MARUDHAMALAI SRI DHANDAPANI SPINNING MILLS,COIMBATORE vs. ACIT, COIMBATORE

आदेश / O R D E R

PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER

ITA No. 414/Mds/2015. :- 2 -:

Facts apropos are that assessee doing business of spinning 2. material had claimed freight and cartage expenses of �16,46,378/- during the relevant previous year. Details of the said expenditure was sought by the Assessing Officer during the course of assessment proceedings. In the breakup furnished by the assessee, there were some payments which exceeded �35,000/- per person per day and such payments aggregated to �9,28,000/-. Explanation of the assessee for making cash payment was as under:-

‘’The raw materials are purchased during the cotton season which is between the months of October to January. The suppliers arranged for the Lorry with an undertaking that the purchaser has to pay the Lorry Freight, to the different Lorry Owners through their Drivers, since they are in far away places. They are all not known to us, who insist cash payments, immediately after unloading.

It is customary and for the sake of business expediency and under extraordinary circumstances we have to pay the Lorry freight by cash but all the payments are on proper vouchers, lorry receipts, purchase invoices and with complete address of the recipient.

The truck operators are also assessed to income tax, which are duly reflected/printed on the lorry receipts’’.

Assessing Officer was of the opinion that truck operators to whom assessee was making cash payments were assessed to both income tax and sales tax. According to him, assessee could not show any reason why payments were required to be made in cash. Further, as

per Assessing Officer none of the exceptional circumstances set out in

ITA No. 414/Mds/2015. :- 3 -:

Rule 6DD applied. He held that Sec. 40A(3) of the Act was attracted and a disallowance of �9,28,000/- was made.

Assessee moved in appeal before ld. Commissioner of 3.

Income Tax (Appeals) but did not meet with any success. According to ld. Commissioner of Income Tax (Appeals), assessee had made certain payments to truck transport contractors by cheque and therefore assessee could not say that there were any exceptional circumstances warranting payment in cash.

Now before us, ld. Authorised Representative, strongly 4. assailing the order of the ld. Commissioner of Income Tax (Appeals) submitted that assessee was purchasing raw materials from other states like Maharastra, Andhra Pradesh and Karnataka. Since the sellers were from far away places, as per ld. Authorised Representative, freight charges were always on the higher side.

Submission of the ld. Authorised Representative was that major part of the purchases were effected during the month of October to January and suppliers arranged lorry for transporting the cotton. Ld. Authorised Representative submitted that assessee only effected payments to the drivers of the lorry and they had insisted for cash payments. Contention of the ld. Authorised Representative was that ITA No. 414/Mds/2015. :- 4 -: such payments in cash was under extra ordinary circumstances. As

per ld. Authorised Representative all the payments were genuine and never doubted by the Revenue. Relying on the judgment of Gujarat High Court in the case of Anupam Tele Services vs. ITO (2014) 366 ITR 122, ld. Authorised Representative submitted that payments in cash when made as a practical step would not attract Sec. 40A(3) of the Act. Further, according to him, exceptional conditions in Rule 6DD was not exhaustive and Rule had to be interpreted liberally.

Per contra, ld. Departmental Representative strongly 5.

supported the orders of the authorities below.

1.Tamilnadu Lorry Service Opp. ED Gata, Durgapura, BirlaGram, Nagala IN 53,000/-

District - UJJain - Madhya Pradesh. PAN. AMPPB1125L Service Tax - ST/RI – Nagda/GDA/02/07-08 LR. NO. 6096, 6097, 6098/12.07.2010 2 Shree Meenakshi Transports Co., G- 45A, Transport Nagar, NH NO.06, JALGAON - 425003 44,000/- Maharastra State PAN. ACZPN9621M Service Tax - ACZPN9621 M S1/001

ITA No. 414/Mds/2015. :- 5 -:

LHR NO. 12298/14.10.2010 Trichy No. KA-05AF0709 3 Share Meenakshi Transports Co., G- 45A, Transport Nagar, 43,000/- NH NO.06, JALGAON - 425003 Maharastra State PAN. ACZPN9621M Service Tax - ACZPN9621 M S1/001 LHR NO. 10993, 10994, dt.22.1 0.201 0 Trichy No. KA-01 AG7576 4 DARSHIT Road Lines 43,000/- Highway Towers, NH No. 06 Ajantha Choufully Near Manas Hotel Jal Gaon - 425003 Maharastra PAN.BGUPS5874B ST. BGUPS5874B SD001 <R.NO.686, 687 Dated 31.10.2010

5 Mama Roadways 45,500/ No. 08, Tukaram Shripat Compound MIDC, Ajantha Road, Jalgaon - 425003 Maharasra PAN. AAUPM2706M ST - GTNNSKlJD/197/MR/1-197/2005 LR.NO. 8366, 8367/03.11.2010

6 Shree Meenakshi Transport Co., G- 45A, Transport Nagar, 47,000/- NH NO.06, JALGAON - 425003 Maharastra State PAN. ACZPN9621M Service Tax - ACZPN9621 M S1/001 LR 12890,12891/15.11.2010 Truck No. TN30AC4163

7 Shree Meenakshi Transport Co., 47,000/- G- 45A, Transport Nagar, NH NO.06, JALGAON - 425003 Maharastra State PAN. ACZPN9621 M Service Tax - ACZPN9621M S1/001 LR 11074,11075/21.11.2010

ITA No. 414/Mds/2015. :- 6 -:

Truck No. TN30R6759

9.Shree Meenakshi Transport Co., 54,000/- G- 45A, Transport Nagar, NH NO.06, JALGAON - 425003 Maharastra State PAN. ACZPN9621M Service Tax - ACZPN9621 M S1/001 LR - 12974, 12975/18.12.2010 Truck No. TN 30 V 5859 10. Shree Meenakshi Transport Co., 54,000/- G- 45A, Transport Nagar, NH NO.06, JALGAON - 425003 Maharastra State PAN. ACZPN9621M Service Tax - ACZPN9621 M S1/001 LR - 12982, 12983/19.12.2010 Truck No. KA01 AB 9858

11.Tamilnadu Lorry Service 62,000/- Opp. ED Gata, Durgapura, BirlaGram, Nagala IN District - UJJain - Madhya Pradesh. PAN. AMPPB1125L Service Tax - ST/RI - Nagda/GDN02/07-08 LR - 12982, 12983/19.12.2010 Truck No. KA 01 AB 9898

12.Maheswari Goods Transport 36,000/- Bommakal By Pass Road Rajiv Rahadari Karian Nagar, Andhra Pradesh PAN. AKXPP2805P

ITA No. 414/Mds/2015. :- 7 -:

ST - Truck No. KA - 01 B 8328 LR No. 352 date 15.12.2010

17 Shree Meenakshi Transport Co. 52,000/- G- 45A, Transport Nagar, NH NO.06, JALGAON - 425003 Maharastra State PAN. ACZPN9621 M Service Tax - ACZPN9621M S1/001 LR NO. 14511, 14512/11.01.2011

ITA No. 414/Mds/2015. :- 8 -:

Truck No. TN5L A - 4555

18 Vishnu Goods Carrier 59,000/- Opp. New Krashi Mundy Khachrod Road Jaora 457226, Madhya Pradesh. PAN. AAOPU 3589L SR RTM/ST/GTA/59/04-05 LR NO. 2301 TO 2304/18.1.2011 Truck No. KA 01 AB 9695

19 Vishnu Goods Carrier 59,000/- Opp. New Krashi Mundy Khachrod Road Jaora 457226, Madhya Pradesh. PAN. AAOPU 3589L SR RTM/ST/GTA/59/04-05 LR NO. 2305, 2306, 2307, 2308, dated 18.1.2011 Truck No. TN 24H 3717

---------------- 928000/- ---------------- Contention of the assessee that the payments were effected to lorry drivers cannot be accepted since each of the parties mentioned above were transport companies having their own PAN number and sales tax number. It is not been disputed by the assessee that atleast some of the payments were made by account payee cheques. No doubt the paramount reason which Sec. 40A(3) of the Act was enacted was to reduce the possibilities of black money transactions as held by Gujarat High Court in the case of Anupam Tele Services (supra). But in the said case payments effected by the concerned assessee to a party which had issued a circular instructing the assessee to deposit cash.

ITA No. 414/Mds/2015. :- 9 -:

The recipient company had also instructed assessee not to make payments by cheque or demand draft. Thus, there were certain peculiar circumstances which called for relaxing the rigours of Sec.

40A(3) of the Act. On the other hand, in the case before us, there was no record to show that concerned transport operators had insisted an cash payments. If the assessee had paid money to the lorry drivers, as argued by it, vouchers would have been given by the lorry drivers and not by the transport companies. Coming to the argument of the ld. Authorised Representative that payments were effected to an agent and hence section 40A(3) of the Act was not attracted. It is required to have a look at said clause (k) of Rule 6DD which is reproduced hereunder:-

‘’ where the payment is made by any person to his agent who is required to make payment in cash for goods or services on behalf of such person’’.

For complying with the above rule of exemption, assessee has to show that the person to whom he had paid payments was his agent and such agent was required to make payment in cash. None of these could be proved by the assessee. In such circumstances, we are of the opinion that Sec. 40A(3) of the Act stood attracted to the cash payments made by the assessee. We do not find any reason to ITA No. 414/Mds/2015. :- 10 -: interfere with the orders of the lower authorities.

In the result, the appeal of the assessee stands dismissed. 7.

Order pronounced on Wednesday, the 16th day of November, 2016, at Chennai.