TaxTMI 
TaxTMI 
2017 (4) TMI 532
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....aphical error and accordingly the appeal of the revenue is taken up for adjudication. 4. The brief facts of this issue is that the assessee is a limited company engaged in the business of transportation, operating as a transport contractor for transport of goods by road, for its clients. The company has 37 branches in different locations in India. The assessee company, as per the contract with its clients, collects goods and arranges delivery of the same from their sites to different destinations, normally, as per the annual contract. The deliveries are handled by assessee's branches and offices and payments to truck owners are made by branch offices, partly from branch and partly through middle man, say agents / through local body of truck owners association. The ld AO observed from the books of accounts of the assessee company that huge cash payments were made towards transportation of goods on behalf of the clients far in excess of stipulation laid down in section 40A(3) of the Act. He made the detailed analysis of such payments in the assessment order and showcaused the assessee for invoking the provisions of section 40A(3) of the Act in that regard. The assessee replied tha....
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.... In pursuance of generally accepted trade practices in the field of transportation, the agent supply trucks to the transporters giving details such as Owners name, Driver's name, License No. and takes guarantee of Truck Driver and also ultimately becomes a link between unknown truck owner / driver and the transporter. The transporter is supposed to make advance payment to the agent and as such Rule 6DD(k) of the Rules would be applicable where assessee makes payment to his agent who is required to make payment in cash for goods or services rendered, on behalf of the assessee. The advance payments are paid to the transport contractors / commission agents and are in relation to trucks hired by the assessee in the course of its regular activities. Such payments are to be made in cash because then and there the agent is supposed to make advance payment to the truck driver. Based on these submissions, it was pleaded that the assessee would fall outside the rigours of section 40A(3) of the Act. 5. The ld AO observed that the assessee's case does not fall under any of the exceptions provided in Rule 6DD of the Rules so as to provide immunity to the assessee from the provisions of secti....
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....midnight through, agent or members of local body by our branch manager. First Payment: First Payment is shown in the challan/consignment note as advance out of the total hire charges due. Balance payment of Hire Charges: Balance of hire charges are paid after producing the challan showing delivery of goods to the party. These payments are also made by branches during office hours and payments to truck owner who come after offices hours are made through agents or members of local body of truck owners. Payment beyond office hours: The Id. Assessing Officer did not consider that the truck hire charges are paid partly on loading and balance on delivery of goods to the consignor‟s premises and many a times truck drivers come beyond office hours and also at midnight and nonpayment to them will cause genuine difficulties to the payee and the appellant and so the services of the agents are utilized in such situations also. Payment of Commission to Agents Payments to agents who contacts our branch manager on behalf of trucks owners are paid their commission or brokerage by the truck owners as it is included in tot....
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....he local truck owners and agents to operate as transporter for dispatch of their products or act as agent it will be appreciated that the appellant has made the cash payments due to the compelling circumstances existing at the place of operation but within the provisions of rule 6DD. Secondly the Id A. O. disallowed the said freight payments on the ground that the said payments are bogus. However, we have filed the statement of said freight payments and corresponding freight receipts which shows that these is a receipt against each freight payment and is offered as income for assessment." The assessee stated that: "a) The ld. Assessing Officer rejected the appellant‟s explanation regarding cash payments of the Truck Hire Charges through local agents without making proper enquiries and without giving proper and reasonable opportunity to the appellant to explain with documents the compelling circumstances prevailing in the branch which forced the appellant to take the service of local agents and also to make payment in cash b) In support of our case we hereby submit the copies of Memorandum of Arrangements between the Factory Management & Associati....
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....s the expenses of hiring and plying of the goods vehicle are inflated and the actual income concealed. In connection the A.R. of the assessee company produced the statement showing the receipts and corresponding payments of the goods vehicle hire charges which were made through local associations and agents. He also produced cash book along with vouchers which were test checked. On examination of the books produced it seems that the income has been taken into consideration but the corresponding expenses have not been considered." 6.3. The assessee filed further objections to the second remand report of the ld AO. The ld CIT(A) after considering the same deleted the disallowance by observing as under:- "4.7 I have considered the assessment order, the submission of the A.R. of the appellant as well as the remand report. Two issues have to be considered here. Firstly, is the issue whether the appellant has inflated his expenditure on hiring and plying of goods vehicles and thereby concealing his actual income. I am of the view that this issue has been put to rest by the Remand Report of the A.O. dt.1.10.2013 wherein he has duly examined the receipts and payments m....
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....pply in the case of the appellant. The agents in turn have to make the payments to the truckers in cash because the truck drivers may not even have a bank account or he may have his bank account at some other place and it is not prudent for him to wait for the clearance of such cheques. The dispatch and receipt of .goods have to follow a time schedule and cannot wait for cheque clearances. In that sense, I am in agreement with the issue of commercial expediency raised by the A.R. of the appellant. The A.O. has also accepted that the appellant has not paid directly to any trucker and all the payments have been made to the Associations which function as an agent of the appellant. Rule 6DD comes with the heading "Cases and circumstances in which a payment or aggregate of payments exceeding twenty thousand rupees may be made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft." Therefore, the circumstances under Rule 6DD have to be carefully considered before arriving at any conclusion. Reference here is being made to the Guwahati High Court Judgement in the case of Walford Transport (Eastern India) Ltd. vs CIT 240 ITR 902 (Guwaha....
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....2013 has clearly not noticed any false or fictitious or bogus transactions made by the appellant even though he had examined the books of accounts and the supporting vouchers of the appellant. Considering the above judicial pronouncements and the nature of business and the local situation, the appellant was forced to do business through certain Associations on the terms set by such Associations. This being the case, if the appellant had to survive in business, then, it had to adapt itself to the local circumstances. I am of the view that the case of the appellant is covered by Rule 6DD(k) and addition made on this account should stand deleted. 6.4. Aggrieved, the revenue is in appeal before us. 7. The ld DR argued that the ld CIT(A) had granted relief that the subject mentioned payments fall under the exception provided in Rule 6DD(k) of the Rules . In the instant case, the assessee had not made payment to his agent. There is no evidence that is brought on record to prove that the said agent had to make payment in cash on behalf of the principal. The agent is not appointed by the assessee. The agents in the instant case were appointed by the truck owners and commissi....
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....ating that the transportation of goods getting paralysed due to tussle between the local transport owners and the transporters and the need for the agents to mediate the same. All these documents were referred by the ld AR from pages 82 to 92 of the paper book. He stated that the similar transactions carried out by the assessee have been accepted by the ld AO for the Asst. Year 2011-12 u/s 143(3) of the Act dated 17.12.2013. He placed reliance on the decision of the co-ordinate bench of Ahmedabad Tribunal in the case of Chartered Logistics Ltd vs ACIT in IT(SS) A No. 37 to 40/Ahd/ 2013 and IT (SS) A No 115 to 118/Ahd/ 2013 for the Asst. Years 2007-08 to 2010-11 dated 15.11.2013. He placed reliance on the following decisions:- a) Hon‟ble Jurisdictional High Court in the case of Goenka Agencies vs CIT reported in (2003) 263 ITR 145 (Cal) ; b) Hon‟ble Gujarat High Court in the case of Anupam Tele Services vs ITO reported in (2014) 366 ITR 122 (Guj) ; c) Hon‟ble Gauhati High Court in the case of Walford Transport (Eastern India) Ltd vs CIT reported in (1999) 240 ITR 902 (Gau) ; 9. We have heard the rival submissions and perused the materi....
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.... dispute at all. He further submitted that the AO repeatedly mentioned in the show cause notices issued by him that the concerned payments have been made by assessee to its brokers. Copies of such show cause notice with respect to disallowance u/s.40A(3) for all the four years are placed at page nos.33 to 49 of the paper book. It was further argued that the assessee has also brought this fact to the notice of the AO as well as ld. CIT(A) that payments were made to brokers vide its written submissions, copies of which are placed at page no.11 to 26 of the paper book. In view of the above, it was contended that there was no violation of provisions of section 40A(3) r.w.s. Rule 6DD of the Income Tax Rules, since the cash payments have been made to brokers. Reliance was placed at page no.11 of the CIT(A)‟s order and page no.1 of the paper book. It was further submitted that even the learned CIT(A) has recorded a finding that the assessee has not made payments to individual truck owners but to various brokers through whom the trucks are engaged. Reliance was placed at page no.12, para 6 of the learned CIT(A)‟s order. It was further submitted that ultimate recipient of the pa....
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.... payments are not in the nature of expenditure, there is no question of disallowance of any expenditure invoking the provisions of section 40A(3). He placed reliance on the decision of the ITAT, in the case of G.A. Roadlines Vs. ITO, 44 SOT 145 (Hyd) and ITO Vs. Shri Ashish V. Patel, ITA No.676/ahd/2013 order dated 28.6.2013. 7. On the other hand, the learned DR argued and supported the order of the AO, and submitted that the payments were not made to the brokers, but to the parties. 8. We have heard rival submissions and perused the orders of the lower authorities and material available on record. In the instant case, the AO observed that the assessee has made cash payments for freight charges to brokers, which was in excess of the limit prescribed under section 40A(3) of the Act. He, therefore, by invoking the provisions of section 40A(3) of the Act, made disallowance of 10,69,899/- for A.Y.2007-2008, 7,05,198/- for A.Y.2008- 2009 6,92,47,389/- for A.Y.2009-2010 and for A.Y. 2010-2001 94,85,912/-. On appeal, the learned CIT(A) has confirmed the action of the AO, on the ground that the entire freight charges from customers have been included in the books of accou....
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.... of the goods. It was also confirmed that they were taking commission ranging from 0.5% to 0.75% on supply of waste papers to the assessee. In the light of these facts, it is seen that the provisions of clause (k) of Rule 6DD of the IT Rules are squarely applicable and hence, in the facts of the present case, no disallowance u/s 40A (3) of the Act is justified. Hence, on this aspect, we do not find any reason to interfere in the order of the learned CIT(A). Accordingly, we confirm his order on this aspect, we do not find any reason to interfere in the order of the learned CIT(A). Accordingly, we confirm his order on this aspect." 9. We find that in the instant case also, it is not in dispute that the payments were made by the assessee to the brokers from whom the trucks were hired on payment, and in turn was required to make the payment in cash to the truck- drivers in each. As per Oxford Dictionary & Thesaurus-II Page no.15, an agent is: i) person acting for another in business etc. ii) person or thing producing effect iii) broker, delegate, envoy, executor, functionary, go-between, intermediary, mediator, middleman, negotiator, proxy, represent....
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....l step in making payment in cash to stay in business in a competitive environment-Tribunal allowed revenue‟s appeal relying on clause (j) of r 6DD-Held, s 40A (3) aims to curb and reduce possibilities of back money transactions-It does not eliminate considerations of business expediences-Assessee was compelled to make cash payments under peculiar circumstances as principal company, to which assessee was a distributor, insisted that cheque payment from a cooperative bank would not do, since the realization takes a longer time-If assessee had not made cash payment, it would have received the recharge vouchers delayed by 4/5 days and thereby would severely affect its business operations- Rigors of s 40A(3) to be lifted-Further the exceptions contained in r 6DDD are not exhaustive and that rule must be interpreted liberally- Impugned order set aside-Assessee‟s appeal allowed. 9.4. We also find that the Hon‟ble Gauhati High Court in the case of Walford Transport (Eastern India) Ltd vs CIT reported in (1999) 240 ITR 902 (Gau) wherein the head notes are reproduced as below:- Business expenditure-Disallowances under s. 40A(3)-Exceptional and unavoidable circum....