M/S. SHARANG PLAST ENGGINEERING PRIVATE LIMITED,LUCKNOW vs. DEPUTY COMMISSIONER OF INCOME TAX, RANGE-6, LUCKNOW

PER ANADEE NATH MISSHRA, A.M.: (A) The present appeal has been filed by the assessee against the impugned appellate order dated 16.05.2019 passed by the Ld. Commissioner of Income Tax (Appeals)-2, Lucknow [hereinafter referred as to “the Ld. CIT(A)”] for assessment year 2015-16. The grounds of appeal

of the assessee are as under: -

1. 2. Because CIT(A) [himself having held that adhoc disallowance was made by the assessing officer without pointing out any specific of non- verifiability of the expenses should have deleted the entire addition of Rs. 1,86,259/- instead of sustaining the addition to the extent of Rs. 1,00,000/-.

3. BACAUSE the books of account produced by the assessing officer having been accepted by the authorities below, the entire adhoc dis- allowance of Rs. 1,86,259/- deserved to be deleted instead of sustaining the dis-allowance to the extent of Rs. 1,00,000/-.

4. BECAUSE the assessee being a corporate entity, no dis-allowance on account of personal expenses could have been made/sustained in Page 2 of 7 view of decision of Hon'ble Gujarat Hi. Court in the case of Sayaji Iron & Engineering Co. Vs. CIT, reported in 253 ITR 749 (Guj.) 5. BECAUSE CIT(A) has erred in law and on facts in up-holding the addition of Ys: 6,73,200/- on account of dis-allowance made by the assessing officer under section 40A(3) of the Act read with rule 6DD of the Income-tax Rules, 1962.

“9.1 Ground of appeal no. 3 - Disallowance of Rs.6,73,200/-: a. Appellant had shown hire charges of Rs.9,36,000/- paid to M/s Somya Transport Company for hiring two trucks. On examination of ledger account it was seen that cash payments in excess of Rs.20,000/- were made on various dates. Ledger account is scanned and copied on page 3 of assessment order. AO noted that M/s Somya Transport Company raised bill of Rs.39,000/- p.m. for each truck hired. As against these bills, appellant has made lump sum payments in excess of Rs.35,000/-. Self made vouchers are broken up to make each payment less than Rs.35,000/-. No signature of payee party or receiving party is available on the said vouchers. AO held that these self made vouchers are attempt to escape tax liability. The AO contended that appellant's case does not fall in the exception clause of Rule 6DD r.w.s. 40A(3) of the Act. In view of these facts a disallowance of cash payment of Rs.6,73,200/-. b. The submissions of the appellant is as under: “That the appellant vide its letter dated 17.11.2017 submitted before the Ld. AO that the payment made to Soumya Transport Company or their employees on their behalf on various dates through Imprest Account. The appellant company had hired vehicles of the Soumya Transport Company for transporting the gas cylinders to local dealers, nursing homes and hospitals. The transporter’s employees works on vehicles often depends for their salary, fuel, and repairs etc on the appellant company and take advance from the appellant company as and when require. These advances are made to them from Imprest Account. No single cash payment over rs.35,000/- was made to them any time. The Ld. AO had not given any opportunity to the appellant to have its say on the reasons relied on by the Ld. AO. The hearing was concluded on 17. Nov, 2017 and no further hearing was done in the case. The ledger account of ‘Imprest Account’ is enclosed for ready reference. Finding: i. The appellant has filed the bifurcation of the expenses vehicle wise. As per this bifurcation there is no single payment in excess of Rs.35,000/-.

Page 4 of 7 ii. However, on examination of ledger it is seen that there are several cash payments in excess of Rs.35,000/- in a single day. Appellant has made lump sump payments in cash to the said party in excess of Rs.35,000/- on single date as clearly mentioned in the ledger account of M/s Soumya Transport Company in the books of the appellant. iii. The vouchers produced before the AO were self made vouchers without any signature of payee or recipient. It is a common practice to take the signature of recipient on voucher as a proof of payment. In absence of signature of recipient on the self made vouchers the needle of suspicion points towards the appellant. Thus, the finding of the AO that these vouchers cannot be relied up is upheld. IV. The said party raises bills of Rs.39,000/- per truck per month and the appellant makes lump-sum payments in cash against these bills. The appellant has not been able to prove that these payments fall in the exception clause of Rule 6DD r.w.s. 40A(3). 9.2 In view of the facts outlined in para 9.1 c above the disallowance of Rs.6,73,200/- is hereby upheld. Ground of appeal no. 3 is dismissed.” (B.1) As regards the aforesaid addition of Rs.1,86,259/-, the Ld. CIT(A) scaled down the disallowance and held that ad hoc disallowance Rs.1,00,000/- was fair and reasonable. Accordingly, he sustained the addition of Rs.1,00,000/- on ad hoc basis and deleted the remaining amount of Rs.86,259/- .

(B.2) The present appeal has been filed by the assessee against the aforesaid impugned appellate order dated 16.05.2019 of the Ld. CIT(A). Although several grounds of appeal have been taken in the appeal filed by the assessee, they pertain to the aforesaid disallowances.

(C) In the course of appellate proceedings in ITAT, the assessee filed two paper books containing the following particulars: - (C.1) At the time of hearing before us, the Ld. Authorized Representative (“AR”) for the Assessee submitted that the aforesaid disallowance sustained by Ld. CIT(A) amounting to Rs.1,00,000/- was unnecessary in the facts and circumstances of the case. He, further, submitted that the expenses were supported by bills and vouchers and were incurred entirely for business purpose. The Ld. Sr. Departmental Representative (“DR”) relied on the impugned order of Ld. CIT(A). On perusal of records, we find that the foresaid disallowance of Rs.1,00,000/- sustained by Ld. CIT(A) is based on general observation only without pointing out any specific defect in the bills/vouchers and without pointing out any specific instances of non-business use. The Assessing Officer as well as the Ld. CIT(A) have dealt with this issue in an ad hoc and summary manner, without making a good case for disallowance. Hence, the aforesaid total disallowance of Rs.1,00,000/- out of Vehicle Expenses and Repair and Maintenance Expenses, is deleted. The Assessing Officer is directed to allow the entire claim of Rs.18,62,588/- under these heads.

(C.2) As regards the aforesaid disallowance u/s 40A(3) of the Act amounting to Rs.6,73,200/- sustained by the Ld. CIT(A), the Ld. Authorized Representative for the assessee submitted that the Page 6 of 7 disallowance was made by the AO and confirmed by the Ld. CIT(A), without providing adequate opportunity to the assessee. He submitted that the issue should be restored back to the file of the Assessing Officer with direction to provide adequate opportunity to the assessee.

(C.3) The Ld. Sr. Departmental Representative expressed no objection to the request made by Ld. AR of the assessee, to restore the issue to the file of the Assessing Officer.

(D) We have heard both sides and perused the materials on records. In view of the foregoing and as representatives of both sides are in agreement with this, the issue regarding disallowance u/s 40A(3) of the Act, amounting to Rs.6,73,200/- is restored back to the file of the Assessing Officer with the direction to pass fresh order on this specific issue in accordance with law after providing reasonable opportunity to the assessee.

In the result, the appeal of the assessee is partly allowed for statistical purposes. Order pronounced in the open Court on 30/06/2025.