TMI Blog2021 (3) TMI 1150X X X X Extracts X X X X X X X X Extracts X X X X ..... is case is not justified and the provisions of 6DD(k) will come to the rescue of the assessee. In this view of the matter, we set aside the order of the CIT(A) and direct the AO to delete the addition. The grounds raised by the assessee are accordingly allowed. - ITA No. 5191/Del/2019 - - - Dated:- 17-3-2021 - R. K. Panda , Member ( A ) And Sudhanshu Srivastava , Member ( J ) For the Appellant : Suresh K. Gupta , CA For the Respondents : Vipul Kashyap , Sr. DR ORDER Per R. K. Panda, AM This appeal filed by the assessee is directed against the order dated 7th March, 2019 of the CIT(A)-12, New Delhi relating to assessment year 2012-13. 2. The assessee, in his only effective ground of appeal has challenged the order of the CIT(A) in confirming the addition of ₹ 88,71,511/- made by the AO invoking the provisions of Section 40A(3) of the IT Act. 3. Facts of the case, in brief, are that the assessee is an individual and is engaged in the business of transport services under the name and style of M/s. Suman Roadlines and Trading in motor parts under the name and style of M/s. Dara Motors. The assessee is running a service station of Hero Motors Corpor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is notified that the plying of heavy vehicles on most of the roads in Delhi is not permitted between 7.30 AM and 9.30 PM and as per prevailing rate of diesel during F.Y. 2011-12, the average purchase of diesel for vehicle was not more than ₹ 20,000/- and the payment was always made for more than one vehicle. Various other decisions were also brought to the notice of the AO and it was accordingly argued that no disallowance u/s. 40A(3) is called for. 6. However, the AO was not satisfied with the arguments advanced by the assessee. After excluding an amount of ₹ 6,82,005/- incurred on Sundays (bank holiday) which was allowable as per sub-rule (j) of rule 6DD, the AO made addition of ₹ 88,71,511/- u/s. 40A(3) of the IT Act. 6.1. In appeal, the ld. CIT(A) upheld the action of the AO by observing as under:- 7. Decision 7.1 Briefly, the facts of the case are that the Assessee is engaged in the business of lying of tracks under the name style of M/s. Suman Road Lines. The Assessee is also running a service station, of Hero Motor Corporation under the name style of M/s. Dara Motors. The Pr. CIT-12, Delhi passed the order u/s. 263 of the IT Act observi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /- was paid on Sundays. The truck drivers mostly belonged to rural area and insist for payment in cash. The payments were made generally after 9 pm as the plying of heavy vehicles on most of the roads in Delhi is not permitted between 7.30 am to 9.30 pm. The average purchase of diesel for vehicle was not more than ₹ 20,000/- and the payment was always made for more than one vehicle. The Assessee referred to the clauses 6DD(g), (j) (k). It was also, stated that payments to a person in a day in cash did not exceed ₹ 20,000/-. 7.4. The Assessing Officer observed that the reply of the Assessee is tenable only with respect to the payments amounting to ₹ 6,82,005/- made on Sundays (bank holiday), which is allowable as per sub-rule (j) of Rule 6DD of IT Rules. The Assessee has not been able to, brought anything on record in form-of vouchers in support of his claim that the remaining payments exceeding ₹ 20,000/- were not made to a single party in a day. In view of the above facts, the Assessing Officer added ₹ 88,71,511/- to the total income. 7.5 During the proceedings before me, the Appellant has reiterated his arguments as those were placed befo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in a position to avail banking facilities during the transit period. Further, such persons are illiterate and not exposed to routine banking activities. Sometimes such expenses may arise at odd hours at night and also at the places which may not be having banking facilities. 9. Referring to the decision of the Hon'ble Delhi High Court in the case of R.C. Goel vs. CIT, vide ITA 636/2012, order dated 4th December, 2012, he drew the attention of the Bench to page 5, para 9 of the order where it has been held that when the cash expenses had to be incurred by a catering contractor of Railways for the supplies in trains of small articles of daily necessity and use to the passengers, such expenses had to be incurred per force in cash. The assessee in terms of its contract is bound to maintain constant supplies in trains and payments have to be made to small time concerns. The Hon'ble Court held that the protection u/s. 40A(3) seeks to relieve to a certain extent the measure of hardship which might be imposed upon small businesses which are dependent on timely cash flow. In the circumstances of the case, the statutory mandate in Rule 6DD(k) of IT Rules has to be construed as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sustained by the CIT(A) is not called for and, therefore, the same should be deleted. 10. The ld. DR, on the other hand, heavily relied on the order of the CIT(A). He submitted that the assessee has violated the provisions of section 40A(3) of the IT Act by making cash payments in excess of ₹ 20,000/- paid otherwise than by account of payee cheque or bank draft, therefore, the lower authorities are fully justified in making the addition. 11. We have heard the rival arguments made by both the sides, perused the orders of the AO and the CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find, the AO, in the instant case, invoking the provisions of section 40A(3) of the Act, made disallowance of ₹ 88,71,511/- which has been upheld by the CIT(A) and the reasons for which have already been reproduced in the preceding paragraphs. It is the submission of the ld. Counsel that the assessee is in the business of transport contract and the payments have been made to the truck drivers against the expenses to be incurred in the course of transportation of goods involving long transit period such as diese ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bona fide and had to be taken out of the scope of Section 40A (3). However, the assessee was unsuccessful before the AO, CIT(A) as well as the ITAT. When the matter travelled to the Hon'ble High Court, the Hon'ble High Court reversed the order of the Tribunal and allowed the claim of the assessee by deleting the addition made u/s. 40A(3) by observing as under:- 8. The proviso which was introduced in the year 1999 has remained constant except in the year 2005 when sub-section (3A) was introduced by the Parliament. However, Rule 6DD which was introduced and has been existing on the statute for the nearly two decades has been amended from time to time. Rule 6DD (k) to the extent it is relevant reads as follows:- 6DD. No disallowance under sub-section (3) of section 40A shall be made and no payment shall be deemed to be the profits and gains of business or profession under sub-section (3A) of section 40A where a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds twenty thousand rupees in the cases and circumstances specified hereunder, namely:- XXX XXX XXX ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that having regard to the peculiar facts and circumstances, the Tribunal and the lower authorities adopted an unduly narrow and technical interpretation of Rule 6DD(k), the benefit of which the assessee clearly was entitled to. The question of law is accordingly answered in favour of the assessee and against the Revenue. 11. The Appeal - ITA 636/2012 - is accordingly allowed. 14. We find, the Hon'ble Delhi High Court in the case of Honey Enterprises (supra) has observed as under:- 29. Before considering the rival contentions, it is necessary to observe (i) that there is no dispute as to the identity of the producers to whom cash payments have been made by the Assessee; and (ii) that the payments were made bona fide and in consideration of a genuine transactions as advances either for processing the positives of the film or acquiring the rights of exhibition of feature films. Thus, indisputably, such payments were allowable as deduction being revenue expenses incurred wholly and exclusively for business. The only issue to be considered is whether the same have to be disallowed by virtue of Section 40A(3) of the Act because the same were made in cash. 30. Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessee further satisfies the Income-tax Officer that payment could not be made by crossed cheque drawn on a bank or by a crossed bank draft (a) due to exceptional or unavoidable circumstances; or (b) because payments in the manner aforesaid was not practicable, or would have cause genuine difficulty to the payee, having regard to the nature of transaction and the necessity for expeditious settlement thereof. 32. Apparently, several representations were received by the CBDT regarding difficulties that were being faced by tax payers due to the lack of uniformity in the interpretation of the aforesaid Rule. In the circumstances, the CBDT issued a circular - being Circular No. 220 dated 31st May, 1977, inter alia, providing as under:- 4. All the circumstances in which the conditions laid down in rule would be applicable cannot be spelt out. However, some of them which would seem to meet the requirements of the said rule are; (i) The purchaser is new to the seller; or (ii) The transactions are made at a place where either the purchaser or the seller does not have a bank account; or (iii) The transactions and payments are made on a bank holiday; or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Assessee and against the Revenue. 38. In view of the above, all appeals, both Revenue's as well as Assessee's are dismissed. The parties are left to bear their own costs. 15. The facts of the instant case are also somewhat similar. The assessee in terms of its contract is bound to deliver the goods within the stipulated time. In the course of such transportation, the assessee is bound to incur expenses for putting fuel in the vehicle, payment of toll gate charges, incurring of expenses for routine and exceptional repairs and maintenance apart from fooding expenses of the staff. Since the AO has not doubted the genuineness of the expenses as no such disallowance has been made and the AO has made only disallowance u/s. 40A(3) of the Act on the basis of the bills/vouchers/ledger account produced before him, we are of the considered opinion that the disallowance u/s. 40A(3) made by the AO under the facts and circumstances of this case is not justified and the provisions of 6DD(k) will come to the rescue of the assessee. In this view of the matter, we set aside the order of the CIT(A) and direct the AO to delete the addition. The grounds raised by the assessee ar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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