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Facts
The assessee, engaged in cold storage and trading of fruits, filed its return declaring a loss. The Assessing Officer (AO) made several disallowances including expenses under Section 37(1), Section 40(a)(ia), and Section 40A(3) of the Income Tax Act. The CIT(A) upheld these disallowances, leading to the present appeal.
Held
The Tribunal found merit in the assessee's arguments regarding disallowances under Section 40(a)(ia) concerning payments to labour, holding that TDS provisions were not attracted. For disallowances under Section 40A(3), the Tribunal ruled that payments made through banking channels and those below prescribed limits were not liable for disallowance. The disallowance under Section 37(1) was restricted.
Key Issues
Whether disallowances made by the AO under Sections 37(1), 40(a)(ia), and 40A(3) for expenses related to vehicle operations, labour payments, and cash transactions were justified.
Sections Cited
37(1), 40(a)(ia), 40A(3), 143(3), 115JB, 194C, 40A(3A)
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Income Tax Appellate Tribunal, DELHI BENCH ‘F’: NEW DELHI
Before: SHRI VIKAS AWASTHY & SHRI AVDHESH KUMAR MISHRA
A.Y. 2014-15 Dev Bhumi Cold Chain Pvt. Ltd. Dy. Commissioner of Indraprastha Bhawan, Income Tax Plot No. 17 & 18, Vs. Circle-7(1), New Delhi-110033 New Delhi PAN: AABCD7986J (Appellant) (Respondent) Appellant by Shri P. D. Mittal, CA Respondent by Ms. Harpreet Kaur Hansra, Sr. DR Date of Hearing 20/02/2025 Date of Pronouncement 09/05/2025 ORDER
PER AVDHESH KUMAR MISHRA, AM
This appeal of the assessee for the Assessment Year (hereinafter, the ‘AY’) 2014-15 is directed against the order dated 14.01.2019 of the Commissioner of Income Tax (Appeals)-15, New Delhi [hereinafter, the ‘CIT(A)’].
The assessee has raised following grounds while filing the appeal: -
1. That the Ld. A.O. as well as Ld. CIT (Appeal) gravely erred NIL in upholding the disallows of the following expenses: - (i) disallowance u/s 37(1) of the Act, Rs.2,96,150/- (ii) disallowance u/s 40(a)(ia) of the 1.T Act, Rs.15,77,164/- (iii) disallowance u/s 40A (3) of the 1.T Act, Rs.5,03,580/- (iv) disallowance u/s 40A(3) of the I.T Act on account of cash payment beyond the specified limit as per discussion in para 5 of Rs.6,70,919/-.
Dev Bhumi Cold Chain P. Ltd. 2. That the Ld. A.O. as well as Ld. CIT (Appeal) has failed to NIL appreciate the evidence produced before the Ld. A.O. as well as Ld. CIT (Appeal) and disallowed the expenses of Rs.30,47,813/- without any cognate reason.” 2.1 Later on, the assessee revised Form No. 36 on 01.12.2022 raising following grounds as under: - “1. That the Ld. A.O. has gravelly eared while disallowing Rs.2,96,150/- out of vehicle expense, in spite of the fact that the same is not an illegal expense in view of the opinion of the Hon'ble Madras High Court in the case of CIT VS COIMBATORE SALEM TRANSPORT COMPANY PVТ LTD. REPORTED IN (1966) 61 ITR PAGE 480 MADRAS
2. That the Ld. A.O. is wrong while disallowing Rs.2,96,150/- in spite of the fact that the said amount has already been recovered from the customers. Total expense incurred under the head vehicle expenses is Rs.33, 77,963/- and the amount recovered on account of freight and cartage Rs.39, 71,526/-.
That the Ld. A.O. has gravelly eared while disallowing Rs.15,77,164/- reimbursed to Mr. Rehmat Ali on account of labour charges for packing the goods, in spite of the fact that the payments have been made directly to the labour must roll has been prepared and produced before the Ld. A.Ο.
4. That the Ld. A.O. has gravelly eared while disallowing Rs.5,03,580/- reimbursed to Mr. Chetan Kumar Solanki on account of labour charges for packing the goods, in spite of the fact that the payments have been made directly to the labour must roll has been prepared and produced before the Ld. A.O.
5. That the Ld. A.O. is wrong and gravelly eared while disallowing Rs.6,70,919/- in spite of the fact that the upper limit of the payments made for freight and cartage U/s 40A (3) is Rs. 35,000/-and none of the payments exceed the said limit.
That the entire Assessment Order is wrong, arbitrary, illegal, unjust against the facts as well as against the Law.
Dev Bhumi Cold Chain P. Ltd. 7. That the appellant craves leave to amend any one or more of the grounds of appeal as stated above as & when the need for doing so arise.”
3. The relevant facts giving rise to this appeal are that the assessee is deriving income from running the cold storage and trading of fruits, dry fruits etc. It filed its Income Tax Return (hereinafter, the ‘ITR’) on 30.09.2014 declaring loss of Rs. (-)1,68,41,420/- under normal provisions of Income Tax Act, 1961 (hereinafter, the ‘Act’) and income of Rs. 1,55,41,679/- as per provisions of MAT under section 115JB of the Act. The case was selected for scrutiny and consequential assessment was completed under section 143(3) of the Act, on 30.11.2016, at loss of Rs. (-) 1,37,93,610/- under the normal provisions of the Act and at income of Rs. 1,55,41,679/- under MAT. The Assessing Officer (hereinafter, the ‘AO’) made following addition/disallowances: - i. Disallowance of Rs.2,96,150/- under section 37 of the Act, ii. Disallowance of Rs.15,77,164/- under section 40(a)(ia) of the Act, iii. Disallowance of Rs.11,74,499 u/s 40(a)(ia) of the Act (Rs. 5,03,580/- as per para 4.1 and 4.13 of the assessment order and Rs. 6,70,919/- as per para 5 of the assessment order)
3.1 Aggrieved, the assessee filed appeal before the CIT(A), who dismissed the appeal.
The Ld. Authorized Representative (hereinafter, the ‘AR’) contended that the expenditure of Rs.2,96,150/- had been incurred through Drivers, Dev Bhumi Cold Chain P. Ltd. Cleaners, Employees in the course of transportation of goods from one place to another. Since the assessee dealt in perishable food items; therefore, such expenditure was bound to incur for smooth transportation of goods from one place to another to avoid damage of the goods. It was submitted that these expenditure/payments could not be termed as illegal payments as substantial part of this expenditure were incurred for repairs & maintenance of vehicles, gate fee, weighment charges, etc. It was contended that such expenses were incurred for business purposes only. To buttress his argument. the Ld. AR placed reliance on the decision of the Hon’ble Madras High Court in the case of Coimbatore Salem Transport (P.) Ltd. [1966] 61 ITR 480 (Mad).
The next issue is in respect of disallowance of Rs.15,77,164/- under section 40(a)(ia) of the Act. It was submitted that the sum of Rs.15,77,164/- was paid to various persons through Mr. Rehmat Ali, who got the job of packing fruits, dry fruits, etc. through various labours. He acted as a head on behalf of various labours whom payments were done partly in cash and partly through cheque. In turn, Sh. Rehmat Ali had paid to other labours after withdrawals. The arrangement was purely for business convenience. It was contended that there was no contract per se; hence, the provisions of tax deduction at source (TDS) did not get attracted here. The genuineness of expenditure had not been doubted by the AO. The only dispute raised by the AO was that whether the said expenditure Dev Bhumi Cold Chain P. Ltd. was liable for TDS. The Ld. AR contended that since there was no contract and agreement entailing deduction of tax (TDS); hence, the TDS provisions under section 194C of the Act did not get attracted here. The Ld. AR placed reliance reads as under: -
i. Bhagyanagar Gas Ltd. 140 I.T.D. page 591 (Hydt.) ii. Gujrat Narmada Valley Fertilisers Co. Ltd. 361 ITR 192 (Guj.) iii. Dhaanya Seeds Pvt. Ltd. in (2014) 42 Taxman.com 277 (Banglore)
6. The next issue is in respect of the disallowance of Rs.11,74,499/- under section 40A(3) of the Act (Rs. 5,03,580/- as per para 4.1 and 4.13 of the assessment order and Rs. 6,70,919/- as per para 5 of the assessment order). It was submitted the entire payments aggregating to Rs.11,74,499 was made in cash to Mr. A. Chetan (packer). It was contended that the page no. 10 and 11 of the assessment order clearly demonstrated that the payment of Rs.5,03,580/- made to Mr. A. Chetan consisted of two payments (Rs.3,38,580/- through banking channel Cheque No.004042 dated 31.10.2013 and balance of Rs.1,65,000/- in cash). It was contended that the disallowance of cheque amount under section 40A(3) of the Act was contrary to the provisions of section 40A(3) of the Act. It was submitted that the cash payment aggregating to Rs.1,65,000/- never paid in cash in one trench. All payments except Rs.60,000/- made on one day were in cash below Rs.20,000/-. The payment of Rs.60,000/- was made as Dev Bhumi Cold Chain P. Ltd. per muster roll and hence, the same was also not paid directly in contravention of provisions of section 40A(3) of the Act. Hence, the Ld. AR prayed for consequential relief on this score. The next part of the disallowance relates to the sum of Rs.6,70,919/- under section 40A(3) of the Act. The Ld. AR contended that these payments as evident from Ld. CIT(A)’s order, consisted of three sums.
➤ Freight paid being below Rs.35,000/- at one go/day: Rs.2,74,479/- ➤ Payment of packing expenses based on muster roll and on the basis of muster roll no payment exceeded the limit prescribed under section 40A (3) total Rs.3,51,185/-
➤ Procurement expenses Rs.45,255/-.
6.1 With respect to the payment of freight of Rs. 2,74,479/-, being below of Rs. 35,000/- on one go. The Ld. AR submitted that the second proviso to section 40A(3A) of the Act provided the limit of Rs.35,000/- instead of Rs.20,000/- at a time. Since, none of the payment was more than Rs.35,000/- at a time out of aggregate freight payment of Rs. 2,74,479/-. Hence, the said disallowance was argued having made wrongly. The sum of Rs.3,51,185/- pertained to payment made to various labours for packing purposes as per the muster roll. Since, none of these payments was above Rs. 20,000/- per person at a time/day; therefore, the disallowance made on this score did not survive.
We have heard both parties and have perused the material available on record. After careful consideration of material on the record and facts in entirety, we find force in the argument of the Ld. AR to a large extent. As far as the disallowance of Rs.2,96,150/- is concerned, nothing has been brought on the record to controvert the finding of the lower authority and demonstrate that entire payments do not attract any offence being prohibited under any law. Keeping in view the facts in entirety and legitimacy of part expenses, we restrict this disallowance to Rs.1,50,000/-.
Regarding disallowances under section 40(a)(ia) of the Act, we find merit in the submission of the Ld. AR. Making payment to one person on behalf of others, in the present case, will not attract TDS as the said person has not supplied manpower/labour. The payment arrangement was purely for business convenience and other labours were independent and their mustor roll was being maintained by the assessee. We have considered the entire facts and given a thoughtful consideration to the matter and are of the considered view that the assessee is not liable to deduct TDS. The genuineness of expenditure is not in dispute here. Hence, it is held that the disallowance of Rs.15,77,164/- under section 40(a)(ia) of the Act is not justified. Therefore, the same is hereby deleted. The assessee gats consequential relief.
Regarding disallowances under section 40A(3) of the Act, we find merit in the submission of the Ld. AR. Making payment to one person on behalf of others, in the present case, will not attract TDS as the said person has not supplied manpower/labour. It is held that the sum paid through banking channel is not liable for the disallowance under section 40A(3) of the Act and the limit for freight is Rs.35,000/- under section 40A(3A) of the Act. Further, following the above finding, we delete the disallowance of packing expenses paid in contravention to the provisions of section 40A(3) of the Act. Hence, it is held that the disallowance of Rs.11,74,499/- under section 40A(3) of the Act is not justified. Therefore, the same is hereby deleted. The assessee gats consequential relief.
In the result, the appeal of assessee is partly allowed as above.