SHI vs. HAKTI TRANSPORT SANGH,THANEVS.I.T.O. WD.1, PANVEL

The grounds of appeal raised by the assessee-firm in the memo of appeal filed with the Income Tax Appellate Tribunal, Mumbai (hereinafter called “the Tribunal”) read as under:-

The brief facts of the case are that the assessee is a firm which is engaged in the business of transportation. During the course of assessment proceedings u/s 143(3) read with Section 143(2) of the Act, the A.O. observed from the cash book that the assessee-firm had made the payment of transportation charges mostly in cash basis to the following parties:-

Aggrieved by the assessment orders dated 31-12-2007 passed u/s. 143(3) of the Act by the A.O., the assessee-firm has filed its first appeal before the learned CIT(A).

Before the leaarned CIT(A) , the assessee-firm contended that the firm is formed of 19 partners, all are illiterates and agriculturists and the assessee-firm has entered into contract agreement with M/s Ashapura Mine- Chem Pvt. Ltd. for transportation of goods and out of Rs. 1,54,18,422/- of transportation charges received by the assessee-firm, the assessee-firm had paid transportation charges in cash of Rs. 41,07,793/- out of which Rs.32,91,218/- was made on Sunday under unavoidable circumstances within exceptions provided under Rule 6DD of Income Tax Rules,1962. The assessee-firm submitted that Sunday being the market day, the truck drivers and cleaners insisted cash payments from the truck owners who in turn demand from the assessee-firm and to maintain truck owners to operate regularly for the assessee-firm, cash payments were made to accommodate truck owners in such emergencies and TDS was deducted and paid to Government account on time . The assessee-firm submitted that since the claim of the assessee-firm is covered under exceptions provided under Rule ITA 7515/Mum/2011 5 6DD of Income Tax Rule, 1962, no disallowance u/s 40A(3) of the Act is warranted. In support, the assessee-firm relied upon the following decisions:-

The learned Counsel for the assessee-firm submitted that the disallowance were made u/s 40A(3) of the Act by the A.O. as the cash payments of Rs. 41,07,793/- were made to various transporters, which included payment of Rs. 32,91,218/- on Sunday. The learned Counsel submitted that out of total payment of Rs. 1,54,18,422/- for transportation charges , the assessee-firm paid Rs. 41,07,793/- on cash basis towards transportation charges. The learned counsel submitted that due TDS was deducted by the assessee-firm and paid into the Government account in time. Confirmations from the parties were filed and the books of account were audited. All the payments are subjected to TDS. The drivers and cleaners asked payments for purchase of petrol/diesel on Sundays , and Sunday being closed holiday for bank, cash payments were made to the transporters. The ld. Counsel relied on the decision of the Ahmedabad Bench of the Tribunal in the case of ACIT v. Shri Nilesh G. Gadhiya in for the assessment year 2009-10, orders dated 23rd November, 2012 and also decision of the Delhi Bench of the Tribunal in the case of DCIT v. M/s Continental Carriers of India in ITA No. 3248 & 3249/Del/2010 for assessment years 2004-05 & 2005-06 dated 19th August, 2011. The ld. Counsel submitted that genuineness of the transaction is not doubted and ITA 7515/Mum/2011 7 requested that the disallowance u/s 40A(3) of the Act should not be made and appeal be allowed.

The ld. D.R. submitted that the assessee-firm has not submitted any supporting documents to prove the circumstances under which the payments have been made on Sundays. He relied on the order of learned CIT(A).

We have considered the rival submissions and also perused the material available on record. We have observed that the firm is formed of 19 partners, all are stated to be illiterates and agriculturists and the assessee- firm has entered into contract agreement with M/s Ashapura Mine-Chem Pvt. Ltd. for transportation of goods. The assessee-firm made payments for transportation charges to truck owners in cash of Rs.41,07,793/- . The assessee-firm claimed that the payments have been made to the truck drivers and cleaners for and on behalf of the truck owners for reimbursement of petrol/diesel charges etc. as they insisted for cash payments and under these circumstances the assessee-firm made cash payments on Sundays of Rs.32,91,218 out of total cash transportation charges of Rs.41,07,793/-, because Sunday is the market day. We have observed that the assessee-firm was not able to file complete details to prove and substantiate that the circumstances under which the payments were made on Sunday whereby the assessee-firm was compelled to make payments on Sunday as contemplated under exceptions to Rule 6DD of Income Tax Rules, 1962.The plea has been made that the truck drivers and cleaners insist on cash payments and Sunday being market day and the banks are closed on Sunday, is a bald statement made by the assessee-firm which requires corroboration to substantiate and prove the case of the assessee-firm to take it out of rigours and clutches of provisions of Section 40A(3) of the Act and to fall under exceptions provided u/r 6DD of Income Tax Rules,1962. It is also observed that with respect to these six parties as per confirmation letters filed, no ITA 7515/Mum/2011 8 payments to these six parties have been made during the entire previous year by cheque/DD and entire payments were made to these six parties in cash except only two payment of Rs.55166/- to K T more on 21-03-2005 and Rs.10704/- to Farookh Arai on 24-03-2005, which cast doubts on the theory of insistence by truck drivers and cleaners insisting on cash payments on Sunday being market day while banks are closed on Sundays, while it could not be said that the entire payments to truck owners have gone towards payments to drivers and cleaners and there are no other element of costs and profits in the billing by the truck owners to the assessee-firm. The entire tax deducted at source by the assessee on transportation charges paid is shown to be paid in the month of March 2005 for the entire year and it could not be claimed that the tax deducted at source was paid in time within the time limit provided under Chapter XVIIB of the Act, More-over, proof of filing of TDS returns with the Revenue whereby there is complete disclosures with PAN etc of payee’s has not been brought on record. The assessee-firm has taken a plea and contended that each payment in a day to the payee’s is less than Rs 20000/- and the case is covered under exception as provided u/r 6DD of Income Tax Rules, 1962 as the individual payment in a day is to be reckoned separately for considering exception u/r 6DD of Income Tax Rules, 1962 and not aggregate payments in a day which is supported by the decisions relied upon by the assessee-firm as set-out above, but the assessee-firm has to bring on record cogent evidences to substantiate the same plea which need examination and verification by the authorities below. It is incumbent for the assessee-firm to bring on record the evidences and circumstances to prove its case that it falls under the exception to Section 40A(3) of the Act provided u/r 6DD of Income Tax Rules,1962. Keeping in view the overall facts and circumstances of the case, we are of the considered view that the matter needs to be set-aside and restored back to the file of the A.O. for fresh adjudication on merits based upon the evidences and explanations filed by the assessee-firm to substantiate and corroborate its pleas which need ITA 7515/Mum/2011 9 examination and verification by the authorities below. Accordingly we set aside this matter to the file of the A.O. and direct the A.O. to scrutinize the evidences and explanations filed by the assessee firm and evaluate the attraction of provisions of section 40A(3) of the Act read with exceptions as provided under Rule 6DD of Income Tax Rules, 1962 and de novo re- determine the matter in accordance with law and judicial precedents . The assessee-firm is also directed to produce necessary evidences and explanation before the A.O. in its defense which shall be admitted by the AO for examination and verification of the assessee-firm contentions. Needless to say the A.O shall provide proper and sufficient opportunity of being heard to the assessee-firm in accordance with the principles of natural justice in accordance with law. We order accordingly.

In the result, the appeal filed by the assessee-firm in ITA N0. 7515/Mum/2011 for the assessment year 2005-06 is allowed for statistical purpose.