2017 (6) TMI 170 - AT - Income Tax

Tribunal upholds CIT(A) decision on freight charges & unexplained expenditure under Income Tax Act

Income Tax Officer, Ward – 1 (3), Jalna Versus M/s. Dhanshree Ispat

The Tribunal upheld the CIT(A)'s decision to delete the disallowance of freight charges under Section 40A(3) of the Income Tax Act, emphasizing the ... Disallowance u/s. 40A(3) - payment made to the truck drivers in cash - Held that:- The assessee has sufficiently explained the circumstances under which the payments have been made to the truck drivers in cash. The Assessing Officer made disallowance by taking a pedantic view of the cash transactions. Where cash payments are made under bonafide conditions and no doubt is raised over genuineness of the payments and the payees are identifiable; no disallowances u/s. 40A(3) is warranted. Thus, in view of the facts of case and various decisions discussed above, we do not find any error in the findings of Commissioner of Income Tax (Appeals) in deleting disallowances made by the Assessing Officer u/s. 40A(3) of the Act. - Decided in favour of assessee. Disallowance u/s. 69C - Held that:- First Appellate Authority has deleted the addition after seeking comments of Assessing Officer on reconciliation statement filed by the assessee. The Assessing Officer has not made any adverse comments or has raised any doubt over the reconciliation statement filed by the assessee in the remand report. The Commissioner of Income Tax (Appeals), accordingly deleted the addition. The ld. DR has not been able to controvert the findings of Commissioner of Income Tax (Appeals) on this issue. We do not find any merit in the ground raised by the Department assailing the findings of Commissioner of Income Tax (Appeals) in deleting the said addition. - Decided in favour of assessee. Issues Involved:1. Disallowance of freight charges under Section 40A(3) of the Income Tax Act, 1961.2. Addition of unexplained expenditure under Section 69C of the Income Tax Act, 1961.Detailed Analysis:1. Disallowance of Freight Charges under Section 40A(3):The Department appealed against the order of the Commissioner of Income Tax (Appeals) [CIT(A)], who had deleted the disallowance of Rs. 60,73,403/- made by the Assessing Officer (AO) under Section 40A(3) of the Income Tax Act, 1961. The AO had disallowed the freight charges paid in cash exceeding Rs. 20,000/- in a single day. The AO's rationale was that the payments should have been made through banking channels to ensure transparency and avoid generation of black money.The CIT(A), however, observed that the payments were made to individual truck drivers and not to a single transport agency. The payments were recorded in the books of accounts, and TDS was deducted. The CIT(A) held that the term 'person' in Section 40A(3) should be interpreted as each individual truck driver, not the transport agency. The CIT(A) emphasized that the payments were genuine, recorded, and did not lead to tax avoidance or generation of black money. The CIT(A) relied on various judicial precedents, including the Supreme Court's decision in Attar Singh Gurmukh Singh Vs. ITO, which supported the view that genuine and bona fide transactions should not be disallowed under Section 40A(3).The Tribunal upheld the CIT(A)'s findings, agreeing that the payments were genuine and made under bona fide conditions. The Tribunal dismissed the Department's appeal, stating that the AO had taken a hyper-technical view and that the payments did not warrant disallowance under Section 40A(3).2. Addition of Unexplained Expenditure under Section 69C:The AO had made an addition of Rs. 7,62,150/- under Section 69C, citing a discrepancy between the total freight paid and the amount debited in the profit and loss account. The assessee provided a reconciliation statement during the appellate proceedings, which the CIT(A) forwarded to the AO for comments. The AO did not raise any objections or discrepancies in the remand report.The CIT(A) deleted the addition based on the reconciliation statement and the lack of adverse comments from the AO. The Tribunal found no merit in the Department's appeal against this deletion, noting that the Department could not controvert the CIT(A)'s findings. The Tribunal dismissed the Department's appeal on this issue as well.Conclusion:The Tribunal dismissed the Department's appeal in its entirety, upholding the CIT(A)'s order to delete the disallowances and additions made by the AO. The Tribunal emphasized the genuineness of the transactions and the proper recording of payments, aligning with judicial precedents that support bona fide business practices.