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Income Tax Appellate Tribunal, ‘’SMC’’BENCH, AHMEDABAD
Before: SHRI RAJPAL YADAV & SHRI WASEEM AHMED
आदेश/O R D E R
PER WASEEM AHMED, ACCOUNTANT MEMBER:
The captioned appeal has been filed at the instance of the Assessee against the common order of the Commissioner of Income Tax (Appeals)-2 Ahmedabad, [CIT(A) in short] vide appeal no.CIT(A)-2/185/SK Wd.2, HMT/2013-14 dated 29.04.2015 arising in the matter of assessment order passed under s.143(3) of the Income Tax Act, 1961 (here-in-after referred to as "the Act") dated 30.01.2014 relevant to Assessment Years (AY) 2011-12.
Assessee has raised following grounds of appeals. 1. ‘’The learned CIT(A-2 has erred in facts and in law, in confirmed addition Amt. of Rs.4,45,460/- U/s.40A(3) of the I.T. Act 1961 on the ground that
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cash payment for freight charges were paid to clearing and forwarding against for clearing our goods for exports. 2. The Ld. CIT(A)-2 has further erred in facts and in law, in confirmed addition Amt. of Rs.2,18,224/- on account of short cash balance on particular date, which was Learned income tax Officer has consider undisclosed income which is not justified. 3. The Ld. CIT(A)-2 has erred in facts and in law, in confirmed addition Amt. of Rs.47,211/- on the account of interest paid to partners. 4. There has been a concealment of income or furnishing of inaccurate particulars of income, initiation of penalty proceedings u/s 271(1)(c) is justified. 5. That the appellant craves leave to add, amend, alter, modify, to substitute, delete and/or rescind all or any of the Ground of Appeals on or before the final hearing, if necessary so arises.”
At the outset the Ld. Counsel for the assessee fairly submitted that he has been instructed by the assessee not to press ground no.2 and 3. Therefore, we dismiss the same as not pressed.
The issue raised in ground no.4 is regarding the initiation of penalty proceedings u/s. 271(1)(c) of the Act. The penalty proceedings are separate with the quantum proceeding. Therefore, we note that the issue raised by the assessee is premature and does not require any separate adjudication.
The issue raised in ground no.5 is general in nature and therefore the same does not required any separate adjudication. Accordingly, we dismiss the same.
The only issue raised by the assessee in ground no.1 is that Ld.CIT(A) erred in confirming the addition of Rs. 4,45,460/- u/s.40A(3) of the Act on account of cash payment.
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Briefly stated facts are that the assessee in present case is a partnership firm and engaged in the business of trading of seeds, chemicals and herbal products as well as packing material. During the year assessee had incurred expenses in cash exceeding the limit specified under the provision of section 40A(3) of the Act. Therefore, the AO disallowed the same for Rs. 4,45,460/- u/s40A(3) of the Act and added to the total income of the assessee.
Aggrieved assessee preferred an appeal before the Ld.CIT(A). The assessee before Ld. CIT(A) submitted that the payment was made to the clearing and forwarding agent, which was representing the reimbursement expenses of Air Freight and port charges. Therefore, the payment as discussed above falls under the exemption provided under Rule 6DD(g) as well as under Rule 6DD(k) of the Act, therefore, the same should be allowed as deduction. However, the Ld.CIT(A) disregarded the contention of assessee and confirmed the order of AO by observing as follows: 4.3. Decision: I have carefully considered the facts of the case, the assessment order and the written submission of the appellant. The AO has invoked the. provisions of section 40A(3), as the appellant had made payment for certain expenditure in cash in violation to the section. The appellant did not submit any reply during the course of assessment proceedings and the AO accordingly disallowed the amount under the relevant section. During the course of appellate proceedings, the appellant has submitted that adequate opportunity was not given for furnishing the explanation. It has been explained that the payment was required to be made for reimbursement of expenses of freight and Port charges to the agent who had made payment to the Airlines and Port authorities. Such reimbursement was required under the arrangement for the business of the appellant for exporting the goods. The appellant has placed reliance on the Rule 6DD(g) and 6DD(k). On a careful consideration of entire facts of the case, it is noted that the appellant did not give any explanation regarding the cash payment before the AO and, therefore, any explanation given at this time should be treated as additional evidence. However ,it is noted that the AO had issued a show cause notice on 10/01/2014 and the order has been passed on 30/01/2014. Therefore, it appears that the sufficient time has not been given by the AO to the appellant for giving proper submission. On examination of the explanation given by the appellant, it is noted that the appellant has not been able to give sufficient reason for making the cash payments for expenses. There is no doubt that the appellant is in the business of exporting herbs which are required to be exported urgently, however, this cannot
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be the reason and reasonable cause for making the payment in cash. The Air freight and Port agents is regular business people and some arrangement can always be made with them for making the payments in advance by cheque which can be later on adjusted at the time of making the payment to the transporting agency by that agent. It is also noted that the appellant has incurred freight charges of Rs. 89.16 lakh which has been mostly paid by cheque. Therefore, there was no reason for making this payment in cash. Regarding Rule 6DD(g) and 6DD(k) mentioned by the appellant, it is noted that these rules do not cover the circumstances of the appellant. Rule 6DD(g) is regarding the payment made in village or town which is not served by any bank and Rule 6DD(k) is regarding the payment made to the agent who was required to make payment in cash for goods or services on the behalf of the taxpayer. Therefore, none of these circumstances mentioned in Rule 6DD are applicable in the case of the appellant. There is no requirement of cash payment of air freight and there is no evidence on record by the appellant to show that banking services are not available near his place of business. In view of the above discussion I am of the considered opinion that there was no reasonable cause with the appellant for making the payment is in cash. The AO has rightly invoked the provisions of section 40A(3) of the I.T. Act. The disallowance made is accordingly upheld.
Being aggrieved by the order of CIT(A), assessee is in second appeal before us.
The Ld.AR before us filed a paper book running from pages no. 1 to 64 and submitted that the genuineness of the expenses was not doubted by lower authorities.
10.1 The Ld. Counsel for the assessee further submitted that it has made total payment to its clearing and forwarding agent amounting to Rs. 89.16 lacs which was paid through banking channel except initial payment in cash. As per the ld. AR initially the clearing and forwarding agent was demanding the payment from the assessee only in cash. Therefore, there was no alternative available except to make the payment in cash.
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10.2 The AR also submitted that the payment made in cash is eligible for deduction after considering the commercial expediency of the business of the assessee.
On the other hand the Ld. DR, vehemently supported the order of authorities below.
We have heard the rival contentions and perused the materials available on record. In the instant case the assessee has made payment to its clearing and forwarding agent mostly through banking channel except in few instances where the payment was made in cash. The payment made by the assessee through banking channel was accepted by the AO but the same payment made to the same party in cash was disallowed under the provision of section 40A(3) of the Act.
12.1 From the above facts there remains no ambiguity that the payment/expenses were not doubtful and these were incurred exclusively for the purpose of the business. The party to whom the payment was made in cash was a genuine party. In such circumstances we note that the Hon’ble ITAT, Ahmadabad in the case of M/s. Shiv Krupa Tin Containers v/s ITO in ITA No.136/Ahd/2016 allowed the deduction to the assessee vide order dated 09/06/2016. The relevant extract of the order is reproduced below: ‘’4. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. The issue in the present ground is with respect to disallowance u/s.40(A)(3) of the Act. It is an undisputed fact that assessee has made cash payments for expense and these payments have been made to Electricity Company for the supply of Electricity. The payment of Electricity was the purpose of business, the payee to whom the assessee had made the payment has not been doubted by the AO; meaning thereby that the genuineness of payment and identity of the payee are not in doubt. In such a situation, we find that the Hon’ble Jurisdictional High Court in the case of Anupam Tele Services vs. ITO reported at (2014) 366 ITR 122(Guj.) has held that the paramount consideration of section 40A(3) is to curb and reduce the possibilities of
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black money transactions and section does not eliminate consideration of business expediencies. Before us, Revenue has not placed any contrary binding decision. In view of the aforesaid facts and after placing reliance on the aforesaid decision of Hon’ble Gujarat High Court, we are of the view that in the present case the expenditure cannot be disallowed. Thus, this ground of assessee is allowed.’’
12.2 In view of the above, we note that the disallowances u/s 40A(3) of the Act, cannot be made if the genuineness of the transaction has not been doubted by the authorities below. Accordingly, respectfully following the order of this tribunal in the case of M/s Shiv Krupa Tin Containers we are inclined to reverse the order of the authorities below. Thus, we direct the AO to delete the addition made u/s 40A(3) of the Act.
In the result, appeal of the assessee is allowed.
Order pronounced in the Court on 18th September, 2018 at Ahmedabad.
Sd/- Sd/- (RAJPAL YADAV) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad; Dated 18/09/2018 manish आदेश क� ��त�ल�प �े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A) 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण / DR, ITAT, 6. गाड� फाईल / Guard file. आदेशानुसार/BY ORDER, उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad