TMI Blog2020 (4) TMI 263X X X X Extracts X X X X X X X X Extracts X X X X ..... DD of the I.T. Rules - one more opportunity should be granted to the assessee to prove his case that he was forced to make cash payments under the compelling circumstances and assessee s case falls in one of situation enumerated under Rule 6DD of the I.T. Rules. For the above purpose, this issue is restored to the file of the Assessing Officer. Accordingly, Ground Nos. 1 to 5 of the assessee are allowed for statistical purposes. Payments to persons covered u/s. 40A(2) in excess of market value - assessee had paid salary to his mother, his wife and his two brothers - HELD THAT:- Having regard to the fact that the assessee s mother, wife and two brothers had experience in this line of trade, salary was paid to them as compensation for market value of services rendered by them - Disallowance of 50% of salary on facts and circumstances of the instant case is excessive. In order to meet the ends of justice, out of ₹ 5,40,000/- hold that assessee is to be granted further deduction of ₹ 2,70,000/- on account of salary paid to close relatives, for the reason that assessee s father was the previous owner of the business, on his passing away, all his children and his wife we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Personal use 4. Depreciation on building 43,982 5. Adhoc disallowance 1,50,000 Possible inflation 6. Interest u/s. 244A 1,330 Not disclosed 3. Aggrieved by the assessment order, the assessee preferred the appeal before the first appellate authority. The CIT(A) partly allowed the appeal of the assessee by deleting the adhoc disallowance of ₹ 1,50,000/-. 4. Aggrieved by the order of the CIT(A), the assessee is in appeal before the Tribunal raising the following grounds of appeal: 1. The Officers below were not justified in invoking/ confirming the addition made u/s. 40A (3). 2. The Commissioner of Income-tax (A) is not justified in holding that the appellant is not covered by exemption stated under rule u/s. 6DD. 3. The Commissioner of Income-tax(A) did not appreciate the fact that the appellant business is located in Punalur which is about 40 KM away from the place of purchase i.e. Kollam. 4. Merely because the appellant did not produc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ieved by the order of the Assessing Officer by making disallowance u/s. 40A(3) of the I.T. Act, the assessee preferred the appeal before the first appellate authority. Before the CIT(A), apart from reiterating the submissions made before the Assessing Officer, the assessee has relied on the following judicial pronouncements: 1. Harshila Chordia vs. CIT (298 ITR 349) (Raj.) 2. KGL Network P Ltd. vs. CIT dated 02.07.2018 (ITAT, Delhi) 5.3 The CIT(A) rejected the contentions raised by the assessee and confirmed the view taken by the Assessing Officer . The relevant finding of the CIT(A) reads as follows: 4.1.3. The learned AR also relied on the decision of Hon'ble High Court of Rajasthan in the case of Harshila Chordia, 298 ITR 349 and on the decision of ITAT, Delhi in the case of KGL Network P Ltd dated 02.07,2018. The facts, the ground of appeal and the arguments of the learned AR have been considered. It is evident from the assessment order that purchases were made from a leading textile dealer in Kollam Town where Banking facilities are available. Further, learned AR, except stating that the goods are sold only on cash, has not produced any evidence from the paye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayments. The assessee has now produced a letter from SPM Sons, Kollam wherein it was stated that it had insisted for cash payments in view of the fact that the goods sold to them were mill goods, which is in high demand. Further, it was stated that the assessee s Bank account was located at Punalur and for encashing the cheque/draft would require time. It was further mentioned in the said letter of SPM Sons, Kollam that the purchases were effected in most of the days after the banking hours. Rule 6DD(j) of the I.T. Rules states that when payments are required to be made on dates on which the Banks are closed either on account of holiday or strike, such cash payments would not be liable for disallowance u/s. 40A(3) of the I.T. Act. The assessee has to prove the circumstances under which the assessee was forced to make cash payments and such circumstance falls within one of the conditions enumerated under Rule 6DD of the I.T. Rules. In the interest of justice and equity, I am of the view that one more opportunity should be granted to the assessee to prove his case that he was forced to make cash payments under the compelling circumstances and assessee s case falls in one of si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... against the payments received by them. The learned AR has not furnished any documentary evidence to prove the same. Considering these facts, the disallowance of 50% of these payments under section 40A(2) of the Act is reasonable and the same is upheld. The ground raised on this issue is dismissed. 6.2 Aggrieved by the order of the CIT(A), the assessee has raised this issue before the Tribunal. The Ld. AR reiterated the submissions made before the Income Tax authorities. The Ld. DR on the other hand strongly supported the orders of the Assessing Officer and CIT(A). 6.3 I have heard the rival submissions and perused the record. The assessee has filed brief written submissions. The contents of the same is that the assessee s father Late Shri R. Selvaraj was running the proprietary concern and on account of his premature death, the assessee was forced to take over the reins of business at a very young age since his brothers were studying for other professional courses. The assessee was a student and had to discontinue his studies to attend to the business run by his late father. In the process, the assessee s mother who was assisting his late father, has helped the assessee in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e car for attending business. The cars owned by the assessee and family members for both business and personal purposes. Since the cars are used by family members and also for personal purposes, the claim of the assessee for deduction of the entire expenses of all four cars is not allowable. Therefore one third of the entire expenses is disallowed and added to the total income of the assessee under the head income from business and profession. 7.1 The view taken by the AO was confirmed by the CIT(A) . The relevant finding of the CIT(A) reads as follows: 4.3.2. During the appeal proceedings, the learned AR argued that the Appellant had four relatives who were attending to the business and each of them was given a car for attending business and therefore, the disallowance is not warranted. The arguments of the learned AR are considered. The learned AR could not produce any documentary evidence to prove that four cars are necessary to maintain a proprietary business which has no branches. Further, the services rendered by the four relatives has not been proved. Considering these facts, the disallowance of 1/3rd expenses debited to P L account on account of four cars is u ..... X X X X Extracts X X X X X X X X Extracts X X X X
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