TMI Blog2018 (9) TMI 777X X X X Extracts X X X X X X X X Extracts X X X X ..... ncy been satisfied, no disallowance is called for by invoking the provisions of section 40A(3) of the Act. In the result, we hereby direct the deletion of disallowance so sustained by the ld CIT(A) - Decided in favour of assessee Disallowance of Freight & labour expenses and shop expenses - AO observed that expenses are not fully supported by bills vouchers - Held that:- The nature of these expenses are such that pakka bill is not possible. The expenses are reasonable considering the turnover of ₹ 1,98,00,164/-. The AO has not pointed out any specific expense which is not supported by vouchers. The shop expenses pertain to tea, refreshment, etc. which is reasonable. Hence, lump sum disallowance out of these expenses is uncalled for & be deleted. We find merit in the contention so raised by the ld AR and the adhoc disallowance so sustained by the ld CIT(A) is hereby deleted. - decided in favour of assessee - ITA. No. 1045/JP/2017 - - - Dated:- 4-9-2018 - SHRI VIJAY PAL RAO, JM And SHRI VIKRAM SINGH YADAV, AM Assessee by : Shri P.C. Parwal (C.A.) Revenue by : Smt. Roshanta Meena (JCIT) ORDER Per: Vikram Singh Yadav, A. M. This is an appeal filed by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Insurance Company. 2.3 The assessee has made payment in cash otherwise than by an account payee cheque drawn on a bank or account payee bank draft in excess of twenty thousand rupees aggregating in a single day in contravention of section 40A(3) of the Act. Since the assessee has incurred expenditure otherwise than an account payee cheque exceeding ₹ 20,000/-, no deduction shall be allowed in respect of such expenditure. Hence, an amount of ₹ 14,09,082/- is disallowed under section 40A(3) of the IT Act, 1961 and added back to the total income of the assessee. 3. Being aggrieved, the assessee carried the matter in appeal before the ld. CIT(A) who has confirmed the said disallowance and his findings are contained at para 4.3 which are reproduced as under:- 4.3 I have carefully considered the material before me and cited case law of the A/R of the appellant. I find that Assessing officer made the disallowance u/s 40A(3) of the I.T. Act of ₹ 14,09,022/- making the observation that cash payment more than ₹ 20,000/- are not allowable deduction. The A/R of the appellant submitted that the payment made by the appellant on behalf of the Government hos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent-cum- Member Secretary Rajasthan Medical Relief Society P.B.M. Hospital, Bikaner for installing a MRI and C.T. Scan machines. The P.B.M. Hospital, Bikaner is a Government Hospital. As per this agreement, assessee is to bear the cost of machines and for the test carried on these machines, he has to charge fee at the approved rates. Further, 20% of the total MRI/CT scan is to be done free for BPL and other free category patients as referred by the Superintendent Medical College. All expenses on account of electricity, water, maintenance of premises and the machines, security or other expenses incurred on day to day running of the machines is to be borne by the assessee. It was submitted that in pursuance to this agreement, electricity bills raised by Jodhpur Vidhut Vitran Nigam Ltd. (JdVVNL) on the secretary Rajasthan Medical Relief Society, PBM Hospital, Bikaner is paid by the assessee on behalf of the society directly to JDVVNL. During the year, out of total electricity bills of ₹ 19,13,935/-, payment of ₹ 12,41,292/- is paid in cash to JDVVNL. 4.2 It was further submitted that from the copy of electricity bills, it can be noted that the same is in the name of Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to furnish to the satisfaction of the AO, the circumstances under which the payment in the manner prescribed in section 40A(3) was not practicable or would have caused genuine difficulties to the payee. Hence, even without considering rule 6DD if a payment is genuinely made and the circumstances are such that the payment can't be made by cheque, provisions of section 40A(3) would not be attracted. 4.5 In light of the object of section 40A(3) and the decision of Supreme Court, it was submitted that it is not necessary that in each and every case, which is not covered by rule 6DD, this section would be attracted. Rule 6DD provide certain general exception to make the provisions of section 40A(3) workable. However, each and every exception can't be envisaged and covered by rule 6DD. If cash payment is made under such compulsion or circumstances which, though genuine, can't be made by cheque, section 40A(3) should not be invoked even if no specific exception for such payment is provided in rule 6DD. 4.6 In support, the ld. AR placed reliance on the following decisions:- Giridharlal Goenka Vs. CIT (1989) 179 ITR 122,127 (Cal.) Kanti Lal Purshottam Compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which is sustained. 7. A similar view has been taken in case of Smt. Aruna Rani Vs. ITO (ITA No. 613/JP15 order dated 14.02.2017), wherein the Coordinate Bench vide its order dated 02.02.2017 has held as under:- 5. Considering the above facts in the light of the above decision, it is clear that the nature of business of the assessee is such that assessee is required continuous supply of electricity for which assessee shall have to make payment to Jodhpur Vidyut Vitaran Nigam Ltd. for smooth functioning of the business activity of the assessee. In case no payment is made in cash to the above Nigam, then the electricity would have been discontinued. Therefore, having regard to the nature of business activity of the assessee and that assessee did not have banking facility where payment of electricity bill is to be made and considering the business expediency and other factors, I am of the view the case of the assessee would clearly fall in exception to Rule and no disallowance should be made under section 40A(3) of Income Tax Act. The learned Accountant Member has, therefore, rightly followed the decision of the coordinate Bench on identical issue in the case of Shri Rahul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of Smt. Harshila Chordia (supra), the consequences, which were to befall on account of non- observation of sub-section (3) of section 40A must have nexus to the failure of such object. Therefore the genuineness of the transactions and it being free from vice of any device of evasion of tax is relevant consideration. The intent and the purpose for which section 40A(3) has been brought on the statute books has been clearly satisfied in the instant case. Therefore, being a case of genuine business transaction and test of business expediency been satisfied, no disallowance is called for by invoking the provisions of section 40A(3) of the Act. In the result, we hereby direct the deletion of disallowance so sustained by the ld CIT(A) and the ground of appeal is hereby allowed. 9. Regarding ground No. 2, briefly the facts of the case are that during the year under consideration, the assessee has debited an amount of ₹ 2,26,399/- towards freight labour expenses and ₹ 16,871/- towards shop expenses in his profit/loss account. The AO observed that expenses are not fully supported by bills vouchers. Accordingly, he made a lump sum disallowance of ₹ 30,000/- out of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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