TMI Blog2020 (1) TMI 968X X X X Extracts X X X X X X X X Extracts X X X X ..... intained by the assessee, the same cannot be considered as additional evidences. Hence we are of the view that the Ld CIT(A) was not justified in treating them as additional evidences. In any case, he has examined the same and has also scanned three vouchers in his order, meaning thereby, he has admitted them, even though the same does not constitute additional evidence. From the assessment order, we notice that the assessing officer has not found fault with any of the vouchers, nor did he attempt to examine the recipients of cash paid towards expenses in order to verify the veracity of expenses. Hence we are of the view that the AO has disallowed the expenses on surmises only. There is merit in the submission of Ld D.R that the expenses incurred by way of cash is not amenable for cross verification. The Ld CIT(A) has also pointed out certain deficiencies in the manner of maintenance of vouchers. Accordingly, we are of the view that this issue may be put to rest by disallowing 5% of expenses incurred by way of cash exceeding ₹ 20,000/-, i.e., 5% of ₹ 1,11,32,697/- in order to take care of deficiencies, if any, in incurring expenses by way of cash maintenance of vou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 377; 1,61,51,863/- 3) Quarry expenses of ₹ 1,74,36,731/- Aggregate of all the three - ₹ 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 ₹ 11,86,318/- represents amount paid for obtaining demand draft for remitting the same to the Government. It was further submitted that the assessee s quarry is located in remote place and it is not serviced by any bank within 15 k.m radius. Accordingly it was submitted that the impugned payments are covered by exceptions provided under Rule 6DD of the Income-tax Rules. 5. The AO also noticed that the assessee has not furnished any credible material evidencing these payments. Accordingly he treated these expenses as not genuine and disallowed the same u/s 37 of the Act. The AO also invoked provision of sec. 40A(3) of the Act protectively, since the disallowance has been made on substantive basis u/s 37 of the Act. Accordingly he disallowed a sum of ₹ 3,02,74,912/- and added the same to the total income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are located in a remote place and the said place is not serviced by any bank within 15 kms radius. She submitted that the assessee has furnished a certificate obtained from Village Administrative Officer in this regard. Accordingly, she submitted that those payments are covered by clause (g) of Rule 6DD of Income-tax Rules. The ld AR further submitted that these expenses are the routine expense incurred by the assessee in the quarry business year after year. In the past, all these expenses have been allowed by the AO. The royalty expenses have been remitted to Government. Accordingly she submitted that there is no reason to suspect the genuineness of the expenses. The Ld A.R placed her reliance on the decisions rendered by Hon ble Karnataka High 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 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of royalty expenses claimed by the assessee is ₹ 2.58 crores, out of which the AO is doubting genuineness to the extent of ₹ 11.86 lakhs, that too only for the reason that they have been incurred by way of cash. However, we have seen that the assessee has either purchased demand drafts or remitted the amount into treasury. Hence we are of the view that the genuineness of these expenses cannot be doubted with. Accordingly, we set aside the order passed by Ld CIT(A) on this addition and direct the AO to delete the disallowance of ₹ 11.86 lakhs, referred above. 12. The AO has also disallowed a sum of ₹ 1,74,36,731/- out of Quarry expenses u/s 37(1) of the Act on the reasoning that these payments have been incurred by way of cash and hence genuineness of these expenses cannot be proved. He has also made disallo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹ 1.11 crores were incurred at quarry site, where there is no banking facility. Hence they are covered by Clause (g) of Rule 6DD. Accordingly, we are of the view that the provisions of sec.40A(3) of the Act shall not be applied to the impugned expenses. 14. The AO has disallowed the above said expenses u/s 37 only for the reason that they have been incurred by way of cash. For making disallowance under the provisions of sec.37(1) of the Act, the AO has to show that the impugned expenses are either (a) Capital expenditure (or) (b) personal expenses (or) (c) not laid out or expended wholly and exclusively for the purpose of business (or) (d) expenditure of nature specified in sec. 30 to 36 (or) (e) Explanation 1 2 to sec.37(1) are attracted. In the instant case, the AO has, presumably, taken the view that these expenses have not been 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 incurre ..... X X X X Extracts X X X X X X X X Extracts X X X X
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