors in
their tax audit report have also not mentioned of any violation of provisions
of section 40A(3), as these payments have been made on account of
business expediency where insistence of cash by the agents and truck
drivers has been established by the appellant.
From the record, it is seen that the banking facility at village Ballarpur
were not there as has been rightly observed by the Ld. CIT(A) at para 5.2.2
of his appellate order.It is also noticed that since, the truck drivers and the
coal agents deliver the coal at night because of heavy vehicles cannot ply
during the daytime and insistance for cash payments, hence the assessee
was obliged to do the cash payments as per business practice in that area
where lots of brick kilns are there. The Ld. A.O. has not found any fault with
the payment nor has disbelieve the payment made for the coal suppliers
who are duly registered with the VAT department. The payment has not
been doubted by the A.O. or by the Ld. CIT(A), hence looking to the facts
that the payments were made after the banking hours and that too at
village Ballarpur, where there are no banking facilities, we are of the
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considered opinion that even this amount of Rs.27,07,320/- should not
have been disallowed u/s 40A(3) read with Rule 6DD of the Income-Tax
Rules as the Ld. CIT(A) had observed in respect of payments made to
truck drivers where he deleted the part cash payment of Rs. 2,58,194/-. In
that matter, the CIT(A) was not justified in confirming part additions under
the same set of facts.
In the above view, the grievance of the assessee is accepted as justified and as such, we allow relief to the assessee. Thus, the asseesse’s ground of appeal are allowed.
In the result. Appeal of the assessee is allowed.
Order pronounced in the open court on 15/10/2019.
Sd/- Sd/- (Laliet Kumar) (Dr. M.L. Meena) JUDICIAL MEMBER ACCOUNTANT MEMBER *AKV/DOC* Copy forwarded to: 1. Assessee 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT Sr. Private Secretary, ITAT, Agra