TaxTMI 
TaxTMI 
2019 (9) TMI 908
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....idual engaged in the business of transporter and fleet owner and truck repairing job work. Ereturn of income filed on 23.09.2009, declaring income at Rs. 18,36,470/- along with Tax Audit Report u/s 44AB of the IT. Act. Case selected for scrutiny under CASS, followed by serving notices u/s 143(2) & 142(1) of the Act. The assessee's turn over for the year declared at Rs. 10,05,59,163/- and net profit rate is 1.85% after examining the records and considering various submissions filed by the assessee, Ld. AO made following addition: i. Under statement of gross receipts at Rs. 34,358/- ii. Disallowance u/s 40A(3) of the Act at Rs. 2,42,98,279/- which were claimed by the assessee to be genuine business expenditure and cash payments made due to poor creditability in the market. Detailed list of such payments is at Annexure-A forming part of the assessment order. iii. Disallowance u/s 40(a)(ia) of the Act at Rs. 45,42,816/- for non deduction of tax at source u/s 194A/194C of the Act. iv. Addition u/s 68 for unexplained cash credit of Rs. 78,13,987/- v. Disallowance of vehicle expenses at Rs. 27,050/- & telephone/mobile expenses at Rs. 19,515/- a....
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....red the good will of the assessee due to which cheques were not accepted. He also submitted that the alleged disallowance included payments made mostly for the diesel expenses, transportation charges, roads taxes, installments paid to finance companies. Further, the genuineness of expenses has not been doubted and after making the disallowance the net profit of the assessee will surge to abnormal level which is practically not possible in this trade. In support of his contention that if cash expenditure is incurred for business expediency, no disallowance u/s 40A(3) of the Act is called for, reliance was placed in the following judgments: 1. CIT vs. Raja Pal Automobiles (2010) 2 taxmann.com 284(Allahabad) High Court of Allahabad. 2. Shri Altafhusen Mahemudul Hasan Siddikin vs. ACIT, ITA No.2889/Ahd/2010, ITAT, Ahmedabad 3. ITO vs Pranay Towers (2017) 88 taxmann.cm 783, ITAT, Delhi 4. Gurdas Garg v. CIT (2015) 63 taxmann.com 289 (Punjab & Haryana High Court 10. Per contra Ld. DR vehemently argued supporting the finding of both the lower authorities and special emphasis was made on the following finding of Ld. CIT(A): 11 Reliance on Boa....
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....o the satisfaction of the A.O. Moreover, in the audit report the auditor has clearly pointed out the said violation. In view of detailed discussion made in the assessment order and no further evidence or argument put forth by the assessee, the addition made u/s.40A(3) is justified." The AO has correctly pointed out that the appellant could not substantiate his claim. The AO haGBP stated that the argument of the appellant that cash payments had to be made to pay the Creditors is of no use because he is not covered by the exceptional circumstances enumerated in Rule 6DD(j) of Income tax Rules. The, AO has also emphasized that 40A(3) violation has been pointed out by the Auditors in Form 3CD Report filed with the return. 12. After going through rival submissions it is seen that the appellant is not covered by Rule 6DD cases or circumstances. The appellant has not cited any sub-clause of Rule 6DD under which he is covered. The huge cash payments at times in lacs in one day do not show that the appellant was facing liquidity crunch. The huge freight receipts shown above Rs. 10 crore in the return do not support the contention of liquidity crunch. Thus....
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....k of truck repairing. The turnover for the year has come down to 10.60 crores (approx) form 12.04 crores (approx) in the preceding years. From going through the bank statement of the assessee running with Vijaya Bank placed at page No.2 to 110 of Paper Book-2, we find that regular business transactions are carried out but on numerous occasions the assessee has paid cheque return charges due to in sufficient balance in the bank. This shows that there was poor liquidity with the assessee due to which he failed to honour the cheques. 16. Further from perusal of the documents placed at pages 112 to 128 of Paper Book-2 we observe that the assessee was issued notices from various finance companies which gave loans to the assessee for the default in paying the installment. Legal notices and termination notice were issued to the assessee. In one of such notice issued by the GE Capital, the assessee was asked to immediately pay the outstanding demand of Rs. 8,38,523/- within 5 days else the company shall become entitled to repossession of the vehicle in question. Similar letters were also issued by Kotak Mahindra Bank, ICICI Bank, for recalling their loans due to default in payment....
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....iness purposes for which the disallowances u/s 40A(3) of the Act has been sustained by the Ld. CIT(A). 20. It is interesting to note that the assessee who is regularly getting his accounts audited is well worsed with the provision of law, that for such cash payments provisions of section 40A(3) of the Act can be invoked. Even after knowing this provision he has incurred cash expenditure of this magnitude just for keeping his business running. The revenue has not doubted the gross receipts of the assessee. In the past also same business has been carried out and regular assessments were completed u/s 143(3) of the Act and the net profits declared by the assessee have been accepted. Even in this year when the gross receipts is not in dispute which is from same business transportation and job work and no other sources of revenue has been found then for running the business, the assessee needs to be allowed the claim of expenditure incurred for running such business. In the proviso to section 40A(3) of the Act clearly specify that if the assessee prove that the expenditure has been incurred for business expediency; then the provisions should be applied liberally and no disallowance u....
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.... transactions are not taken out of the sweep of the Section. It is open to the assessee to furnish to the satisfaction of the assessing officer the circumstances under which the payment in the manner prescribed in Section 40A(3) was not practicable or would have caused genuine difficulty to the payee. It is also open to the assessee to identify the person who has received the cash payment. Rule 6DD provides that an assessee can be exempted from the requirement of payment by a crossed cheque or crossed bank draft in the circumstances specified under the rule. It will be clear from the provisions of Section 40A(3) and rule 6DD that they are intended to regulate the business transactions and to prevent the use of unaccounted money or reduce the chances to use black- money for business transactions.. If the payment is made by a crossed cheque drawn on a bank or a crossed bank draft then it will be easier to ascertain, when deduction is claimed, whether the payment was genuine and whether it was out of the income from disclosed sources. In interpreting a taxing statute the Court cannot be oblivious of the proliferation of black-money which is under circulation in our country. Any restra....
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.... offered to tax in their respective income tax returns. 27. Ld. DR did not oppose to this request. 28. We have heard rival contentions and perused the record placed before us. We find that the following payments were claimed as finance charges during the year on which tax was not deducted at source u/s 194A of the Act. 1. Cholamandalam Finances Ltd. Rs. 14,35,944/- 2. Tata Motors Ltd. Rs. 3,60,572/- 3. G E Capital Rs. 9,69920/- 4. G Mac Finance Service Rs. 98,828/- 5. India Bulls Finance Sec. Ltd. Rs. 52,084/- 6. Magma Sharachin Fin Ltd. Rs. 5,17,058/- 7. Others Rs. 37,148/- Total Rs. 34,71,554/- 29. In the above list no information is provided by the assessee for the amount paid at Rs. 37,148/-. So the disallowance u/s 40(a)(ia) of the Act for the amount of Rs. 37,148/- stands confirmed. As regards the remaining amounts which are paid to Non- Banking Finance Company, we observe that when a person taken loans from these companies post dated cheques are issued for the installment which comprises of the principle as well as the interest component. Many times the installment are paid as cheques alr....
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....ties. 36. We have heard rival contentions and perused the record placed before us. The assessee has challenged the addition for unexplained cash u/s 68 of the Act at Rs. 78,13,987/- received from following parties Sr. No. Name of Party Amount 1 Ashapura Carriers Dabba loan Rs. 15,00,000 2 Bhikhabhai Rs. 12,00,000 3 Hand loan Irshabhai Rs. 10,000 4 Rajmoti Road Movers Dabba Loan Rs. 22,95,000 5 Rajmoti Road Movers Hand loan Rs. 21,28,987 6 Krishna Traders Rs. 1,40,000 7 Dilip Transport Rs. 5,40,000 Total Rs. 78,13,987 37. It is contended before us by Ld. counsel for the assessee that in the above list the loan at Rs. 15,00,000/- from Ashapura Carriers Dabba loan & Rs. 22,95,000 from Rajmoti Road Movers Dabba Loan were actually taken during the F.Y. 2006- 07 i.e. A.Y. 2007-08. In the year under appeal the amounts were bifurcated in two parts but the actual loan was received in earlier year only. The copy of ledger account has been placed on record. 38. In our considered view this claim of the assessee needs verification at the end of the Ld AO. We accordingly, direct the Ld. AO to examine....
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.... 4. That the CIT(A) erred in law and on the facts of the case in charging interest u/s 234A/B/C of the Act. 5. Any other ground which may be urged before or during the time of hearing. 42. Apropos ground No.1 relating to disallowance of interest payment to nonbanking finance companies at Rs. 16,47,203/-. We find that the following three amounts were paid: 1. GE Finance Rs. 9,66,045/- 2. Magma Sarachi Finance Ltd. Rs. 5,68,442/- 3. Tata Motors Ltd. Rs. 1,12,716/- Total Rs. 16,47,203/- 43. The tax was not deducted on the above payments we have dealt similar issue in the case of assessee for A.Y. 2008-09 and have set aside the issue to the file of Ld. AO for conducting necessary verification with the assistance of the assessee who should provide sufficient documentary evidences to the Ld. AO for conducting verification. We accordingly, allow ground no.1 for statistical purposes. 44. Apropos ground No.2 for the disallowance u/s 40(a)(ia) of freight payment of Rs. 4,55,802/- after hearing the rival contentions we observe that the alleged amount was paid as freight charges at Rs. 41,204/- to Sharifbhai and Rs. 4,14,598/- to ....