2012 (6) TMI 914 - AT - Income Tax

Tribunal allows appeal, cash payments for fuel exempt under Rule 6DD(k), disallowance deleted.

M/s. Pramod Kumar Singh Versus A.C.I.T., Circle-2, Durgapur.

The appeal was allowed by the Tribunal, setting aside the orders of the ld. CIT(A) and AO. The Tribunal found that the cash payments exceeding the limit ... - ISSUES PRESENTED AND CONSIDERED 1. Whether payments made in cash aggregating more than Rs.20,000 on particular dates for fuel purchases are liable to be disallowed under section 40A(3) of the Income-tax Act where individual supplier bills on those dates are each below Rs.20,000. 2. Whether payments made by drivers (who are not fixed and permanent employees) on behalf of the assessee fall within the exception in Rule 6DD(k) of the Income-tax Rules so as to render section 40A(3) inapplicable. 3. Whether ledger abstracts showing aggregate cash payments on particular dates suffice, absent other material, to sustain a section 40A(3) addition when corresponding supplier bills are each below Rs.20,000. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Application of section 40A(3) where aggregate daily cash payments exceed Rs.20,000 but individual bills are below Rs.20,000 Legal framework: Section 40A(3) penalizes expenditure in respect of which payment is made otherwise than by account payee cheque or account payee bank draft or use of electronic clearing system through a bank account, where such payment to a person in a day exceeds Rs.20,000, rendering such expenditure disallowable. Precedent treatment: No authority was cited by the revenue or relied upon by the Tribunal in the text; the Tribunal considered the statutory provision and accompanying Rules (Rule 6DD) as the controlling legal framework. Interpretation and reasoning: The Tribunal examined both the ledger abstracts (showing aggregate payments on particular dates in excess of Rs.20,000) and the individual supplier bills (each below Rs.20,000). The Tribunal observed that section 40A(3) operates on payments to a person in a day; thus the critical inquiry includes whether the payments made in aggregate on a day were payments to the same person and whether any exceptions apply. Where the record furnished by the assessee showed individual bills below Rs.20,000 and the revenue produced no further material to prove contravention beyond ledger aggregates, the Tribunal found the statutory threshold was not determinative of disallowance without regard to exceptions in the Rules. Ratio vs. Obiter: Ratio - section 40A(3) disallowance cannot be sustained solely on the basis of aggregate daily cash outflow where individual supplier bills are below Rs.20,000 and the factual matrix indicates separate payments by different payors (drivers), particularly when an exception applies under the Rules. Obiter - general observations about the spirit of the legislation as invoked by the AO and first appellate authority without analysis of Rule exceptions. Conclusion: The disallowance under section 40A(3) based solely on aggregate daily cash payments was not sustainable on the record; the Tribunal set aside the addition where individual bills did not exceed Rs.20,000 and relevant Rule exceptions were applicable. Issue 2 - Applicability of Rule 6DD(k) (exception) where payments were made through drivers who are not fixed and permanent staff Legal framework: Rule 6DD prescribes exceptions to disallowance under section 40A(3); sub-clause (k) provides an exception where payments are made by persons acting as agents for the assessee (subject to the text and conditions of the Rule as applicable). Precedent treatment: No prior decisions were applied or distinguished in the judgment; the Tribunal applied the rule to the facts. Interpretation and reasoning: The assessee's evidence comprised ledger entries and supplier bills showing that payments on specified dates were effected by drivers who were not fixed and permanent staff but acted as agents when making fuel purchases. The Tribunal accepted that where payment is made by a person acting as agent of the assessee and individual bills are below Rs.20,000, Rule 6DD(k) renders such payments exempt from disallowance under section 40A(3). The revenue produced no contrary material to rebut the agency character of the drivers' payments or to show that payments were made to a single person aggregating over Rs.20,000 on the same day in a manner that would attract the section. Ratio vs. Obiter: Ratio - payments made by non-permanent drivers acting as agents for the assessee fall within Rule 6DD(k) and exempt the expenditure from disallowance under section 40A(3) where supporting bills are each below Rs.20,000 and no contrary evidence is produced. Obiter - remarks concerning the absence of bill numbers on some vouchers and commentary by lower authorities that did not change the application of the Rule. Conclusion: The Tribunal held that Rule 6DD(k) applied to the facts, rendering the addition unsustainable; it directed deletion of the disallowance and remitted compliance to the Assessing Officer accordingly. Issue 3 - Sufficiency of ledger abstracts and the evidentiary burden to sustain section 40A(3) disallowance Legal framework: The assessing officer bears the onus of establishing that a payment to a person in a day exceeded Rs.20,000 and that the statutory exceptions do not apply; factual findings must be supported by adequate material. Precedent treatment: No authorities cited; Tribunal applied principles of evidentiary sufficiency to statutory disallowance. Interpretation and reasoning: The AO relied on ledger/ledger abstracts showing aggregate cash payments on particular dates exceeding Rs.20,000. The Tribunal found that such abstracts, unsupported by material establishing that payments on a day were made to the same person or that payments fell outside the Rule 6DD(k) exception, were insufficient. The assessee produced supplier bills (each below Rs.20,000) and explanation of payments routed through drivers acting as agents. The Tribunal emphasized that the revenue did not bring additional material to contradict the assessee's explanation; hence ledger abstracts alone did not justify the 100% disallowance. Ratio vs. Obiter: Ratio - ledger abstracts showing aggregate daily cash outflow are insufficient, by themselves, to sustain a section 40A(3) disallowance where supporting bills and credible explanation demonstrate payments were separate and within Rule exceptions; the revenue must adduce material establishing payment to a person in a day exceeding the statutory limit and inapplicability of exceptions. Obiter - comment that absence of bill numbers weakens the assessee's documentary position but does not by itself validate the addition where other material (individual bills) exist. Conclusion: The Tribunal concluded that the evidentiary foundation for the disallowance was inadequate; consequently the addition under section 40A(3) was deleted and the appeal allowed.