CONVEYOR & ROPEWAY SERVICES PVT. LTD.,,KOLKATA vs. DCIT, CIRCLE - 8(1), KOLKATA , KOLKATA

The assessee has raised ground no. 1 against the action of the Ld. CIT(A) in confirming the disallowance of Rs.36,37,072/- u/s. 40A(3) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”).

Briefly stated facts are that the assessee is engaged in the business of engineering, construction design and manufacturing of aerial passenger ropeways, material handling systems etc. It also carried out on the business of owning and operating ropeways. During the course of assessment proceedings the AO observed that the assessee had incurred expenses under various heads above Rs.20,000/- in cash. The assessee was asked to explain as to why such payments above Rs.20,000/- should not be disallowed u/s. 40A(3) of the Act. However, according to AO, the assessee has been unable to offer any satisfactory

We have heard both the parties and perused the material available on record. We note that the assessee company is engaged in the ropeway services in various places situated at different parts of the country. According to Ld. Counsel for the assessee, the conveyor and ropeway services are set up in different parts of the country and the assessee’s business is to ferry passengers for a fare on the conveyor and ropeway services maintained by the assessee company. According to ld. Counsel, the assessee collects the travelling fare from passengers in cash and disburses expenses at the respective sites in cash for daily smooth running of the business. According to Ld. Counsel, the daily collection of fares and expenses are met by the aforesaid collection of fares from the passengers. It was brought to our notice that only fortnightly the day to day vouchers are sent to the Head Office situated at Kolkata and the accounts are collated in respect of sales/expenses which are credited and debited as per the accounting principles. According to Ld. Counsel, the AO disallowed the expenses on account of the fact that assessee has debited the expenses account for more than Rs.20,000/- on a particular date since the expenses are incurred in cash. The details of the expenditure are as follows:

The main grievance of the Ld AR is that the expenses per day has not exceeded Rs.20,000/- and on the same day the expenses was incurred at different sites in several places of the country and amount of expenditure incurred in cash is also less than Rs.20,000/- per day and the confusion has happened because accounting was done only on a fortnightly basis. According to Ld. AR. the expenses incurred at different sites are collated and accounted which has led the AO to conclude that the assessee had made expenditure of more than Rs. 20,000/- per day whereas according to the assessee, on a day the expenses have not exceeded Rs. 20,000/-in cash. According to ld. AR, the AO did not give proper opportunity to the assessee as well as Ld. CIT(A) has passed a cryptic order without looking into evidence furnished before him. In such a scenario since the assessee was not afforded sufficient opportunity to plead its case before the AO, we set aside the order of Ld. CIT(A) and restore the issue to the file of AO for fresh adjudication after affording reasonable opportunity of being heard to the assessee. For that, we rely on the decision of the Hon’ble (three judge bench) of the Hon’ble Supreme Court in Tin Box Company Vs. CIT (2001) 249 ITR 216 (SC) wherein the Hon’ble court has held as under:

Brief facts of the case is that the AO had asked the assessee to produce the details of sundry creditors in order to verify the genuineness of the transactions. The AO issued notice u/s. 133(6) of the Act on a test check basis. The AO noted that two notices which were issued to M/s. Metals India and M/s. Saniya Industrial Corporation had been returned un-served with postal remark “Not Known”. Therefore, the AO concluded that the two parties are in-genuine and the transactions are sham with the said concerns and accordingly, disallowed and added back the amounts shown as sundry creditors to the total income of the assessee. Aggrieved, the assessee preferred appeal before the Ld. CIT(A), who was pleased to dismiss the appeal by passing a cryptic order. Aggrieved, the assessee is before us.

We have heard both the parties and have gone through the facts and circumstances of the case. We note that the assessee has produced the copies of ledger account of both the parties i.e. M/s. Metals India and M/s. Saniya Industrial Corporation which duly reflected the credit in the books of the assessee from the FY 2007-08 to 2011-12. According to ledger account the assessee owed Rs.17,43,183/- to M/s. Metals India and Rs.20,19,963/- to M/s. Saniya Industrial Corporation respectively. It was brought to our notice that these balances are lying in the accounts since 31.03.2009 and these credit balances in the accounts remained static from that date onwards. According to Ld. AR, the assessee had all the intention to pay the aforesaid creditors but could not do so for want of funds. We note

In the result, the appeal of assessee is partly allowed for statistical purposes.