RAJAN BUDHISAGAR SINGH,NA vs. ARIVS.ITO, WARD-4, NAVSARI

Brief facts of the case are that the assessee is an individual deriving his income from “Carting rent income and commission income from Sahara India and Sahara India Life Insurance Co. Ltd.” The case of the assessee was selected for complete scrutiny to verify the ‘Business expense’. During the assessment proceedings, assessee was asked to furnish details of commission received, depreciation details, interest paid, repairing expenses and other relevant material by the issuance of notices u/s 142(1) of the Act. In response, the assessee furnished the information on various dates. On verification of the individual ledger extracts, following payments were made in cash exceeding Rs.10,000/-: (i) Tejpal Motors(P) Ltd. of Rs.22,958/-, (ii) Cleaners’ salary paid to Sri Irfan Khan of Rs.84,000/-, (iii) Cleaners salary paid to Sri Javed Khan of Rs.84,000/-, (iv) Diesel expenses paid of Rs.7,67,277/-. In view of the above, the total disallowance proposed u/s 40A(3) of the Act aggregated to Rs.9,35,277/-. 3.1 Accordingly, a show cause notice was issued to the assessee on 01.02.2021. In its compliance, assessee furnished his reply on 04.01.2021; however, the AO did not find the same to be tenable. AO observed that the limit of Rs.35,000/- is allowable only for the payments made towards for plying, hiring or leasing goods carriages u/s 40A(3A) of the Act and not for the assessee engaged in plying, hiring business. Therefore, aforesaid expenses aggregating to Rs.9,35,277/- were disallowed u/s 40A(3) and 40A(3A) of the Act and added to the total income of the assessee. Accordingly, order u/s 143(3) of the Act was passed on 25.02.2021, determining total income was at Rs.17,37,347/-.

Aggrieved by the aforesaid assessment order dated 25.02.2021, assessee preferred appeal before CIT(A). The CIT(A) observed that the exemption u/s 40A(3A) of the Act is valid only till the cap of Rs.35,000/- and the same is valid only for plying for the hiring or plying vehicles. He further held that such exemption cannot be claimed by any person in respect of payment of salary in cash, i.e., any person engaged in the business of plying and hiring vehicles cannot claim such exemption u/s 40A(3A) for payment of salary in cash. The CIT(A) further observed that the purpose of sections 40A(3) and 40A(3A) is just to curb the menace of cash economy without posing too many hurdles, given the nature of business requiring immediate cash. To stretch it to the extent of applying the provisions for payment of salary too, would be against the spirit of the section. The CIT(A) also observed that the assessee nowhere had given the details of payments made to such parties day-wise or throwing light on the terms and conditions of such payments nor has taken any such argument either before AO or before CIT(A). The CIT(A), therefore, dismissed the appeal of the assessee and passed the order u/s 250 of the Act on 26.12.2024.

Aggrieved by the order of CIT(A), assessee filed present appeal before the Tribunal. The learned Authorized Representative (ld. AR) of the assessee submitted that the assessee was engaged in the business of plying and hiring of vehicles and earned commission income from Sahara India and Sahara India Life Insurance Co. Ltd. The assessee owns 4 heavy vehicles which were exclusively used in carting business. The Ld. AR further stated that during the year, the assessee had earned carting income for Rs.76,66,550/- and the disallowance of expenditure made in cash for Rs.9,35,277/- pertained to carting income only. It is also submitted that all the expenditure were made on single days and less than Rs.35,000/-. In view of the same, the ld. AR, requested to delete the addition made by the AO and confirmed by the CIT(A).

The learned Senior Departmental Representative (ld. Sr. DR) for the revenue supported the orders of the lower authorities, contending that the benefit of Section 40A(3A) cannot be stretched to cover all cash payments merely because the assessee is engaged in plying and hiring of vehicles. He submitted that the statutory relaxation is confined to payments made for hiring or leasing goods carriages and not to expenses like salary or purchase of diesel.

We have heard both sides and perused the materials available on record. In the present case, the assessee admittedly owns and operates trucks and earns carting income. The nature of expenses disallowed are (i) diesel, (ii) cleaner’s salary, and (iii) minor repair expenditure. These payments are directly connected to the running of trucks and are incurred on a day-to-day basis in places where banking facilities may not always be available. The legislative intent behind the relaxation u/s 40A(3A) is to accommodate such practical business exigencies. Therefore, a liberal interpretation consistent with the purpose of the provision is warranted, particularly for transporters. We are of the considered view that diesel payments are an inherent and indispensable part of goods carriage operations, often required to be made in cash at fuel depots or on highways. Considering the business volume and the nature of evidence produced, it would be reasonable and in the interest of justice to delete disallowance to the extent of Rs.2,00,000/- pertaining to diesel and related on-road expenses. However, payments relating to cleaner’s salary and repair expenses cannot be regarded as falling strictly within the purview of the exception meant for hiring or plying of goods carriages. Accordingly, the remaining disallowance of Rs.7,35,277/- is confirmed. The AO is accordingly directed to delete Rs.2,00,000/- out of the total disallowance of Rs.9,35,277/-. The grounds are partly allowed.