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Facts
The assessee, engaged in coal transportation, made cash payments exceeding Rs. 20,000 to truck owners due to their demand and the bouncing of previous cheques. The Assessing Officer initially disallowed these payments under Section 40A(3) of the Income Tax Act but later deleted the disallowance based on extraordinary circumstances. This order was revised by the Pr.CIT, leading to a fresh assessment order with disallowance.
Held
The Tribunal held that the payments made in cash were due to business exigencies and extraordinary circumstances. The truck owners' association had demanded cash payments due to issues with cheque clearances and bounced cheques. The Tribunal noted that the assessee had provided all necessary details to substantiate the payments.
Key Issues
Whether the cash payments made by the assessee to truck owners, exceeding Rs. 20,000, were warranted under extraordinary circumstances to avoid contract failure.
Sections Cited
40A(3)
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Income Tax Appellate Tribunal, CUTTACK BENCH CUTTACK
Before: SHRI GEORGE MATHAN & SHRI MADHUSUDAN SAWDIA
आदेश / O R D E R Per Bench :
This is an appeal filed by the assessee against the order dated 12.9.2025 passed by CIT(A), NFAC, Delhi in Appeal No.NAFC/2009-10/10052373 for the assessment year 2010-2011.
Shri Anil Kumar Agarwal, ld AR appeared for the assessee and Shri Sanjib Banerjee, ld Sr DR appeared for the revenue.
It was submitted by ld AR that the assessee is an individual, engaged in the business of transportation of coal on behalf of Mahanadi Coalfield Limited (MCL). It was the submission that originally, the Assessing Officer had passed the assessment order and had made addition by invoking the provisions of section 40A(3) of the Act 2 आयकर अपील सं/ (�नधा�रण वष� / Assessment Year : 2010-2011 in respect of cash payments made to the Truck owners and the disallowance was made to an extent of Rs.52,59,581/-. It was the submission that on appeal before the ITAT, the assessee had brought out the letter dated 29.3.2009 issued by the Truck Owners Association to the assessee demanding payments to be made in cash. The letter of the Association was also produced before the Tribunal in the original round of proceedings and the same has been extracted in page no.3 of its order in dated 14.7.2017. The letter as extracted by the Co-ordinate Bench of this Tribunal in reads as follows:
BRAJARAJNAGAR TRUCK OWNERS ASSOCIATION At-Gandhi Chown, PO: Gandghora, PS: Brajarajnagar, Dist: Jharsuguda Regd.No.JSG-247-30-1996-17 Ref No.-------------- Dated 29.3.2009 To Sitaram Sitani, Porop. Sitani Coal Sales and Services, Lamtibahal, Brajrajnagar, Dear Sir, The member of this Association has decided to accept the transportation charges for transport of coal from MCL mines to Mangalam Timber Product Ltd., Nawarangpur in cash only as you have defaulted in payment of transportation charges through cheques. You are well aware that our maximum union members have no bank account, some members have account which not match with your bank branch. For clearance of cheques, it will take another 2 to 3 days for clearing of their cheques. So, they are facing problem to fill up fuel and other charges of trucks in time. As your cheques have bounced so many time earlier so the members of our union have shown their displeasure to load coal in your account. This may please be treated as most urgent or the member will not load your coal from MCL mines in your account for that the union is not responsible for forfeiture of coal value. Thanking you, 3 आयकर अपील सं/ (�नधा�रण वष� / Assessment Year : 2010-2011 Yours faithfully, Sd/- Secretary Brajrajnagar Truck Owners Association”
It was the submission that the Tribunal after considering the said letter had restored the issue to the file of the Assessing Officer for readjudication. It was the submission that the Assessing Officer while giving effect to the order of the Tribunal had specifically recorded that the circumstances were extra ordinary and consequently the assessee had to pay the cash even the amounts exceeded Rs.20,000/- and in the order giving effect to the order dated 14.7.2017 of the Tribunal, the Assessing Officer vide his order dated 22.9.2017 relying on the decision of Hon’ble Supreme Court in the case of Attarsingh Gurumukh Singh vs ITO, 191 ITR 667 (SC) did not make any disallowance in regard to payments in cash. It was the submission that the said order dated 22.9.2017 passed by the AO was the subject matter of revision u/s.263 of the Act by the Pr.CIT, Sambalpur and vide an order dated 21.4.2020, the Pr.CIT contended that the facts in the case of Attarsingh Gurumukh Singh (supra) are not applicable to the facts of the assessee and held the assessment order to be erroneous and prejudicial to the interest of the revenue. It was the submission that consequent to the order under section 263 of the Act, the Assessing Officer passed fresh assessment order dated 7.9.2021, wherein, the Assessing Officer has made disallowance by invoking the provisions of section 40A(3) of the Act. It was the submission that the circumstances under which the assessee had made payments in cash to the truck owners were extra ordinary and consequently, no disallowance by invoking the provisions of section 40A(3) of the Act was called for.
(�नधा�रण वष� / Assessment Year : 2010-2011 5. In reply, ld Sr DR submitted that the ld CIT(A) has categorically giving a finding that there is violation of provisions of section 40A(3) of the Act and the exemption provided under Rule 6DD did not apply. He vehemently supported the order of the AO and ld CIT(A).
We have considered the rival submissions. A perusal of the facts in the present case clearly shows that the payments made by the assessee during the impugned assessment order was on account of clearly business exigency insofar as the assessee had to comply for its contract in respect of transportation of coal and the truck owners demanded the payment in cash. If the assessee would not make the payment in cash, obviously the transportation contract would have failed. This is also evidenced from the fact that the assessee has been provided a letter from the Truck Owners Association, who had categorically demanded the payments in cash. The Truck Owners also refer to the earlier cheques issued by the assessee having bounced and the truck owners categorically mentioned that they are not able to clear the cheques within time in regard to fill up the fuel and other charges in respect of trucks. The assessee also filed the complete details of truck owners, details of truck numbers and address of truck owners alongwith their PAN substantiating the identity of payee and genuineness of the payments before the lower authorities, whereas no discrepancy has been pointed out. A perusal of the assessment order passed by the AO dated 22.9.2017 giving effect to the order of the Tribunal also clearly shows that the Assessing Officer has recognized that the circumstances in the case of the assessee in the impugned assessment year was extra ordinary. This being so, we are of the view that the payment has been made by the assessee to the truck owners in cash in excess of Rs.20,000/- under extra ordinary circumstances and consequently, payment 5 आयकर अपील सं/ (�नधा�रण वष� / Assessment Year : 2010-2011 would not hit by the provisions of section 40A(3) of the Act during the impugned assessment year. Consequently, the addition as made by the AO and confirmed by the ld CIT(A) stands deleted.
In the result, appeal of the assessee stands allowed. Order dictated and pronounced in the open court on 23/02/2026.