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TMI Blog2020 (1) TMI 968X X X X Extracts X X X X X X X X Extracts X X X X ..... /s 40A(3) of the Act. 3. The assessee is engaged in the business of quarrying, processing/selling exporting of a granite block and slabs. During the course of scrutiny proceedings, the AO noticed that the assessee has incurred following expenses by way of cash 1) Royalty and Quarry Expenses by cash on daily basis Rs. 11,86,318/- 2) Royalty expenses of Rs. 1,61,51,863/- 3) Quarry expenses of Rs. 1,74,36,731/- Aggregate of all the three - Rs. 3,02,74,912/-. 4. The AO asked the assessee to explain as to why the payments have been made in violation of provisions of sec.40A(3) of the Act. The assessee submitted that the royalty & quarry expenses of Rs. 11,86,318/- represents amount paid for obtaining demand draft for remitting the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , but the first appellate authority rejected the same by observing that the additional evidences cannot be admitted at that stage. However, after rejecting the evidences, the ld CIT(A) proceeded to examine some of the vouchers. He has also scanned 3 vouchers in his order. The ld CIT(A) found fault with the way the vouchers have been maintained by the assessee. Some of the faults noticed by Ld CIT(A) are:- a) No third party vouchers was present b) Full details of recipient are not available c) Revenue stamp of Rs. 1 is not affixed. Accordingly he took the view that the assessee is not able to prove the expenses. Accordingly he confirmed the disallowances of remaining two items. 7. The ld AR submitted that the expenditure sustained b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Court in the following cases:- (a) CIT vs. Modern Transport Company (ITA No.2885/2005) (b) M/s A.K. Agrotech P Ltd vs. ACIT (ITA No.228/2009) (c) Smt. Saira Banu vs. ACIT (ITA No.83/2010) (d) CIT vs. M/s Panduranga Enterprises (ITA No.752/2007) 9. On the contrary the ld DR submitted that the royalty amount can be paid by way of cash only if the rules framed there under provide for making payment in legal tender. With regard to other expenses, the ld DR submitted that the assessee has not furnished any reason as to why the payments could not be made by way of crossed cheque or demand draft. He further submitted that all these expenses are supported by self made vouchers only and hence the genuineness of these expenses have also no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee, the same is required to be remitted into the Treasury only. The remaining payments were made towards royalty and they have been paid by way of Demand draft only. 11. From the explanations and evidences furnished by the assessee, we notice that the provisions of sec.40A(3) are not attracted, since all the payments except two have been made by way of demand drafts only and not by way of cash. The two payments have also been stated as payment made to the Government in the treasury, which is covered by clause (b) of Rule 6DD. Since these are payments have been made to the Government, the genuineness of these expenses cannot be doubted with. There is one more reason for accepting the genuineness of expenses, i.e., The aggregate amount o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,11,32,697 Expenses by cash less than Rs. 20,000/- - Rs. 40,33,203 Rs. 1,75,05,218 It can be noticed that the provisions of sec.40A(3) shall apply only to the amount of Rs. 1,11,32,697/-, since the provisions of sec.40A(3) are attracted to this amount only. 13. A perusal of individual break-up details would show that the assessee has incurred expenses at quarry and also through its employees. The assessee has also furnished certificates obtained from two Village Administrative Officers to substantiate its contentions that the areas, where the quarries of the assessee are located are not serviced by any bank within 15 Km radius. Accordingly it has been submitted that the payments made by the assessee are covered by the except ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laid out or expended wholly and exclusively for the purpose of business. Accordingly, he has invoked the provisions of sec. 37 of the Act. There should not be any doubt that, merely because certain expenditure has been incurred by way of cash, the same cannot be considered as not related to the business activities of the assessee. 15. It is the submission of the assessee that these kinds of expenses are incurred year after year. We have also seen that the assessee has incurred 90% of expenses by way of cheque, meaning thereby, in case of business necessity only the assessee has been incurring expenses by way of cash. There is no doubt that the expenses incurred by way of cash may not be amenable for cross verification. But the vouchers sca ..... X X X X Extracts X X X X X X X X Extracts X X X X
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