2021 (3) TMI 1150 - AT - Income Tax

Tribunal Directs Deletion of Rs. 88,71,511 Addition under IT Act

The Tribunal allowed the appeal, directing the AO to delete the addition of Rs. 88,71,511/- under Section 40A(3) of the IT Act. The Tribunal emphasized ... Addition invoking the provisions of Section 40A(3) - payment made in cash on account of vehicle expenses be disallowed - Assessee submission that incurring of such expenses in cash are necessary because such drivers/running staff are unable to avail banking facilities during the transit period and that such persons are illiterate and not exposed to routine banking activities - HELD THAT:- 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 are accordingly allowed. Issues Involved:1. Confirmation of addition under Section 40A(3) of the IT Act.2. Applicability of Rule 6DD exemptions.3. Genuineness and necessity of cash payments in business operations.Issue-wise Detailed Analysis:1. Confirmation of Addition under Section 40A(3) of the IT Act:The assessee challenged the confirmation of an addition of Rs. 88,71,511/- made by the Assessing Officer (AO) under Section 40A(3) of the Income Tax Act, which disallows expenses exceeding Rs. 20,000/- made in cash. The AO initially determined the total income of the assessee at Rs. 30,37,990/- and made an addition of Rs. 9,90,000/- on an ad hoc basis for vehicle expenses. This assessment was later revised by the CIT under Section 263 of the IT Act, leading to a reassessment where the AO noticed cash payments of Rs. 95,53,516/- and disallowed Rs. 88,71,511/- after allowing Rs. 6,82,005/- for payments made on Sundays.2. Applicability of Rule 6DD Exemptions:The assessee argued that the payments were made under circumstances covered by Rule 6DD, which provides exemptions to Section 40A(3). The assessee contended that the cash payments were necessary due to the nature of the business, involving expenses like diesel purchases, repairs, and toll charges incurred during transportation, often in remote areas without banking facilities. The CIT(A) upheld the AO's decision, stating that the assessee failed to provide sufficient evidence that the payments fell under the specified exemptions of Rule 6DD. The CIT(A) noted that the general remarks and modus operandi provided by the assessee were insufficient without specific facts and documents.3. Genuineness and Necessity of Cash Payments in Business Operations:The assessee's counsel argued that the payments were genuine and necessary for business operations, citing the Delhi High Court's decision in R.C. Goel vs. CIT and other cases where business exigencies justified cash payments. The Tribunal recognized the practical difficulties faced by the assessee in the transport business, such as the need for cash payments during long transit periods, at night, and in areas without banking facilities. The Tribunal found merit in the assessee's arguments, noting that the AO did not dispute the genuineness of the expenses and that the provisions of Rule 6DD(k) should apply.Conclusion:The Tribunal concluded that the disallowance under Section 40A(3) was not justified given the practical business exigencies and the genuineness of the expenses. The Tribunal set aside the CIT(A)'s order and directed the AO to delete the addition of Rs. 88,71,511/-. The appeal filed by the assessee was allowed, emphasizing the necessity to consider business realities and practical difficulties in applying Section 40A(3).Pronouncement:The decision was pronounced in the open court on 17.03.2021.