2016 (8) TMI 694 - AT - Income Tax

Tribunal allows appeal, condones delay, deletes disallowance under Section 40A(3), restricts expenses to 50%.

M/s. M.A.K. Constructions Versus The Joint Commissioner of Income Tax, Range II, Madurai

M/s. M.A.K. Constructions Versus The Joint Commissioner of Income Tax, Range II, Madurai - TMI Issues Involved:1. Delay in filing the appeal.2. Disallowance under Section 40A(3) of the Income Tax Act.3. Disallowance of expenses for tea, coffee, freight charges, and diesel expenditure.4. Disallowance of expenses on account of labor charges, jelly purchase, sand purchase, and gravel purchase.Detailed Analysis:1. Delay in Filing the Appeal:The appeal filed by the assessee was delayed by 148 days. The assessee's counsel provided an affidavit explaining the reasons for the delay, and the Departmental Representative had no serious objections. The Tribunal found the reasons for the delay to be sufficient and reasonable, thus condoning the delay and admitting the appeal for adjudication.2. Disallowance under Section 40A(3) of the Income Tax Act:The assessee, a partnership firm engaged in civil contract works in rural and remote areas, was disallowed a sum of Rs. 19,09,420/- by the Assessing Officer (AO) for making cash payments exceeding Rs. 20,000/- on various occasions, invoking Section 40A(3) of the Income Tax Act. The assessee argued that the cash payments were due to business exigencies, lack of banking facilities, and the nature of transactions with local vendors and lorry brokers who insisted on cash payments. The AO, however, disallowed the claim, stating that there was no necessity for such cash payments. The Commissioner of Income Tax (Appeals) confirmed the AO's order. The Tribunal, after considering the business exigencies and the nature of transactions, found that the payments were genuine and necessary due to the peculiar circumstances of the business. The Tribunal set aside the order of the Commissioner of Income Tax (Appeals) and deleted the addition made by the AO on this ground.3. Disallowance of Expenses for Tea, Coffee, Freight Charges, and Diesel Expenditure:The AO disallowed Rs. 5,13,267/- claimed by the assessee for expenses on tea, coffee, freight charges, and diesel expenditure, citing lack of supporting vouchers. The assessee explained that these expenses were incurred for labor welfare and fuel expenses at remote work sites, where vouchers often got damaged. The Commissioner of Income Tax (Appeals) confirmed the AO's disallowance. The Tribunal, considering the nature of the business and the necessity of such expenses, found it reasonable to restrict the disallowance to 50% due to the external circumstances of the work. Thus, the Tribunal directed the AO to restrict the disallowance to 50% of the claimed expenses.4. Disallowance of Expenses on Account of Labor Charges, Jelly Purchase, Sand Purchase, and Gravel Purchase:The AO disallowed Rs. 13,00,000/- claimed by the assessee for labor charges, jelly purchase, sand purchase, and gravel purchase, citing that the vouchers were self-made and could not be verified. The assessee argued that these expenses were necessary for carrying out works in remote areas, where vendors did not issue separate bills, necessitating internal vouchers. The Commissioner of Income Tax (Appeals) confirmed the AO's disallowance. The Tribunal, acknowledging the business activities in remote areas and the necessity of such expenses, found it reasonable to restrict the disallowance to 50% due to the nature of the business and the lack of proper maintenance of records. The Tribunal directed the AO to restrict the disallowance to 50% of the claimed expenses.Conclusion:The Tribunal partly allowed the appeal, condoning the delay in filing, deleting the disallowance under Section 40A(3), and restricting the disallowance of expenses for tea, coffee, freight charges, diesel expenditure, labor charges, jelly purchase, sand purchase, and gravel purchase to 50%.Order Pronounced:The order was pronounced on Thursday, the 30th day of June, 2016, at Chennai.