ITO WARD 1, NAMAKKAL vs. EVER GREEN TRAILOR SERVICES, NAMAKKAL

This appeal filed by the Revenue is directed against the order of the ld. Commissioner of Income Tax (Appeals), Salem, dated 20.03.2018 relevant to the assessment year 2014-15. The Revenue has raised the following grounds: “1) The order of the Hon'ble Commissioner of Income-tax (Appeals) is opposed to the facts, law. 2) The CIT(A) has failed to consider the Assessing Officer's observation that all the bearer cheques issued by the assessee got enchased in. Namakkal itself. Which amounts to payments made in cash and violates the provision u/s 40(A)(3). 3) The CIT(A) has failed to see that the reasons stated by the assessee like payments made were exceptional or unavoidable circumstances, business exigencies etc., were not true as during the year the assessee had paid hire charges by way of crossed account payee cheques to the extent of Rs.1,57,64,245/- and the cheques amounts were varying from Rs. 59,002/- to Rs.6,00,000/-. This clearly evident that payments could be made through crossed account payee cheque and it would not interrupt the business. 4) The CIT(A) has failed to note that that disallowance u/s 40(a)(ia) were made for non-compliance of provisions of section 194C on account of furnishing of wrong names/PANS/vehicle numbers. Since, the name of the persons furnished by the assessee is not matching with the PAN and vehicle number, the Assessing Officer has rightly made disallowance for the violation of the provisions u/s 194C(6). 5) The CIT(A) has failed to take into consideration of the para b(ii) and b(iii) of the written submission of the assessee dated 08.03.2018 quoted in the CIT(A)'s order which clearly evident that the assessee himself admitted as he had not complied with the provisions section 194C(6) of the Income-tax Act. Thus, the CIT(A) has erred in deleting the entire addition made by the Assessing Officer u/s 274C(6) to the extent of Rs.1,59,69,533/- instead of Rs. 36,35,390/- claimed by the assessee in the above said para. 6) Admitting additional evidence regarding the correct PAN of the deductees and reconciliation of the amounts originally furnished before the Assessing Officer without calling for remand report violates rule 46A and against the natural justice. 7) For the above reasons and other reasons that may be adduced at the time of hearing, it is prayed that the order of the Commissioner of Income-tax (Appeals) may be set aside and that of the Assessing Officers restored.”

We have heard both the sides, perused the materials available on record and gone through the orders of authorities below. The assessee is a partnership firm. It transported tractors manufactured by M/s. Tractors & Farm Equipment Ltd., Chennai and M/s. Cethar Ltd., Trichy. The destinations were places like Patna, Bhopal, Gauhati, etc. The assessee firm engaged lorries belonging to outsiders for hire to make above transportations as it did not own sufficient number of vehicles. Before the Assessing Officer, the assessee has submitted the details of hire payments made to the extent of ₹.9,71,56,150/- and also reproduced in the assessment order running page No. 3 to 28. In response to the show cause notice, the assessee filed the reply on 16.12.2016 (in Tamil language). On perusing the above reply, the Assessing Officer has noticed that the assessee has mainly stated as under: “1) No lorry owners accept account payee cheque as realization of Crossed Cheque will take 3 or 4 days. The assessee could hire vehicle only if cheque is releasable immediately. 2) As per agreement, we have to run minimum of 300 km per day. As the assessee's contract company is monitoring the movement of vehicles through GPRS and if there is any delay in movement of vehicles, the company will automatically deduct Rs.1,000/- in hire payments. 3) For the vehicles plying from Madurai to Patna, Guwahathi, the normal amount required is Rs.1,00,000/- towards the incidental expenses. Hence the cash of Rs.19,000/- is not enough to meet Diesel, Toll fee etc. Hence, the assessee is giving advances of Rs.90,000/- (Patna) and Rs.1,10,000/- (Guwahathi) by way of Bearer cheque to meet out the expenses relating to RTO, Toll Expenses, Diesel, Check-post, Batta etc. If goods are loaded from BGL, the total hire payments are being paid at Namakkal only. Vehicle plying from Madurai will come to Namakkal and receive hire charges advance cheque amount. Generally goods are not loaded in particular vehicle. Goods are loaded in the vehicles available at that time. Hence account payee cheque could not be given. 4) In order to meet RTO, Toll Expenses, Diesel, Check-post, Batta, the total advance has to be given. 5) It is requested in these circumstances in order to continue our business we have not paid account payee cheque. 4.1 After, carefully examining the above reply with the facts of the case, the observations of the Assessing Officer are reproduced as under: i) Though the assessee firm has stated the method of making the payment and the reasons thereof, it is to be seen that, had the assessee firm paid in cash instead paying in cheques, the reasons stated by it might have been met out. Moreover, in order to get the cash, the bearer of the Bearer Cheques has to go to particular bank, for encashment. Thus, the reasons adduced by the assessee firm is inadmissible under the circumstances stated by it. ii) It is also duly verified and found that all the above mentioned Bearer Cheques got encashed in Namakkal itself. iii) It may be seen from the Annexure A given above that most of the Bearer Cheques got cleared on a particular date in the same bank. For example, 19 bearer cheques on 4th April 2013, 24 bearer cheques on 12th April 2013, 26 bear cheques on 16th May 2013, 25 bearer cheques on 06th June2013, 36 cheques on 26 September 2013, 49 bearer cheques on 21st November likewise. iv) During this A.Y. through the same bank account, the assessee has transferred to various hire charges parties by way of Crossed Account Payee cheques to the extent of Rs.1,57,64,245/- and the cheque amounts are varying from Rs.59,002/-to Rs.6,00,000/-. v) Moreover, the above contentions of stated by the assessee firm is unique to this firm only and not prevailing in this line of business. vi) Further, the reasons stated by the assessee firm is neither exceptionable or unavoidable circumstances. vii) The reasons stated by the assessee firm does not come under section 40A(3) read with Rule 6DD of the I.T. Act. viii) Further the above reason is not at all related to any business exigencies. ix) It is held by the Apex Court as well as various High Court that even an advance payment in excess of the prescribed limit constitutes an expenditure within the meaning of provisions 40A(3) of the I.T. Act and therefore can be disallowed. x) Though the Chartered Accountant being the Authorized Representative, who has audited the books of the accounts of the assessee firm has stated against the column 21(d) in Form 3CD as "Yes", he has failed to extend any valid, corroborative explanations and evidences in order to substantiate his findings given in 44AB Report. xi) Nevertheless, the assessee firm has clearly admitted the fact that knowingly it has made the hire charges payments in violation of Sec. 40A(3) of the I.T. Act. 4.2 With the above observations and as the reasons extended by the assessee firm is inadmissible, untenable and not maintainable as per the provisions of section 40A(3) of the Act and establish beyond doubt that the assessee firm has knowingly, wantonly and blatantly violated the provisions of section 40A(3) of the Act and also the assessee has made a sum of Rs.39,450/- to Sri K. Rajendran by way of Bearer Cheque in No.997049 on 30.07.2013 through PNB, Raipur, the Assessing Officer disallowed the entire amount of ₹.9,71,95,600/- [₹.9,71,56,150/- (+) ₹.39,450] under section 40A(3) of the Act and brought to tax. On appeal, the ld. CIT(A) has observed and held as under: “7.6 I have gone through the assessment order and the submissions filed by the appellant. During the appellate proceedings, the appellant’s Authorized Representative has reconciled the expenditure with the correct PAN and other details which have been found tallied. Also, the appellant has relied on the order u/s 263 of the Principal Commissioner of Income Tax, Salem in their favour for the Asst.Year 2012-13 and 2013-14. The laborious work undertaken by the Assessing Officer is very much appreciative. At the same time, the circumstances under which the assessee had performed his business needs to be appreciated. The Authorized Representative has brought in all the relevant details to rebut the findings of the Assessing Officer to prove their point. Therefore, taking overall view of the submissions and other details furnished before me, I am inclined to accept the contentions of the assessee. After considering all

So far as disallowance made under section 40(a)(ia) of the Act is concerned, on perusing and examining the entries in the bank account of the assessee firm maintained with LVB, Namakkal, the Assessing Officer has noted that though the assessee firm has made hire payments in aggregate exceeding ₹.75,000/- in a year to a person by way of crossed account payee cheques, it has failed to deduct TDS as required under section 194C of the Act by enlisting the details of PAN tallying and invalid PAN in the assessment order page 33 to 45. Since the assessee firm has filed the provisions of section 194C(1) as well as section 194C(7) of the Act towards non-deduction of TDS and in view of the provisions of section 40(a)(ia) of the Act, the Assessing Officer disallowed the sum of ₹.1,59,69,533/- [u/s 194C(1) – ₹.90,05,333/- (+) u/s. 194C(7) – ₹.69,64,200/- and brought to tax. On appeal, after considering the submissions and details furnished by the assessee, the ld. CIT(A) directed the Assessing Officer to delete the disallowance made under section 40(a)(ia) of the Act. However, the ld. CIT(A) has not obtained any remand report before arriving any conclusion on this issue, which is clear violation of Rule 46A of the Income Tax Rules. Under the above facts and circumstances, we set aside the order of the ld. CIT(A) on this issue and remit the matter back to the file of the Assessing Officer to examine the details as furnished before the ld. CIT(A) and decide the issue afresh in accordance with law. The assessee is also directed to furnish complete details before the Assessing Officer for verification.

In the result, the appeal filed by the Revenue is allowed for statistical purposes. Order pronounced on 05th May, 2022 at Chennai.