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Income Tax Appellate Tribunal, MUMBAI BENCH “E”, MUMBAI
Before: SHRI RAJESH KUMAR & SHRI RAM LAL NEGI
Per Rajesh Kumar, Accountant Member:
The present appeal has been preferred by the assessee against the order dated 12.10.2018 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2013-14.
Ground No.1 is raised by the assessee in respect of confirmation of disallowance of Rs.5,34,710/- by Ld. CIT(A) as made by the AO under section 40A(3) in respect of payments by cash exceeding Rs.20,000/- during the year.
The facts in brief are that the assessee is a partnership firm and filed the return of income on 30.09.2013 declaring total
2 M/s. Trans Air Services income of Rs.40,66,600/-. The case of the assessee was selected under CASS for scrutiny and statutory notices were duly issued and served upon the assessee. During the course of assessment proceedings, the AO observed that assessee has made payments of Rs.11,80,970/- on account of repairs and maintenance and accordingly called upon the assessee to furnish the details thereof. From the said details, the AO observed that assessee has made payments towards repairs of office, computer and furniture, for nasta/pooja, cleaning etc. which aggregated to Rs.5,34,710/- but undoubtedly exceeding Rs.20,000/- and accordingly issued a show cause notice to the assessee why these expenses should not be disallowed and finally disallowed the same by concluding that assessee has failed to give satisfactory explanation qua the said expenses being incurred in cash and added the same to the income of the assessee.
In the appellate proceedings, the Ld. CIT(A), after considering the reply of the assessee, dismissed the ground raised by the assessee by observing that assessee has failed to show that it’s case is covered under rule 6DD and observed that no specific explanation or evidence has been filed in respect of these payments except stating that these were incurred out of business expediency and consideration. The ld CIT(A) held that such a bald statement can not be accepted and thus dismissed the appeal.
The Ld. A.R. ,during the course of hearing before us, filed the details, bills/certificates from the recipients of these payments. The Ld. A.R. while referring to each and every
3 M/s. Trans Air Services evidence pointed out that in these cases either the payers were not having their bank account at the place of business of the assessee and they are having the accounts only in the villages to which they belonged to. The ld AR submitted that these payments are made to labour class who are subsisting on daily wages and who refused to accept payments in cheque and if this is imposed upon them it is rather impossible to get the work done. The Ld. A.R. submitted that there is a business exigency and practical difficulties in getting the work done from daily wage workers and thus this is not possible to make payments by cheques. The Ld. A.R. therefore submitted that the assessee’s case is clearly covered under rule 6DD of the IT Rules and therefore the same may be allowed. The Ld. A.R. also submitted that the genuineness of the expenditure is not in doubt and no tax evasion has taken place in this case. So much so that complete details, names and addresses and in some places PAN were also given. Under these circumstances, the order of Ld. CIT(A) is wrong and may kindly be reversed.
The Ld. D.R., on the other hand, relied heavily on the order of authorities below and submitted that section 40A(3) of the Act specifically provides for disallowance of expenses incurred exceeding a certain limit and there are specific exceptions which are provided in rule 6DD. The ld DR , therefore, submitted that assessee has to clearly make out a case that it falls within the ambit and scope of those exceptions. However, in this case both the authorities below have recorded a finding of facts that no such case was made out and therefore appeal of the assessee on this ground deserved to be dismissed.
4 M/s. Trans Air Services 7. After hearing both the parties and perusing the material on record, we observe that in this case the payments of labour charges and for purchase of material was made to the labourers in respect of furniture, repairs, general maintenance and other repairs. Though the assessee has furnished the details of the recipients of the payments in cash which certainly exceed the limit as prescribed under section 40A(3) of the Act. However, after examining the details which comprised of certificates from the recipients, bills and voucher which proved that in most of the cases the recipients were not having their bank accounts and there was practical difficulties in making payments of these expenses by cheques. Moreover, these are in the nature of petty payments made out of cash in hand on day to day basis. It was also stated that when there is an urgency for attending these repairs or these works, the t labourers do not accept cheques and this has to be paid in cash. In our view, considering these petty nature of payments that too to the labour class who are not having their bank accounts and also the practical problems, we are of the view that the said payments are covered under the exceptions provided rule 6DD as the assessee has made out a case before us which justifies the allowances of these expenses. Accordingly, we reverse the order of Ld. CIT(A) and direct the AO to allow these expenses.
The 2nd issue raised by the assessee is against the confirmation of disallowance of Rs.2,89,000/- by Ld. CIT(A) as made by the AO in respect of salary.
The facts in brief are that AO observed that salary of Rs.2,89,000/- was adjusted against the staff loan and the 5 M/s. Trans Air Services repayment of such loan was not mentioned in 3CD report of the assessee. The AO noted that during the year the assessee made the payment of salary of Rs.13,81,800/- and after calling for the report of the assessee, the AO noticed that this payment of Rs.2,89,000/- has not been made either by cash or by cheque and it is not clear whether the payment is outstanding in the books of account and accordingly a show cause notice was issued why the same should not be disallowed under section 37 of the Act as the same is not wholly and exclusively incurred for the purpose of business of the assessee and consequently rejecting the reply of the assessee added the same to the income of the assessee.
The Ld. CIT(A), in the appellate proceedings dismissed the appeal of the assessee by observing and holding as under: “5.2 In the appellate proceedings, it was submitted that Joyce Soans was an ex- employee and as a course of full and final settlement, the amounts were paid to her. The amount has been paid to her by way of cheque.
5.3 I have considered the submissions carefully. There is no document filed to show that the payments were made by way of cheque. No other documents have been filed to show that such payments were made on account of salary. Ground of appeal no.2 is therefore dismissed.”
11. After hearing both the parties and perusing the material on record, we observe that in this case the payment is made to ex- employee Mrs. Joice Scons as full and final settlement of her account. The amount has been paid by cheque and thereafter the final adjustment was made by debiting the salary account as this was only on account of salary. However, we note that AO has disallowed the same on the ground that it was not disclosed in the 3CD in audit report and not wholly and exclusively incurred for the purpose of the business whereas the Ld. CIT(A)
The Ld. A.R. submitted before the Bench that this payment related to the salary of the assessee whose account was settled as full and final after the employee left the job and thus it was wholly and exclusively incurred in connection with the business of the assessee and prayed that the same may kindly be allowed as admissible expense under section 37(1) of the Act. The ld DR on the other hand relied on the order of the authorities below.
After considering the rival parties and perusing the material on record, we observe that this is the payment to the ex-employee and paid in connection with the services rendered and adjusted as full and final settlement of her account. Therefore we are not in agreement with the conclusion drawn by the income tax authorities on this point that the expenses were incurred wholly and exclusively in connection with the business of the assessee. In our view the payment is genuine and there is no requirement of disclosing the adjustment of payment in form 3CD and accordingly, we set aside the order of Ld. CIT(A) and direct the AO to delete the addition.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 18.02.2020.