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2016 (8) TMI 694 - ITAT CHENNAI

2016 (8) TMI 694 - ITAT CHENNAI - TMI - Addition u/s 40A(3) - payments to the hawkers and vendors - Held that:- The payments to the hawkers and vendors by cash by the assessee firm other than account payee cheques was never doubted by the Revenue. The assessee firm is following prevailing business practice from earlier years. Further, provisions of Sec. 40A(3) of the Act must not be read in isolation or exclusion of Rule 6DD of Income Tax Rules, 1962. The section must be read alongwith Rule and .....

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n whether the payments are genuine considering business expediency, genuineness and bonafide peculiar transactions of the business. The assessee firm makes cash payments in the circumstances as per the intention of the vendors/supplier who transact on cash basis and no credit facility is available in the remote villages. So, considering the apparent facts and nature of business of the assessee being laying of roads, building bridges and culverts in the remote village and purchase of sand, jelly .....

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wance being expenses for tea, coffee, freight charges and diesel expenditure - Held that:- The fact that nature of expenditure being tea, coffee, freight charges and diesel expenditure, the assessee has claimed these expenditure incurred wholly and exclusively for the purpose of activities of the business and the findings of the ld. Assessing Officer they are not supported with vouchers and doubted the genuineness and disbelieved the transactions. The ld.CIT(A) has confirmed the findings of the .....

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ces of works and we direct the ld. Assessing Officer to restrict the disallowance of said expenses to 50% only and the ground of the assessee is partly allowed. - Disallowance of expenses on account of labour charges, jelly purchase, sand purchase and gravel purchase and vouchers are self made could not be verified - Held that:- The fact that labour charges, jelly purchase, sand purchase and gravel purchase incurred wholly and exclusively for the purpose. Since, the vouchers are self made th .....

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only and the ground of the assessee is partly allowed. - I.T.A. No. 2019/Mds/2015 - Dated:- 30-6-2016 - SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER For The Appellant: Shri. D. Anand, Advocate For The Respondent : Shri. P. Radhakrishnan, IRS, JCIT. ORDER PER G. PAVAN KUMAR, JUDICIAL MEMBER: The appeal filed by the assessee is directed against order of the Commissioner of Income-tax (Appeals)-2, Madurai in ITA No.119/2013-14, dated 23.02.2015 for the assessmen .....

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dmit the appeal for adjudication. 3. The assessee has raised the following grounds of appeal:- 2.The learned Commissioner Of Income Tax (Appeals)-2, Madurai erred in law in disallowing a sum of ₹ 19,09,420/- by invoking section 40A(3) of the Income Tax Act. 3. The learned Commissioner Of Income Tax (Appeals)-2 erred in law in not considering the business expediency and other factors including extent of banking facility before invoking section 40A(3) of the Income Tax Act. 4.The learned Com .....

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ssing officer as well as the first appellate authoritv failed to appreciate that the appellant is a civil contractor laying roads and constructing bridges in remote area and that it is practically impossible for the appellant to provide vouchers for expenses incurred towards tea, coffee, freight charges and diesel expenditure 7.The learned Commissioner Of Income Tax (Appeals)-2 erred in law in disallowing expenses of ₹ 13,OO,OOO/- incurred by the appellant on account of labour charges, jel .....

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cts of the case is that the assessee is a partnership firm engaged in the business of Civil contract works and carrying on works in rural and remote areas in laying roads, constructing bridges and culverts and e-filed Return of income on 22.09.2010 with total income of ₹ 34,05,746/- and the return was processed u/s.143(1) of the Act and subsequently, the case was selected for scrutiny and notice u/s.143(2) was issued. In compliance to notice, the ld. Authorised Representative of assessee a .....

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referred at page 2 & 3 of the order. The ld. Authorised Representative of the assessee filed submissions that these cash payments pertaining to Civil contract works in rural areas and dependent on lorry Brokers for supply of sand and jelly and local suppliers always insist for cash payments. Due to time frame, the assessee is bound to complete the rural works within limitation period and it is a common practice to make cash payments as there are no adequate Banking facilities available in re .....

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ner of Income Tax (Appeals) order, the assessee assailed an appeal before Tribunal. 4.2 Before us, the ld. Authorised Representative submitted that the ld. CIT(A) erred in confirming the findings of the ld. Assessing Officer and failure to consider the factors of banking facilities and cash payments fall within exception of Rule 6DD of the Act and prayed that the disallowance are not warranted as the local contractor always insist for cash payments. Further most of the vendors are illiterate and .....

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onsidering time and place of works conducted in rural areas and further transactions take place during odd hours with lorry brokers and vendors and it is a regular phenomenon has to be faced by the assessee firm and due to Business exigencies and the cash payment transactions are unavoidable and some transactions also take place on public holiday, Saturday and Sunday. The assessee firm has been maintaining bank Balance at the time of incurring expenditure as per Books of account but because the .....

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ts due to Business exigencies and maximum transactions are entered with farmers, hawkers and lorry brokers for supply of jelly and sand in the remote areas who are illiterate people. Further, the commercial transactions with Bank is not appreciated by above suppliers and insist cash immediately and shall move from place to place. The assessee has considered business exigencies and such cash payments were to be made in a peculiar situations and were mandartiory insist cash. We perused the provisi .....

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the profits and gains of business or profession under sub-section (3A) of section 40A where a payment59 or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds twenty thousand rupees in the cases and circumstances specified hereunder, namely :- (a)where the payment is made to- (i) the Reserve Bank of India or any banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 .....

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the payment is made to the Government and, under the rules framed by it, such payment is required to be made in legal tender; (c) where the payment is made by- (i) any letter of credit arrangements through a bank; (ii) a mail or telegraphic transfer through a bank; (iii) a book adjustment from any account in a bank to any other account in that or any other bank; (iv) a bill of exchange made payable only to a bank; (v) the use of electronic clearing system through a bank account; (vi) a credit ca .....

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the payee for any goods supplied or services rendered by the assessee to such payee; 6(e) where the payment is made for the purchase of- (i) agricultural or forest produce; or (ii) the produce of animal husbandry (including livestock, meat, hides and skins) or dairy or poultry farming; or (iii) fish or fish products68; or (iv) the products of horticulture or apiculture, to the cultivator, grower or producer of such articles, produce or products; (f) where the payment is made for the purchase of .....

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nchment, resignation, discharge or death of such employee, on account of gratuity, retrenchment compensation or similar terminal benefit and the aggregate of such sums payable to the employee or his heir does not exceed fifty thousand rupees; (i) where the payment is made by an assessee by way of salary to his employee after deducting the income-tax from salary in accordance with the provisions of section 192 of the Act, and when such employee- (i) is temporarily posted for a continuous period o .....

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anger against purchase of foreign currency or travellers cheques in the normal course of his business. The payments to the hawkers and vendors by cash by the assessee firm other than account payee cheques was never doubted by the Revenue. The assessee firm is following prevailing business practice from earlier years. Further, provisions of Sec. 40A(3) of the Act must not be read in isolation or exclusion of Rule 6DD of Income Tax Rules, 1962. The section must be read alongwith Rule and on readin .....

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the payments are genuine considering business expediency, genuineness and bonafide peculiar transactions of the business. The assessee firm makes cash payments in the circumstances as per the intention of the vendors/supplier who transact on cash basis and no credit facility is available in the remote villages. So, considering the apparent facts and nature of business of the assessee being laying of roads, building bridges and culverts in the remote village and purchase of sand, jelly from the .....

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e second ground raised by the assessee is with regard to disallowance by the ld. Assessing Officer ₹ 5,13,267/- being expenses for tea, coffee, freight charges and diesel expenditure not supported by vouchers and confirmed by the ld. Assessing Officer. 5.1 The ld. Assessing Officer found that the assessee firm has incurred expenditure in the nature of tea, coffee, freight charges and diesel and could not produce any supporting evidence. It was submitted that expenses are incurred in the na .....

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se expenses are compulsory incurred on labour and takes the characteristic of welfare measures. On comparing with the turnover of the contracts were contract receipt being 15.16 Crores, the disputed expenditure is very negligible which work out to 0.33%. The ld. Commissioner of Income Tax (Appeals) has considered the submissions but due to agreed addition by the assessee, non availability of evidence and overlooked the working conditions of the labour at work site has confirmed the addition. Agg .....

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allowing the ground. 5.4 Contra, the ld. Departmental Representative relied on the orders of Commissioner of Income Tax (Appeals) and vehemently opposed the grounds. 5.5 We heard the rival submissions, perused the material on record. The fact that nature of expenditure being tea, coffee, freight charges and diesel expenditure, the assessee has claimed these expenditure incurred wholly and exclusively for the purpose of activities of the business and the findings of the ld. Assessing Officer they .....

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or due compliance of Income Tax provisions. we found that it would be reasonable to restrict the disallowance to 50% due to external circumstances of works and we direct the ld. Assessing Officer to restrict the disallowance of said expenses to 50% only and the ground of the assessee is partly allowed. 6 The last ground raised by the assessee is that ld. Assessing Officer has disallowed expenses of ₹ 13,00,000/- on account of labour charges, jelly purchase, sand purchase and gravel purchas .....

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having not accepted. The ld. Assessing Officer made disallowance. Aggrieved by the order, the assessee filed an appeal before Commissioner of Income Tax (Appeals). 6.2 In the appellate proceedings, the ld. Commissioner of Income Tax (Appeals) found that the disallowance on account of self made vouchers worked out to 0.85% of contract receipts being small fraction and the assessee firm wholly depends on lorry brokers, hawkers and does not issue bills or vouchers. The assessee in own interest main .....

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