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M. Kannappan Versus The Assistant Commissioner of Income Tax, Range III, Tiruchirappalli

2016 (9) TMI 1033 - ITAT CHENNAI

TDS u/s 194C - non deduction of tds on payments in respect of lorry freight - Held that:- Assessing Officer should be furnished with Permanent Account Number of lorry owners, which is mandatory requirement for not deducting of TDS and further the ld. Commissioner of Income Tax (Appeals) order does not refer the said provision, considering the apparent facts, provisions of law, we are of the opinion that the ld. Assessing Officer has to examine the nature of expenditure and provisions under 194C( .....

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read in isolation or exclusion of Rule 6DD of Income Tax Rules, 1962. The section must be read alongwith Rule and on reading together, it is very clear that provisions are not intended to restrict the business activities. The ld. Assessing Officer cannot restrict the Business of the assessee on application of the Rule 6DD, further the provisions of Sec. 40A(3) of the Act empowers the ld. Assessing Officer to disallow deduction claimed as expenditure were payments are not by account payee cheque .....

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nd purchase of country coal from small farmers who are illiterate and does not have permanent place of Business and also vendors deliver country coal at the working site of assessee. We support our opinion with the decision of Anupam Tele Services vs. ITO (2014 (2) TMI 30 - GUJARAT HIGH COURT ) and set aside the order of the Commissioner of Income Tax (Appeals) and delete the addition made by the ld. Assessing Officer on this ground. - Decided in favour of assessee - Disallowance of salary - .....

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rcial expediency and employees working conditions we are of the opinion that the order of Commissioner of Income Tax (Appeals) cannot be sustained on the ground and we direct the ld. Assessing Officer to delete the addition of ₹ 1,68,000/- Decided in favour of assessee - I.T.A. No. 350/Mds/2013 - Dated:- 10-8-2016 - SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER For The Appellant : Shri. S. Sridhar, Advocate For The Respondent : Shri. Durai Pandian, JCIT. .....

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application of section 40(a)(ia) in the computation of taxable income without assigning proper reasons and justification. 2) The CIT(A) erred in sustaining the disallowance of ₹ 7,40,250/- on the application of section 40A(3) of the Act in the computation of taxable income without assigning proper reasons and justification. 3) The CIT(A) erred in partly sustammg the disallowance of salary payments in the computation of taxable income without assigning proper reasons and justification 3. T .....

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ised Representative of assessee appeared from time to time and produced Books of accounts and other evidences as called for. The ld. Assessing Officer found on verification of evidence that the assessee has claimed lorry freight expenses ₹ 52,60,281/- in financial statements and no TDS was deducted and Breakup of expenses statement was furnished. On perusal, the ld. Assessing Officer found some of the payments exceeded ₹ 50,000/- and no TDS were made and the ld. Assessing Officer rel .....

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the ld. Authorised Representative explained that the assessee has incurred expenses towards payment of freight charges to lorry owners and further single lorry freight payment does not exceed more than ₹ 50,000/- per lorry and these aggregate payments pertaining to five trucks during the financial year 2008-09 and there is no agreement between truck owners and assessee and provisions of Sec. 40(a)(ia) of the Act shall not apply and therefore payments are not liable for TDS and prayed for .....

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sing Officer relied only on the Application of Provision of sec 194(C) (5) of the Act as the payments in respect of lorry freight exceeded more than ₹ 50,000/- and no TDS was deducted on the said payments are disallowed u/s.40(a)(ia) of the Act. We perused the provisions of Sec. 194C(6) of the Act which are relevant to the present case (6) No deduction shall be made from any sum credited or paid or likely to be credited or paid during the previous year to the account of a contractor during .....

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be furnished with Permanent Account Number of lorry owners, which is mandatory requirement for not deducting of TDS and further the ld. Commissioner of Income Tax (Appeals) order does not refer the said provision, considering the apparent facts, provisions of law, we are of the opinion that the ld. Assessing Officer has to examine the nature of expenditure and provisions under 194C(6) of the Act and collect information of lorry owners and pass the order on merits after providing adequate opportu .....

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rious dates to three persons and the said amount was not paid to single person. But the ld. Assessing Officer alleged that the aggregate amount of ₹ 7,40,252/- was paid in cash. These fuel expenses are paid to poor farmers and reflected in the Financial statements and the aggregate payments pertains to five to six consignment. The cash payments are made to purchase country coal from farmers and villagers as same was necessary for running gassifier which generates heat in production purpose .....

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traders collect this country coal from farmers and supply to the assessee. The poor farmer do not have bank accounts. Further, there are very few organized sectors (As NGO cooperatives) who collect country coal from these farmers and sell it to assessee and in organised cooperative suppliers the assessee make payments by cheques as these society have bank accounts. But these small group of farmers do not have any bank accounts and hence the assessee mandatorily make cash payments. The availabil .....

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Aggrieved by the order, the assessee filed an appeal before Commissioner of Income Tax (Appeals). 4.2 In the appellate proceedings, the ld. Commissioner of Income Tax (Appeals) has confirmed the addition of the ld. Assessing Officer. Aggrieved by the order of the Commissioner of Income Tax (Appeals) the assessee assailed an appeal before Tribunal. 4.3 Before us, the ld. Authorised Representative submitted that the ld. CIT(A) erred in confirming the findings of the ld. Assessing Officer and fail .....

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ent place of business and Deal only on cash basis. Further educating the farmers for opening of bank account and make Bank payments is highly impractical. Considering time and place of work in rural areas and it is a regular phenomenon faced by the assessee 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 has been maintaining sufficient bank balance as per Books of account b .....

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cies and maximum transactions are entered with small farmers for supply of country coal who are also illiterate people. Further, the commercial transactions with Bank is not appreciated by above farmers 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 mandatory insist cash. We perused the provisions of Sec. 40A(3) of the Act read as:- Where the assessee incurs a .....

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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 of 1949); (ii) the State Bank of India or any subsidiary bank as de .....

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y 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 card; (vii) a debit card. Explanation.-For the purposes of this claus .....

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ee 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 the products manufactured or processed without the aid of power in .....

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nt 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 of fifteen days or more in a place other than his normal place of du .....

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the normal course of his business. The payments to the small farmers by cash other than account payee cheques was never doubted by the Revenue. The assessee 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 reading together, it is very clear that provisions are not intended to restrict the business activities. .....

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tions of the business. The assessee makes cash payments in the circumstances as per the intention of the farmers/supplier who transact on cash basis and no credit facility is available in the villages. So, considering the apparent facts and nature of business of the assessee and purchase of country coal from small farmers who are illiterate and does not have permanent place of Business and also vendors deliver country coal at the working site of assessee. We support our opinion with the decision .....

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/s. Kannappa Corporation found that the assessee has claimed higher salary payments compared to the turnover and disallowed ₹ 4,50,000/- as excess salary paid. Aggrieved by the order, the assessee filed an appeal before Commissioner of Income Tax (Appeals). 5.2 In the appellate proceedings, the ld. Authorised Representative explained that the payments are fully supported by vouchers and registers and payments are reasonable considering the size of Business and turnover. The ld. Authorised .....

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eals) is of the opinion that the assessee could not substantiate with sufficient evidence and relied on the findings of the ld. Assessing Officer on unreasonability and have considered ₹ 4,000/- as average salary payment per person and sustained the addition of ₹ 1,68,000/- and partly allowed the appeal. Aggrieved by the order of the Commissioner of Income Tax (Appeals) the assessee assailed an appeal before Tribunal 5.3 Before us, the ld. Authorised Representative argued the grounds .....

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