2015 (5) TMI 1212 - AT - Income Tax

Addition u/s 40A(3) - Cash payment for transporting charges in excess of Rs. 20, 000/- for a single transaction - CIT-A restricted the disallowance @ 10% - assessee argued that the AO has pointed out only two expenses of truck No.1152 and truck No.2096 where each payment on a single day though was below Rs. 20, 000/- but after aggregate the expenses is less than Rs. 20, 000/- therefore no addition is called for - HELD THAT - On one hand the CIT(A) is holding the order of the AO as wild and capricious and no estimate should have been made whereas on the other hand he himself is restricting the disallowance at 10% of total claim which is contradicting his decision. AO has pointed out only two instances with respect to truck No.1152 and truck No.2096 where each payment is less than Rs. 20, 000/- and therefore in our view no violation of provisions of section 40A(3) with respect to two instances have been made. No addition is called for and addition so sustained by the ld CIT(A) is directed to be deleted. - Decided in favour of assessee.

Summary

Issues:
1. Disallowance of transporting charges under Section 40A(3) of the Income Tax Act, 1961.

Analysis:
The appeal pertains to the assessment year 2009-2010, where the assessee contested the disallowance of transporting charges under Section 40A(3) of the Income Tax Act, 1961. The Assessing Officer (AO) disallowed 80% of the total transport expenses, amounting to Rs. 1,09,29,208, based on two transactions where the total payment exceeded Rs. 20,000 in cash, even though individual payments were below the threshold. The Commissioner of Income Tax (Appeals) [CIT(A)] reduced the disallowance to 10% of the total claim, i.e., Rs. 13,66,151. The assessee argued that no violation of Section 40A(3) occurred as the individual payments for the two transactions were below Rs. 20,000. The Tribunal noted that the CIT(A) found the AO's estimate to be arbitrary and that specific findings should have been made for disallowance under Section 40A(3). The Tribunal concluded that no violation of Section 40A(3) was established for the two instances, leading to the deletion of the addition sustained by the CIT(A).

The Tribunal observed that while the CIT(A) criticized the AO's estimate as wild and capricious, the CIT(A) himself restricted the disallowance to 10% of the total claim, which was deemed contradictory. However, the Tribunal agreed with the assessee that no violation of Section 40A(3) occurred in the two instances highlighted by the AO. Consequently, the Tribunal allowed all grounds of appeal raised by the assessee and directed the deletion of the sustained addition. The appeal of the assessee was ultimately allowed by the Tribunal.

In conclusion, the Tribunal's decision emphasized the importance of specific findings for disallowance under Section 40A(3) rather than arbitrary estimates. The Tribunal ruled in favor of the assessee, highlighting that no violation of Section 40A(3) was established for the transactions in question, leading to the deletion of the disallowance imposed by the CIT(A).