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2017 (1) TMI 1095 - AT - Income TaxDisallowance U/S 40A(3) - whether persons to whom payments were made were made at places where your assessee had no bank account and in the course of transport business, the provision of section 40A(3) disallowance is not warranted? - Held that:- The assessee had incurred the expenditure during transportation and logistics, in that process the drivers and staff incurred these expenses en-route to the destination like diesel, repairs, toll charges etc. One has to verify each payment and sub-payment, whether it crosses the limit of ₹ 20,000 in individual case. The accounts of the assessee are subject to audit in the earlier three years and the disallowances were 0.13%, 0.11% and 0.26% of the Turn Over. We cannot apply the law of percentage in the case of disallowances. It has to be actual. Hence, in our view, the details of expenditure could be verified and the payment of above ₹ 20,000/- should be verified. In case, it is found that the payment of above ₹ 20,000/- to any one person on a day, only these payments alone should be disallowed. We find it appropriate to remit the issue back to the file of the AO to determine the payment above ₹ 20,000/- to any person as per section 40A(3) of the Act and make the disallowance accordingly. Ground Nos. 1 & 2 are treated as allowed for statistical purposes. Addition being notional interest - AO has charged notional interest @ 14% on the advances given to group companies, directors and relatives considering the fact that IGF had invested money in the business - Held that:- We observe from the Balance Sheet that the term loans, working capital loans and vehicle loans ere existing loans (balance carried from previous year). There is no fresh loan taken this year, which the assessee would have diverted during this year. We also observe that the assessee has considerable reserves in the company and is in good financial position, it is the discretion of the assessee to finance the group concerns on commercial expediency. With regard to advances to directors/relatives, we do not have details for which purpose they were given. Still, we do not see any reason to charge notional interest on the advances, when there is no cost to the company, in case the advances were paid utilizing the IGF investments. Thus we are inclined to treat the advances given to group concerns, is on commercial expediency and loan to directors as allowable as the company has enough reserves in the business to finance the same - Decided in favour of assessee Disallowance of expenditure - Held that:- CIT(A) has classified the expenses of ₹ 227.96 cores, out of which, the assessee had paid TDS for ₹ 109.15 crores and balance expenses were incurred through cheque and cash payments. Since, the accounts were not audited, we can infer that the assessee would have made the payment by cheque only for those which have proper bills etc. Cash expenses need to be verified. But, considering the complications involved and volume of the transactions, we agree with the CIT(A) that 7% of the expenses may be disallowed. The CIT(A) has considered the total expenditure (cheque & cash), in our considered view, we restrict the disallowance to cash expenses alone. Hence, AO is directed to disallow the cash expenses to the extent of 7%. Thus, Ground Nos. 7 & 8 are partly allowed.
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