ROHIT INDIA,PONDICHERRY vs. ACIT CENTRAL CIRCLE-2(1), CHENNAI

Sh. Philip George, the Ld.counsel for the assessee, submitted that the only issue arises for consideration is disallowance made under Section 40A(3) of the Income-tax Act, 1961 (in short 'the Act'). According to the Ld. counsel, the assessee paid lorry freight for transporting herbal raw material from distant places in North Indian States. The lorry drivers who brought the goods to the assessee insisted for cash payment. Since the assessee has no knowledge about the drivers who came for delivery of goods, the assessee was forced to pay cash as insisted by the lorry drivers. Therefore, payment of cash is for commercial expediency.

According to the Ld. counsel, the lorry drivers will deliver the goods / cargo only on receipt of lorry freight. Therefore, there was a business necessity for making the cash payment. On a query from the Bench whether the details of lorries and drivers are available with the assessee for proving the genuineness of payment? The Ld.counsel submitted that the details are very much available with the assessee, therefore, the matter may be remitted back to the file of the Assessing Officer.

We heard Shri S. Bharath, the Ld. Departmental Representative also. According to the Ld. D.R., the CIT(Appeals) found that the assessee would have employed regular lorry service for supply of goods, therefore, it may not be correct in saying that the assessee was forced make cash payment due to commercial expediency. According to the Ld. D.R., it is only a lame excuse that due to business expediency, the cash payment was made.

Having heard the Ld.counsel for the assessee and the Ld. D.R., we perused the relevant material available on record. It is not in dispute that the assessee has to transport herbal products from North Indian States. The CIT(Appeals) found that due to voluminous purchases made by the assessee, it would have employed regular lorries for delivery of goods. This Tribunal is of the considered opinion that merely because voluminous purchases were made, it does not mean that only regular lorries would have been employed by the assessee for supply of goods.

This Tribunal is of the considered opinion that all the drivers may not be known to the assessee. Since, admittedly, voluminous goods were transported, several drivers may not be known to the assessee at all. Even the known drivers may need money for purchasing fuel to run the lorry again. Therefore, it is not the case of known or unknown drivers or known or unknown lorries. Irrespective of the fact whether the assessee knows the driver or not, the fact remains that the lorry drivers need money at the time of delivery of goods. When the lorries reach the city in the odd hours, the assessee has to necessarily make cash payment. Moreover, when the lorries are coming from other States, the concerned drivers may not be prepared to go to bank for encashing the cheque received from the assessee. Therefore, the human probability is that the drivers would insist for cash payment. This Tribunal is of the considered opinion that the assessee has made the payment in cash due to commercial expediency and business necessity to the drivers towards freight charges. Hence, this Tribunal is unable to uphold the observation made by the CIT(Appeals).

Now the Ld.counsel for the assessee claims that the assessee can produce details of lorries and drivers to whom the cash payments were made. These facts can be verified by the Assessing Officer. If the assessee establishes the genuineness of payment and even if it exceeds ₹20,000/- in a day to a particular driver, it is due to commercial expediency. Therefore, subject to verification of the details furnished by the assessee, the claim has to be allowed. Accordingly, the issue of disallowance made under Section 40A(3) of the Act is remitted back to the file of the Assessing Officer for limited purpose of verification of details that may be furnished by the assessee before the Assessing Officer.

With the above observation, both the appeals of the assessee stand allowed for statistical purposes. Order pronounced in the court on 4th December, 2019 at Chennai.