SPEED & MOVERS INDIA PVT. LTD.,BEHALA vs. I.T.O.,WARD-10(4), KOLKATA

The assessee in the present case is a Company, which is engaged in the business of transportation. The return of income for the year under consideration was filed by it on 30.10.2015 declaring total income of Rs.2,61,434/-. During the course of assessment proceedings, the Assessing Officer noticed that the payments against the following expenditure were made by the assessee in cash:-

Sr. No. Head of Expenditure Amount of expenditure 1. Business Promotion Rs. 1,48,520/- 2. Stores & Consumables Rs. 74,422/- 3. Electricity, Power & Fuel Rs. 9,45,100/- 4. Car Hire Charges (Freight Rs.19,93,575/- Charges)

Against the order passed by the Assessing Officer under section 143(3), an appeal was filed by the assessee challenging the disallowance made by the Assessing Officer under section 40A(3) of the Act. After considering the submissions made by the assessee in support of its case and considering the material available on record, the ld. CIT(Appeals) found that out of the car hire charges of Rs.19,93,575/- disallowed by the Assessing Officer under section 40A(3), a sum of Rs.9,96,507/- was paid on account of freight charges in respect of which payments in cash were made not exceeding Rs.35,000/- in any single case. Accordingly by relying on the proviso to section 40A(3), he held that the disallowance to that extent made by the Assessing Officer was not sustainable. As regards the balance amount of car hire charges disallowed by the Assessing Officer under section 40A(3), the ld. CIT(Appeals) found that there were four bills aggregating to Rs.1,03,500/- where the amount of bill as well as the payment made by the assessee in cash was exceeding Rs.20,000/-. He accordingly restricted the disallowance made by the Assessing Officer on account of car hire charges to the extent of Rs.1,03,500/-. As regards the Assessment Year: 2015-2016 Speed & Movers India Pvt. Limited electricity, power and fuel expenses aggregating to Rs.9,45,100/- disallowed by the Assessing Officer under section 40A(3), the ld. CIT(Appeals) found that there were ten instances involving the total expenditure of Rs.3,51,300/- where the bill amount as well as cash payment made by the assessee exceeded Rs.20,000/-. He accordingly sustained the disallowance made by the Assessing Officer under section 40A(3) on account of electricity, power and fuel charges to Rs.3,51,300/-. Similarly he found that out of the business promotion expenses of Rs.1,48,520/- and stores & consumables of Rs.74,422/- disallowed by the Assessing Officer under section 40A(3), the amount to the extent of Rs.1,28,134/- and Rs.54,949/- was related to the expenses incurred by the assessee, where the bill amount as well as cash payment made by the assessee exceeded Rs.20,000/-. He accordingly sustained the disallowance made by the Assessing Officer on account of the said expenditure under section 40A(3) to that extent. The disallowance made by the Assessing Officer under section 40A(3) thus was partly sustained by the ld. CIT(Appeals) vide his appellate order dated 28.12.2018 and aggrieved by the same, the assessee has preferred this appeal before the Tribunal on the following grounds:- (1) Ld. CIT(A) erred in disallowing Rs.1,03,500/- under section 40A(3) of the Income Tax Act, 1961.

I have heard the arguments of both the sides and also perused the relevant material available on record. As regards the issue raised in Ground No. 1, I find merit in the contention raised by the ld. Counsel for the assessee that the nature of expenditure incurred by the assessee under the car hire charges, which is disallowed by the Assessing Officer under section 40A(3) and sustained by the ld. CIT(Appeals) to the extent Assessment Year: 2015-2016 Speed & Movers India Pvt. Limited of Rs.1,03,500/- is such that the same is covered by the proviso to section 40A(3) being payment made for plying, hiring or leasing goods carriages and since the payments of such expenditure was made by the assessee in cash not exceeding a sum of Rs.35,000/-, the disallowance confirmed by the ld. CIT(Appeals) is not sustainable. I accordingly delete the said disallowance sustained by the ld. CIT(Appeals) to the extent of Rs.1,03,500/- and allow Ground No. 1 of the assessee’s appeal.

As regards the issue involved in Ground No. 2 relating to the disallowance of Rs.3,51,300/- made by the Assessing Officer and sustained by the ld. CIT(Appeals) out of electricity, power and fuel, the ld. Counsel for the assessee has contended that the said expenditure, keeping in view the nature of assessee’s business of transportation of goods, should be treated as freight charges and the disallowance made under section 40A(3) to the extent it involved the payments in cash not exceeding Rs.35,000/- should be deleted as per the proviso to section 40A(3). He has contended that the actual nature of the expenditure is to be seen keeping in view the underlying purpose of incurring such expenditure and not the treatment given in the books of account while booking the said expenditure. I am unable to accept this contention of the ld. Counsel for the assessee. The relevant proviso to section 40A(3) is applicable only in the case of payment made for plying, hiring or leasing goods carriages and the benefit of the same, in my opinion, cannot be extended to cover the expenditure incurred on power and fuel irrespective of the nature of such expenditure or the nature of the assessee’s business. I, therefore, find no merit in Ground No. 2 raised by the assessee in this appeal and dismiss the same.

As regards the issue raised in Ground No. 3, the ld. Counsel for the assessee has contended that going by the language of sub-section (3) of section 40A as well as the legislative intention behind making amendment in section 40A(3) with effect from 1st April, 2009, the amount of each bill Assessment Year: 2015-2016 Speed & Movers India Pvt. Limited or the instance of expenditure incurred by the assessee is to be taken into consideration and if such amount does not exceed the limit specified, disallowance under section 40A(3) is not attracted even if the payment made in cash against such expenditure or aggregate of payments made to a person in a day exceeds the specified limit. I am unable to accept this contention of the ld. Counsel for the assessee. As per the provisions of section 40A(3), where the assessee incurs any expenditure in respect of which the payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a Bank or account payee Bank Draft exceeds the specified limit, no deduction shall be allowed in respect of such expenditure. It is thus clear that what is relevant for the purpose of applicability of section 40A(3) is a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a Bank or account payee Bank Draft against any expenditure incurred by the assessee exceeding the specified limit of Rs.20,000/- as applicable to the year under consideration. In the present case, such payments in cash were made by the assessee in respect of certain expenditure incurred as enumerated by the ld. CIT(Appeals) in his impugned order exceeding the specified limit of Rs.20,000/- and since the disallowance made by the Assessing Officer under section 40A(3) only to the extent of such payment/payments was sustained by the ld. CIT(Appeals), I find no infirmity in the same calling for any interference. Ground No. 3 of the assessee’s appeal is accordingly dismissed.

In the result, the appeal of the assessee is partly allowed. Order pronounced in the open Court on October 25, 2019.