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Income Tax Appellate Tribunal, “A” BENCH : BANGALORE
Before: SHRI N.V. VASUDEVAN & SHRI ABRAHAM P. GEORGE
O R D E R Per N.V. Vasudevan, Judicial Member
This appeal by the revenue is against the order dated 17.2.2014 of the CIT(Appeals)-III, Bangalore relating to assessment year 2006-07.
The only issue that arises for consideration in this appeal is as to whether the CIT(A) was justified in deleting the addition of Rs.20 lakhs made to the total income by the AO.
The assessee is a company. It is engaged in the business of manufacturing of neutral spirit, rectified spirit and arrack. In the course of assessment proceedings, the AO noticed that several other receipts and payments by the assessee were in cash and when the same was pointed out, the assessee submitted that payment for purchase of spirit and arrack have to be made in cash to the State Government as per Karnataka Excise Act. It was also pointed out that provisions of section 40A(3) are not attracted as the payments are made to the Government as per law prevailing in the State of Karnataka. The assessee also pointed out that cash sales and cash expenses are inevitable in the assessee's line of business.
The AO, however, disallowed a sum of Rs.20 lakhs observing as follows:-
“Considering the circumstances of the case and on examination of facts as produced before me and as these expenses in cash are incurred under the heads carriage inwards, outwards, labour charges, loading and unloading which cannot be verified and considering the quantum of cash expenses, I am of the opinion it is fair to disallow Rs.20 lakhs which is added back in the hands of the assessee (Addition: Rs.20,00,000/-).”
On appeal by the assessee, the CIT(A) deleted the addition made by the AO for the following reasons:-
“2.3 I have carefully considered the issue before me. It is pointed out by the AR of the appellant that cash expenses on carriage outwards, labour charges, loading and unloading is only an amount of Rs.21,15,150/- which pertains to the arrack division. As regards carriage inwards it is stated that this is predominantly paid by cheques. Labour charges and connected expenditure is to the tune of Rs.7,57,258/-. Assessee has therefore pointed out that expenditure in the nature of cash is approximately Rs.30 Lakhs which is claimed against the gross revenue of Rs.55.13 crores. AR of appellant has also emphasized that there is no contravention of the provisions of the section 40A(3). 2.4 In my considered opinion in the absence of any finding that the expenditure is not genuine or not has been incurred for the purpose of business there is no jurisdiction for disallowance of an amount on estimated basis. It is also to be observed that AO has not rejected the books of accounts as unreliable. As pointed out by the AR the cash expenses have contributed to the substantial revenue. The action of the AO is therefore, not sustainable. The addition made is therefore, deleted.”
Aggrieved by the order of CIT(A), the revenue has preferred the present appeal before the Tribunal.
We have heard the submissions of the ld. DR, who relied on the order of AO. In our opinion, the appeal filed by the department is without any merit. A perusal of the order of AO clearly shows that he has only expressed some doubts about the expenditure incurred by the assessee for which payments were made in cash. He has not concluded that the expenses were not genuine. The books results of the assessee have not been rejected. The quantum of cash expenditure is approx. Rs.30 lakhs against the gross revenue of Rs.55.13 crores. The only reason assigned by the AO for making the disallowance is that the carriage inwards, outwards, labour charges, loading and unloading charges cannot be verified. Perusal of the order of assessment shows that the AO did not call for any explanation in this regard or point out as to which of the expenses could not be verified. In the given circumstances, the AO could not have made the impugned disallowance. The disallowance was rightly held to be not sustainable by the CIT(A). We therefore confirm the order of CIT(A) and dismiss the appeal by Revenue.
Pronounced in the open court on this 20th day of February, 2015.