40A(3) payments

[LAKSHMISH IYENGAR]

Sir, My client is a trader is APMC yard and he buys food grains from agriculturists and sells the same to different dealers. The goods will be sent to other states in the country. In the entire year on 7 occasions  he has made payments in excess of Rs.20,000/- by way cash to truck drivers to transport the goods. The same amount is mentioned in the sale bills and the money is recovered from the buyers. In the books of accounts freight charges are debited and parties accounts are credited as freight charges. While concluding the assessment the assessing officer has made an addition of Rs.1,27,000/- u/s. 40A(3) stating that as the payments are made by cash the expenses are disallowed.  Sufficient proof was produced at the time of hearing still it was not accepted.  Now I have filed an appeal and I have quoted Allahabad HC. CIT Vs. Rajs Pal Automobiles (2009 (6) TMI 565 - ALLAHABAD HIGH COURT). I request you to through some more light on this issue.

Regards.

[Surender Gupta]

In addition you may visit this case:

G.A. Road Carriers Versus Income-tax Officer, Ward-I, Nizamabad (2010 -TMI - 203699 - ITAT, HYDERABAD)

This case is a landmard decision and may help you a lot.

AI Summary

Cash payment disallowance under section 40A(3) challenged where freight invoices, recovery from buyers, and books corroborate payments. Cash payments to transporters for freight were disallowed under 40A(3) and added to income despite invoices, recovery from buyers, and accounting entries showing freight debits and party credits; the assessee produced documentary proof and has appealed citing precedents supportive of allowing such expenses where commercial transactions and records corroborate the payments.