TaxTMI 
TaxTMI 
2017 (6) TMI 170
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.... of Rs. 60,73,403/-. Further, the Assessing Officer observed that there is a difference of Rs. 7,62,150/- in total freight paid by the assessee and the freight payment debited to profit and loss account. The Assessing Officer treated the said difference as unexplained expenditure and made addition of the same u/s. 69C of the Act. Aggrieved by the assessment order dated 26-09-2011, the assessee filed appeal before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) after examining the documents on record deleted both the additions. Now, the Department is in appeal before the Tribunal assailing the findings of Commissioner of Income Tax (Appeals). 3. Shri Amit Bobde representing the Department vehemently supported the findings of Assessing Officer. The ld. DR submitted that the assessee has not been able to show compiling circumstances for making payments in cash to the transporters. The assessee could have made payment to the transporters through banking channels. The assessee has failed to show that the transport agencies had directed the assessee to make payment in cash to the trucks drivers immediately after delivery of goods to the assessee. The ....
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.... transport agency and each truck. The Assessing Officer accumulated various payments made on a single day for making disallowance u/s. 40A(3). While carrying out this exercise the Assessing Officer summarized all payments to a transport agency rather than a truck owner/driver. The payments made by the assessee to truck drivers are not disputed by the Assessing Officer. All the payments are genuine and payees are identifiable. The ld. AR submitted that the Assessing Officer has taken a hyper-technical view in interpreting the provisions of section 40A(3) to make disallowance. The assessee has made payment according to market practice followed in trading of sponge iron. 4.1 The ld. AR contended that the term „person‟ used in section 40A(3) has to be interpreted separately for each transaction. The Assessing Officer has erred in clubbing various transactions on a single day. The ld. AR contended that the Assessing Officer has failed to take into consideration the fact that the transporters are providing trucks to various vendors. The same is used by different suppliers on different dates. Thus, this makes evidently clear that the payments are made to the truck drivers tow....
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....the assessee and the remand report of the Assessing Officer. 5. We have heard the submissions made by the representatives of rival sides and have perused the orders of the authorities below. We have also considered the decisions on which the ld. AR of the assessee has placed reliance in support his contentions. The first issue in appeal raised by the Department is with respect to disallowance of Rs. 60,74,403/- u/s. 40A(3) of the Act. The disallowance has been made in respect of freight charges paid in cash by the assessee to the truck drivers. The Commissioner of Income Tax (Appeals) deleted the addition by observing as under : "6.3 I have carefully considered the facts of the case and rival contentions. In order the decide the issue under appeal, the provisions of section 40A(3) are relevant and the same reads as under - "Where the assessee incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day, otherwise than by account payee cheque or drawn on a bank or account payee bank draft, exceeds twenty thousand rupees, no deduction shall be allowed in respect of such expenditure." The only crux of the issue to be decided is wheth....
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.... 6.5 In view of the above facts and discussion, I am of the considered view that the appellant has made payment to different persons i.e. truck drivers for each delivery not exceeding Rs. 20,000/- at a time on a single day and hence the disallowance u/s 40A(3) is not justified. The addition of Rs. 60,73,403/- is, therefore, deleted. The A.O. is directed accordingly. Ground No. 1 stands allowed." 6. The Hon'ble Supreme Court of India in the case of Attar singh Gurmukh Singh Vs. Income Tax Officer (supra) under similar circumstances deleted the disallowances made u/s. 40A(3) by holding as under : "4. As to the validity of section 40A(3), it was urged that, if the price of the purchased material is not allowed to be adjusted against the sale price of the material sold for want of proof of payment by a crossed cheque or crossed bank draft, then the income tax levied will not be on the income but it will be on an assumed income. It is said that the provision authorising levy of tax on an assumed income would be a restriction on the right to carry on business, besides being arbitrary. 5. In our opinion, there is little merit in this contention. Section 40A(3) must not be read in i....
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....) could be made by taking a hyper technical view where the transactions are genuine. 8. The Hon'ble Punjab and Haryana High Court in the case of Gurdas Garg Vs. Commissioner of Income Tax (supra) while considering similar issue where disallowances u/s. 40A(3) was made deleted the disallowance by observing that where genuineness of transaction made in cash in excess of Rs. 20,000/- was not disbelieved by authorities, the same cannot be disallowed u/s. 40A(3) of the Act. 9. In the present case, the payment made by the assessee to the individual truck driver has not been disputed. It is not the case of Department that the payments made by the assessee are not genuine or the payees are not identifiable. 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 no....