CALCUTTA SOUTH TRANSPORT CO.,KOLKATA vs. I.T.O.WARD-56(1), KOLKATA

The assessee in the present case is a partnership firm, which is engaged in the business of transportation. The return of income for the year under consideration was filed by it on 29.09.2011 declaring total income of Rs.11,68,805/-. As revealed during the course of survey carried out under section 133A of the Income Tax Act, 1961, the assessee-firm had made payments in cash exceeding Rs.35,000/- on account of transportation charges aggregating to RS.15,84,600/- during the year under consideration. Since the said payments were hit by the provisions Assessment Year: 2011-2012 Calcutta South Transport Co., Kolkata of section 40A(3) of the Act, the assessee was required to show-cause as to why the expenditure of Rs.15,84,600/- should not be disallowed by invoking the said provision. In reply, the following explanation was offered by the assessee:- “The assessee-firm is transport contractor. It carries goods from Kolkata to various parts of South India including some remote branches. The average freight charges from Kolkata to South India is Rs.45,000.00. The truck driver carries the goods from Kolkata to South India running approximately 2000 kilometer. The assesee has to make cash payment to truck driver for meeting towards expenses like toll tax, repairing charges, fuel cost etc. As the truck driver does not accept draft/cheque as they do not have any bank account. They utilize maximum freight amount during journey from Kolkata to various parts of south India. The assessee would not have made cash payment to truck driver in course of short destination. The assessee is having branch in South India and it has no option but to make the freight payment in cash. The income tax rules states that the assessee can make payment in cash to truck driver who do not maintain any bank account. The freight payment exceeding Rs.35,000/- is made to truck driver who are residing in South India carrying goods from South India to Kolkata and carrying goods from Kolkata to South India on return trip. The truck drivers do not maintain any bank account as they are on the road through entire journey from Kolkata to South India. They received cash exceeding Rs.35,000/- to maintain road expenses like toll tax, entry tax repairing charges and fuel expenses. The truck driver has to make these expenses in cash. Therefore, the assesese firm fails under exceptional category under rules 6DD. The provision of Rule 6DD(5)(B) states that no disallowance shall be made in respect of payment made in the assessee to truck drivers who do not have any bank account. They are carrying truck on the road during entire journey. You are requested to kindly refer circular no. 34 dated 5.3.1970 which clearly says that payment of rreight charges exceeding Rs.35000/- in cash under exceptional circumstances shall not be disallowed. This exceptional circumstances case was decided in favour of the assessee in case of CIT –vs.- Ahmed Hussain (1984) 150 ITR 373(All.). The assessee firm is falling under exceptional category and therefore the provision of section 40A(3) shall not be applicable in case of the assessee firm”.

The explanation of the assessee as above was not found acceptable by the Assessing Officer. According to him, the payments were made by the assessee regularly to the Truck owners and not to the Truck Drivers and it was for the Truck owners to take care of the expenses made by the Drivers during the type of journey and not for the assessee. He, therefore, invoked the provisions of section 40A(3) and made a disallowance of Rs.15,84,600/-. On appeal, the ld. CIT(Appeals) confirmed the said disallowance made by the Assessing Officer as the submission reiterated on behalf of the assessee in support of its case was not found acceptable by him. Aggrieved by the order of the ld. CIT(Appeals), the assessee has preferred this appeal before the Tribunal.

I have heard the arguments of both the sides and also perused the relevant material available on record. The ld. Counsel for the assessee has submitted that all the payments in cash were made by the assessee through agent M/s. Jain Reliance Company and the same, therefore, were covered by clause (k) of Rule 6DD as held by this Tribunal in the case of DCIT –vs.- Maruti Freight Movers Limited (ITA No. 482/KOL/2014 dated 05.04.2017) and in the case of Krishna Prasad Potnuri –vs.- ITO (ITA No. 450/KOL/2018 dated 03.08.2018). The ld. D.R., on the other hand, has contended that this stand now taken on behalf of the assessee was never taken by the assessee either before the Assessing Officer or before the ld. CIT(Appeals). He has contended that an opportunity may, therefore, be given to the Assessing Officer to verify the same. I find merit in the contention of the ld. D.R. The impugned order of the ld. CIT(Appeals) on this issue is accordingly set aside the matter is restored to the file of the Assessing Officer for deciding the same afresh after verifying the new stand taken on behalf of the assessee in the light of the decisions of the Tribunal in the case of M/s. Maruti Freight Movers Limited (supra) and Krishna Prasad Potnuri (supra).

In the result, the appeal of the assessee is treated as allowed for statistical purposes. Order pronounced in the open Court on February 05, 2020.