TMI Blog2017 (4) TMI 532X X X X Extracts X X X X X X X X Extracts X X X X ..... the ambit of exception provided in Rule 6DD(k) of the Rules in the facts and circumstances of the case and accordingly the provisions of section 40A(3) of the Act could not be made applicable in the instant case. - Decided against revenue - I.T.A. No. 482/Kol/2014 - - - Dated:- 5-4-2017 - SHRI N. V. VASUDEVAN JUDICIAL MEMBER AND SHRI M. BALAGANESH, ACCOUNTANT MEMBER For the Appellant Rajat Kumar Kureel, JCIT, Sr. DR For the Respondent Manoj Kataruka, Advocate ORDER Per M. Balaganesh, AM This appeal is preferred by the Revenue against the order of the Ld. Commissioner of Income Tax(Appeals)-IV, Kolkata, (hereinafter referred to as the Ld. CIT(A) ), dt. 08.11.2013, passed u/s 250 of the Income Tax Act, 1961(hereinafter the Act ) relating to assessment year 2009-10. 2. The only issue to be decided in this appeal is as to whether the ld CIT(A) was justified in deleting the disallowance u/s 40A(3) of the Act in the facts and circumstances of the case. 3. We find that the revenue had erroneously mentioned the section 43B in its grounds of appeal instead of section 40A(3) of the Act and this was duly pointed out by the ld DR at the time of hearing. The sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nded over, particulars of lorry, total amount payable, amount paid as part payment at the time of commencement of journey and the balance payment towards hire charges payable on completion of the journey. The remuneration of the agency is included in the freight settled for a particular destination. In the case of Balasore Branch, the agent is Balasore Truck Owners Co-ordination Committee (BTCC) and others. The assessee submitted that lorries were taken through the said agents in Balasore Branch and the payments were made to the said agents. The assessee enclosed the copies of debit vouchers, copies of trip hire challan showing supplier / broker name as BTCC and others. In the same way for Angul Branch, the agent is Angul District Truck Owners Association (in short ADTOA) and others. Here also every lorry hired for the purposes of transportation through the agents and the payments were made to them. Since the payments were made to agents, the assessee is outside the ambit of violation of provisions of section 40A(3) of the Act as it falls under the exception provided in Rule 6DD of the Rules. The assessee further explained that certain transport contractor /agent engaged in providi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the assessee has claimed to have hired trucks from these parties and no payment was made by these parties to anybody whom the assessee has hired itself. It was the duty of the hirer to provide trucks / trailer, drivers etc. whether from its own source, or from others and the hirers have done so. In view of this it can be stated that the assessee has inflated the expenditure on hiring and plying of goods vehicles by concealing its actual income throughout the year as apparent from books of account produced and reproduced above. Thus Rule 6DD(k) is not applicable in the instant case and since Rule 6DD(g) and (j) are also not applicable, the assessee comes under the provisions of section 40A(3) of the Act sans any exception under Rule 6DD. Accordingly, he disallowed a sum of ₹ 2,88,19,342/- u/s 40A(3) of the Act in the assessment. 6. Before the ld CIT(A), the assessee explained the complete business model which it has been carrying on for years as below:- Booking of Trucks Trucks are hired by the branches of the appellant through agents or members of local body Truck Owners Association. Loading of Trucks Hired trucks are loaded in the factory generally in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer disallowed ₹ 2,88,19,342/- u/s40a (3) stating that the places where such transactions reported are commercial places fully covered by Banks and assessee's own branch. The Id. A.O. did not consider the local conditions prevailing at (he place of operation and did not give adequate and reasonable opportunity to place the papers and documents to explain the reasons for making payment of truck hire charges in cash. From the enclosed documents it will be appreciated that due to union activities of the local truck owners and agents the applicant is forced to engage local truck owner or agent to carry on its operations at the said place. The adamant attitude of the local people is still continuing by Issuing rate chart of transport charges after every hike in diesel prices. Copies of old and new chart are enclosed. The habit of threatening/ forceful detection of trucks and the activities are still continuing and are verifiable. Having regards to local conditions prevailing at NALCO Factory and the Memorandum of Arrangements or Understanding agreed by the members of NALCO under the supervision of District Authorities allowing the local truck ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d bona fide. 6.2. The ld CIT(A) called for a remand report from the ld AO with regard to the abovementioned submissions and evidences submitted by the assessee. The assessee filed its objections to the remand report submitted by the ld AO by stating that the ld AO had neither conducted any verification nor offered any comments in his remand report. The assessee also submitted statements showing payment of truck charges wherein the payments vis a vis the corresponding receipt of the freight have been shown. The receipts have been accepted whereas the payments have been disallowed stating them to be bogus. It is evident there that the truck hire charges are genuine and not bogus. There are no comments in this regard in the remand report. Truck hire charges were paid through local agent as per agreement between truck owner association, factory management and transport contractors. On these specific issues, further remand report was called for from the ld AO wherein it was stated as under:- The A.O. made disallowance of freight payments of ₹ 2,88,19,342/- in the order u/s 143(3) on the ground that they were made in cash and thus the expenses of hiring and plying of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. From the assessment order I find that most of the payments towards transportation were made through the regional Truck Owners Association and Transporters, It has been argued by the appellant that they are compelled to take services of the Truck Owners Association, which is recognised by the local district administration as well as the factory management. To run the entire business of transportation smoothly, the transporters enter into agreement with the Association of Truck Drivers along with the factory management and the district administration. The transporters are forced to take the vehicle for transportation from the Truck Drivers Association. These associations therefore, function as an agent of the transporters. The ownership of the trucks could be with various individual truck drivers but it is the agent who takes the responsibility to get the work executed on behalf of the transporter. Several such documentations was made available to the A.O. at the remand stage but he has not commented on this issue. If such is the case with the appellant, then, I find no issue as to why the exception of Rule 6DD(k) should not apply in the case of the appellant. The agents in turn h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion Bench of the Calcutta High Court in the above noted case that Circular No. No.220 (see [1977] 108 ITR (ST) 8), dated May 31, 1977, is illustrative and not exhaustive and the Assessing officer is to take into account - the surrounding circumstances, considerations of business expediency and the fects of each particular case. In a case reported in Kantilal Purushottam eo, Js CIT 155 ITR 519, a Division Bench of Rajasthan High Court took the view that where the genuineness of payments has been established and the default was only technical, the assessee would be entitled for the benefit of exemption u/r.6DD. 4.8 From a perusal ~f the decisions of different High Courts referred to above, it clearly emerges that' the purpose of Sec.40A(3) of the Act is not to penalise the assessee for making' cash payments over and above the stipulated amount. The purpose is only preventive and to check evasion of tax and flow of unaccounted money or to check transactions which are not genuine and may be put as camouflage to evade tax by showing fictitious and false transactions. The A.O. in his remand report dt.01.10.2013 has clearly not noticed any false or fictitious or bogus trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re as could be evident from the corresponding truck hire receipts of the assessee. In this regard, he referred to the paper book containing the statements filed in respect of each and every consignment of hire charges paid vis a vis hire charges received. He stated that the freight income offered by the assessee was ₹ 66.57 crores and freight expenses claimed as deduction by the assessee was ₹ 60.69 crores. The disallowance of ₹ 2.88 crores made by the assessee u/s 40A(3) would result in abnormal increase in gross profit of the assessee which is practically not possible in the field in which assessee is engaged. With regard to argument advanced by the ld DR that assessee had not paid any commission to the agents, he argued that the same is prohibited in transport business and as per the generally accepted trade practice, the agents would be paid commission only by the truck owners. He placed reliance on the proceedings of Monopolies Restrictive Trade Practices Commission New Delhi vide Restrictive Trade Practices Enquiry No. 8 of 1983 dated 9.8.1984. He also placed reliance on certain newspaper reports stating that the transportation of goods getting paralysed d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce in all the years the issue involved is identical, therefore, the same are argued together. He submitted that a search action under section 132 was carried out in the assessee‟s case on 11.02.2010. The AO found that certain cash payments were made in excess of limit prescribed under section 40A(3), and hence, he made the impugned additions. He submitted that the assessee was engaged in the business of transportation, and has entered into contract with M/s. Hindustan Lever Ltd., Reliance, Kalpataru, etc. for transportation of goods. Copies of few such agreements are placed at page nos.77 to 102 of the paper book. He submitted that consequent to the aforesaid arrangement, such goods are transported through trucks owned by it as well as through hired trucks. It was submitted that as regard payments in respect of hiring charges of the trucks, the said payment was made in cash by the assessee to brokers who, in turn, was required to make payments to the concerned truck owner/drivers on behalf of the assessee. He submitted that the fact that the payments have been made by the assessee to brokers was not in dispute at all. He further submitted that the AO repeatedly mentioned in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7/Ahd/2013 and 85 to 96/Ahd/2013 consolidated order dated 29.8.2013, and also on the decision of the Hon‟ble Madras High Court in the case of CIT Vs. Sri Shanmuga Ginning Factory 37 taxmann.com 422 (Mad.). In the alternative, the learned AR submitted that the assessee has on one hand received freight from various companies, and on the other hand, it has passed on considerately portion of the same to its brokers for making payments in respect of hiring charges. The assessee retains only a small amount from the gross receipts received from the concerned companies, and the same ranges between 2.79% to 3.83% of such gross receipts. He placed reliance on page no.17 of the paper book. It was argued that merely for the sake of convenience, assessee recorded freight income received from the companies as well as the freight expenses paid through brokers. It is submitted that what the assessee earns as income is merely the freight difference and the same is in the nature of commission. When the assessee earns merely freight difference, the freight paid to the brokers is not its expenditure at all. Once the payments are not in the nature of expenditure, there is no question of disallowa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 33(6) of the Act to all eighteen persons whose names were available in the seized materials regarding cash payments exceeding ₹ 20,000/- and all of them had confirmed that they were acting as agents on behalf of these two assessees for making purchases on their behalf and they were getting commission in the range of 0.75% to 1%, They had also confirmed that they were receiving cash payment from these two assessees and were in turn making cash payment to the raddiwalas from whom they were making purchases on behalf of these two assessees. These facts are noted by the learned CIT(A) from the remand report In the remand report, it was also reported by the AO that the AO had also issued notice u/s 131 of the Act to three such agents on random basis out of total eighteen agents and out of these three persons, two appeared before the AO and confirmed that they were acting as agent for these two assessees for making purchases on behalf of these two assessees. It was also confirmed by them that they were taking payment in cash from these two assessees and payment was made in cash to the suppliers of the goods. It was also confirmed that they were taking commission ranging from 0.5% t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the payments were made to keep harmonious relationship with the principal-Same clearly satisfies the requirement of the provisions of r. 6DD(j)(1)- Disallowance under s. 40A(3) not justified. 9.3. We find that the Hon‟ble Gujarat High Court in the case of Anupam Tele Services vs ITO reported in (2014) 366 ITR 122 (Guj) wherein the head notes are reproduced as below:- Business Expenditure-Disallowance-Validity of-Cash payment exceeding prescribed limit-Assessee acted as agent of Tata for distributing mobile cards and recharge vouchers-Assessee made payments by account payee cheques till August 2005-Subsequently TATA issued circular and assessee was required to make payment by cash, since it had bank account with cooperative bank-Assessee made payment in cash on different dates and such payment exceeded ₹ 20,000 each-AO disallowed payment made in cash invoking provisions of s 40A(3)-CIT(A) deleted disallowance made by AO holding that genuineness of transaction was not disputed and assessee took a very practical step in making payment in cash to stay in business in a competitive environment-Tribunal allowed revenue‟s appeal relying on clause (j) of r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee for making cash payment of an amount of ₹ 2,500 or above. The purpose is only preventive and to check evasion of tax and flow of unaccounted money or to check transactions which are not genuine and may be put as camouflage to evade tax by showing fictitious or false transactions. 9.5. We also find that the Hon‟ble Rajasthan High court in the case of Smt Harshila Chordia vs ITO reported in (2008) 298 ITR 349 (Guj) had held that the exceptions contained in Rule 6DD of the Rules are not exhaustive and that the said rule must be interpreted liberally. 9.6. In view of our aforesaid findings and respectfully following the judicial precedents relied upon hereinabove, we hold that the subject mentioned cash payments would fall under the ambit of exception provided in Rule 6DD(k) of the Rules in the facts and circumstances of the case and accordingly the provisions of section 40A(3) of the Act could not be made applicable in the instant case. Hence we do not find any infirmity in the order of the ld CIT(A) in this regard. Accordingly, the grounds raised by the revenue are dismissed. 10. In the result, the appeal of the revenue is dismissed. Order pronounc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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