SHRI ARUN KUMAR YADAV,KHARGONE vs. THE ACIT, KHANDWA

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ITA 921/IND/2016Status: DisposedITAT Indore28 February 2017AY 2012-137 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that Section 40A(3) applies to computation of income under the head 'profits and gains from business or profession'. Since the nursery income was accepted as agricultural income and thus exempt, the disallowance under Section 40A(3) was not sustainable.

What were the facts?

The assessee claimed transportation expenses in cash for their nursery business, which was considered agricultural income. The Assessing Officer disallowed these expenses under Section 40A(3) as they exceeded the prescribed cash payment limit.

What were the issues?

Whether cash payments exceeding the prescribed limit for expenses incurred towards earning exempt agricultural income are disallowable under Section 40A(3) of the Income Tax Act.

Which sections of the Income-tax Act were involved?

Section 40A(3)

AI-generated summary — verify with the full judgment below

Cases cited in this judgment(1)Show list

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Income Tax Appellate Tribunal, INDORE BENCH, INDORE

Before: SHRI C.M. GARG & SHRI O.P. MEENA

For Appellant: Shri Mohd. Javed - DR
For Respondent: Shri Pankaj Mogra, Shri Mohd. Javed - DR
Hearing: 28.2.2017

आदेश /O R D E R

PER SHRI C.M. GARG, JM

This appeal has been filed by the assessee against the

order of the learned CIT(A)-II, Indore, dated 30.6.2016 in

Shri Arun Kumar Yadav ITA No. 921/Ind/2016 First Appeal No. IT-642/14-15/111 for the assessment

year 2012-13.

2.

The sole effective ground raised by the assessee–appellant

reads as follows :-

“That, on the facts and in the circumstances of the case, the CIT(A) erred in maintaining disallowance u/s 40A(3) of the Act of Rs.2,35,550/- without properly appreciating the facts of the case and submission made before him.”

3.

Briefly stated, the facts of the case are that the filed the rio on

18.9.2012 declaring total income at Rs.1,15,71,960/- and

agricultural income of Rs. 37,57,038/-. The assessee derives

income from dealership of Hero Honda Motor Cycles, Spares &

Accessories, Nursery and Petrol Pump business. The case was

selected for scrutiny through CASS and notice u/s 143(2) of the Act

was issued on 6.8.2013 which was duly served upon the assessee.

Thereafter, notice u/s 143(2) of the Act was issued along with

questionnaire, in response to which the assessee attended and

furnished the requisite details. During the course of assessment

proceedings, the Assessing Officer observed that the assessee had

made payments to the transporter in cash for more than the limit

prescribed u/s 40A(3) of the Act. He further observed that in 2

Shri Arun Kumar Yadav ITA No. 921/Ind/2016 Vrindavan Nursery, the assessee claimed expenses on

transportation in cash the details of which are as under :-

M/s M.P. Andhra Transport 35,000 28.6.2011 Company Transportation charges on Bilty 35,700 16.7.201

M/s New Goodwill Transport Co. 45650 16.7.2011

M/s New Goodwill Transport Co. 36800 27.7.2011

M/s New Goodwill Transport Co. 46040 6.8.2011

M/s New Goodwill Transport Co. 36360 6.8.2011

Total 2,35,550

The Assessing Officer noted that the above payments were made in

cash. He, therefore, disallowed Rs. 2,35,550/- u/s 40A(3) of the

Act.

4.

Being aggrieved with the above disallowance made by the

Assessing Officer, the assessee preferred first appeal before the

learned CIT(A). Before the learned CIT(A), the main submissions of

the assessee was that the cash payment has been made by the

assessee in regard to the transactions in nursery business which is

in the nature of agricultural income. The learned CIT(A) on

consideration of the facts of the case in view of the submissions of

Shri Arun Kumar Yadav ITA No. 921/Ind/2016 the assessee observed that the transactions are to be considered in

totality of the business and not as a unit. He, therefore, upheld the

action of the Assessing Officer in disallowing the claim of the

assessee u/s 40A(3) of the Act.

5.

Aggrieved with the order of the learned CIT(A), the assessee

has preferred the present appeal before the Tribunal.

6.

We have heard the arguments of both the sides and carefully

perused the relevant material placed on record of the Tribunal,

inter-alia, written synopsis and paper book filed by the assessee

spread over 58 pages and the orders of the authorities below.

7.

From the assessment order, it is clearly discernible that the

Assessing Officer by invoking the provisions of section 40A(3) of the

Act (for short “Act”), disallowed the payment of Rs. 2,35,550/- and

as per the learned counsel for the assessee, this expense was

incurred by the assessee towards transportation in respect of

Vrindavan Nursury. From the computation of income filed along

with the return of income it is also vivid that the assessee has

claimed agricultural income of Rs.37,57,038/- out of which the

assessee has shown nursing income of Rs.4,60,705/-. Hence, this

Shri Arun Kumar Yadav ITA No. 921/Ind/2016 is undisputed that the transportation charges paid by the assessee

were incurred against the nursery income.

8.

The learned counsel for the assessee placing reliance on the

decision of the Hon'ble Allahabad High Court in the case of U.P.

HardwareStore vs. CIT;104 ITR 664 (All) submitted that the

provisions of section 40A(3) of the Act have been made only to

regular the business activities and to prevent unaccounted money

being used for unaccounted transactions and this restriction

cannot be invoked on the expenditure which has been incurred for

earning exempt agricultural income. The learned counsel for the

assessee drew our attention to sub-section (1) of section 40A of the

Act and submitted that the provisions of this section shall have

effect relating to the computation of income under the head “profit

and gains from business or profession”.

9.

Reply to the above, the learned DR strongly supported the

action of the Assessing Officer as well as its confirmation by the

learned CIT(A). However, the learned DR could not controvert this

fact as noted by the Assessing Officer in para 4 of the assessment

order that the impugned expenditure has been claimed by the

assessee towards transportation expenses on Vrindavan Nursery 5

Shri Arun Kumar Yadav ITA No. 921/Ind/2016 and the assessee has simultaneously shown the agricultural income

of Rs. 4,60,705/- as per computation of income submitted along

with the return of income (assessee’s paper book pages 5 & 6).

10.

In view of letter and spirit of section 40A(1) & (3) of the Act,

it is clearly discernible that this provision can be invoked by the

Assessing Officer pertaining to the computation of income under the

head profit and gains from business or profession and when the

Assessing Officer himself had accepted the income of the assessee

from Vrindavan Nursery as agricultural income and allowed the

same as exempt then the provisions of sub-section (3) of section

40A of the Act cannot be invoked for making the disallowance of

expenditure which has been incurred towards earning the exempt

agricultural income from Vrindavan Nursery.

11.

In view of the above discussion, we reach to the logical

conclusion that the disallowance made by the Assessing Officer and

upheld by the learned CIT(A) is not sustainable and thus we delete

the same.

12.

Accordingly, the sole ground of the assessee is allowed.

13.

In the result, the appeal of the assessee is allowed with the

direction to the Assessing Officer to delete the addition. 6

Shri Arun Kumar Yadav ITA No. 921/Ind/2016 The order has been pronounced in open Court on 28th

February, 2017.

Sd/- sd/-

लेखा सद�य �या�यक सद�य (O.P.Meena) (C.M. Garg) Accountant Member Judicial Member

February 28th , 2017. Dn/

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