Tribunal allows partial Revenue appeal, orders 25% disallowance of cash payments exceeding Rs. 20,000/day.

The Tribunal partially allowed the Revenue's appeal, directing a 25% disallowance of the total cash payments made by the assessee under section 40A(3) of the Income Tax Act, 1961. The Tribunal found that the payments exceeded the prescribed limit of Rs. 20,000 per day, considering practical difficulties in the business operations. The Tribunal estimated a fair disallowance to avoid an unrealistic profit margin for the assessee, as the nature of transactions involved multiple drivers and locations.

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Issues Involved:
1. Limitation in filing the appeal.
2. Disallowance under section 40A(3) of the Income Tax Act, 1961.
3. Applicability of Rule 6DD(k) of the Income Tax Rules, 1962.

Summary:

1. Limitation in Filing the Appeal:
The appeal filed by the Revenue was barred by a delay of 9 days. The Tribunal condoned the delay, considering the reason for the delay as reasonable, and admitted the appeal.

2. Disallowance under Section 40A(3) of the Income Tax Act, 1961:
The primary issue was the disallowance of Rs. 2,59,07,222/- made by the Assessing Officer (AO) under section 40A(3) of the Act for cash payments exceeding Rs. 20,000/- per day to Mr. M.Palanisamy for the purchase of sand. The AO contended that the payments were made in cash in excess of the prescribed limit and did not fall under any exceptions provided under Rule 6DD.

3. Applicability of Rule 6DD(k) of the Income Tax Rules, 1962:
The Commissioner of Income Tax (Appeals) [CIT(A)] deleted the disallowance, noting that the assessee's transactions fell under the exception provided in Rule 6DD(k). The CIT(A) observed that the payments were made to lorry drivers who acted as agents of the supplier, Mr. M.Palanisamy, and that each transaction involving one lorry supply was less than Rs. 20,000/-. The CIT(A) concluded that the payments were made under business exigency and practical difficulties, and thus, the disallowance under section 40A(3) was not justified.

Tribunal's Findings:
The Tribunal noted that the assessee admitted the cash payments but argued that each transaction was below Rs. 20,000/-. The Tribunal considered the nature of the business, the practical difficulties, and the prohibition on running heavy trucks during the day. It was observed that the payments were made to different drivers at different locations, and cumulatively, the payments exceeded Rs. 20,000/- in a single day.

The Tribunal found that neither the AO nor the CIT(A) had clarified whether the truck drivers were agents of the assessee or the sand supplier. It was also noted that adding the entire amount would result in an unrealistic profit margin for the assessee. Therefore, the Tribunal estimated a fair disallowance at 25% of the total cash payments and directed the AO accordingly.

Decision:
The appeal of the Revenue was partly allowed, with the Tribunal directing a 25% disallowance of the total cash payments made by the assessee.

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