ARCOT SOLES P. LTD.,CHENNAI vs. ACIT, CHENNAI

ITA 2207/CHNY/2026Status: DisposedITAT Chennai29 September 2026AY 2019-207 pages
AI SummaryDismissed

What were the facts?

The assessee, Arcot Soles Private Limited, is in appeal against the orders of the Commissioner of Income Tax (Appeals) for Assessment Years 2019-20, 2020-21, 2021-22, and 2022-23. These appeals challenge the confirmation of disallowances made by the Assessing Officer (AO) under Section 40A(3) of the Income Tax Act, 1961. The disallowances pertain to cash payments made for wages. During a search under Section 132, a ledger titled 'Packing Charges' was found, detailing cash payments to one Shri Rajendran. A sworn statement indicated these payments were for manpower provided by Shri Rajendran, booked as 'Packing Charges'. The AO noted no manpower supply agreement with Shri Rajendran and that TDS was not deducted on these payments. The AO also found other cash payments exceeding the threshold limit.

What did the Tribunal hold?

The Tribunal dismissed the assessee's grounds of appeal. The Tribunal noted that during the hearing, the assessee was unable to substantiate the labor charges claimed with evidence of ESI, PF, or other statutory deductions applicable to labor. The assessee also failed to establish a clear nexus between the expenses claimed and statutory deductions. The Tribunal observed that the AO had taken a liberal view by disallowing only 20% of the expenses paid in cash. Based on the lack of substantiation from the assessee and the observations made, the Tribunal found no infirmity in the orders of the authorities below. Consequently, all four appeals filed by the assessee were dismissed.

What were the issues?

1. Whether the disallowance of cash payments made towards wages under Section 40A(3) of the Income Tax Act, 1961, is justified, when the assessee contends that payments were made to multiple migrant and temporary workers, not a single person exceeding the prescribed limit on any single day, and that Shri Rajendran was merely a facilitator. Assessee's Contention: The assessee argued that the payments were for wages to numerous individual workers, and Shri Rajendran acted only as a group leader or facilitator. Therefore, Section 40A(3) should not be attracted as no single individual received an amount exceeding the prescribed limit on any given day. They also emphasized the nature of their business requiring cash payments to migrant laborers and that payroll records were maintained. Revenue's Contention: The revenue, through the AO and CIT(A), contended that the payments were made to Shri Rajendran, and the assessee failed to provide concrete evidence to prove the wage payments. The absence of a manpower supply agreement with Shri Rajendran and non-deduction of TDS were also cited as reasons for disallowance. The revenue also pointed to other cash payments exceeding the threshold.

Which sections of the Income-tax Act were involved?

Section 40A(3),Section 132,Section 132(4),Section 148

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘C’ BENCH: CHENNAI

Before: HONOURABLE SHRI ABY T. VARKEY & SHRI GAGAN GOYAL

Hearing: 27.08.2026Pronounced: 29.09.2026

PER GAGAN GOYAL, AM: These appeals are preferred by the assessee against the order of Ld. Commissioner of Income Tax (A), Chennai-20, (hereinafter referred as the ‘Ld. CIT(A)’), dated 24.03.2026, for the Assessment Years (hereinafter referred as the ‘A.Y.s’) 2019-20, 2020-21, 2021-22 & 2022-23 respectively.

GROUDS OF APPEAL A.Y. 2019-20

1.

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The order continues below.

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