TaxTMI 
TaxTMI 
2021 (3) TMI 1150
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....0,47,990/-. The AO completed the assessment u/s. 143(3) on 30th March, 2015 determining the total income of the assessee at Rs. 30,37,990/- wherein he made an addition of Rs. 9,90,000/- being 10% of the vehicle expenses shown at Rs. 99 lakhs on ad hoc basis out of the vehicle expenses claimed at Rs. 1,58,79,841/-. This assessment was set aside by the ld. CIT, vide order passed u/s. 263 of the IT Act on 17th March, 2017 on the ground that the AO did not examine the allowability of cash payments as per section 40A(3) r.w. Rule 6D of IT Rules, 1962. 4. The AO, thereafter, issued notice u/s. 143(2) of the IT Act to the assessee and asked him to explain as to why the payment of Rs. 95,53,516/- made in cash on account of vehicle expenses be disallowed. The details of such expenses have been given by the AO at pages 2-4 of the order. 5. It was submitted by the assessee that these are not single payments and under different heads. Majority of these expenses were incurred by the drivers or staff of the company and most of these expenses are incurred en route during the transport. It was submitted that the nature of expenses would be purchases of diesel, repairs, payment at toll gates and ....
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.... Assessee that the drivers had to pay cash for instant repair at unknown places is not covered under the cases and circumstances specified under Rule 6DD of IT Rules. The Ld. Pr. CIT relied on the decision of Associated Engineering Enterprise vs. CIT (1995), 216 ITR 366 (Gau.) in which it was held that the payments made in cash exceeding the specified limit as laid down under section 40A(3) are disallowable. Even proof of genuineness of payment will not suffice. Circumstances warranting the payment in cash have to be proved. Therefore, the onus is on the Assessee to prove that the so called unknown places are covered under Rule 6DD(k) of IT Rules but the Assessee has failed to discharge his onus. The cases and circumstances in which the payments have been made in cash do not qualify exemption under Rule 6DD(k) as the drivers of the Assessee are his employees and the employees cannot be the agents of the Assessee. 7.2 The Assessing Officer examined the ledger account of vehicle expenses and found that the Assessee had made cash payments exceeding Rs. 20,000/- in a day. Total of such payments was found, to be Rs. 95,53,516/-. The Assessing Officer asked the Assessee to explain as t....
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....-. Ld. Pr. CIT while passing the order u/s. 263 of the IT Act gave sufficient opportunity to the Assessee to explain the payments covered under the clauses of the Rule 6DD. But the Appellant could not explain the payments made by him covered under those clauses. The Appellant has only given general remarks and modus operandi without bringing out specific facts and documents. The provisions of section 40A(3) have been brought on the statute to check the payments by the cash exceeding certain limit in order to check excess or bogus claim of expenses. The Appellant has stated that no payments exceeded Rs. 20,000/- is not supported by the vouchers. However, the Assessing Officer already considered the payments made on Sundays and reduced the same from the total amount of disallowance. The decisions cited by the Appellant are distinguishable on facts. Therefore, the disallowance made by the Assessing Officer is confirmed and the ground of appeal taken by the Appellant is dismissed." 7. Aggrieved with such order of the CIT(A), the assessee is in appeal before the Tribunal. 8. The ld. Counsel for the assessee strongly challenged the order of the CIT(A) in confirming the addition of Rs. ....
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....e Court gave interpretation to the expression 'required' in that matter. He submitted that the above decision of the Hon'ble Delhi High Court is in consonance with the proposition laid down by the Apex Court in the case of Attar Singh Gurmukh Singh vs. ITO, reported in 4 SCC 385 (SC). Referring to various decisions, he submitted that the courts have held that even if the case of the assessee does not fall in any of the clauses of Rule 6DD, invoking the provisions of section 40A(3) can be dispensed with if the assessee is able to prove the business expediency because of which it had to make cash payment if genuineness of transaction is verified. 9.1. Referring to the decision of the Hon'ble Punjab & Haryana High Court in the case of Gurdas Garg vs. CIT, he submitted that while considering similar issue where disallowance u/s. 40A(3) were made was deleted by observing that since the genuineness of the transaction made in cash of Rs. 20,000/- was not disbelieved by the authorities, the same cannot be disallowed u/s. 40A(3) of the Act. Referring to the decision of the Hon'ble Gujarat High Court in the case of Hasanand Pinjomal vs. CIT, 112 ITR 134, he submitted tha....
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....t such persons are illiterate and not exposed to routine banking activities. Further, sometimes such expenses may be required to be incurred at odd hours at night and also at places which may not be having banking facilities. 12. We find some force in the above arguments of the ld. Counsel. A perusal of the audited balance sheet filed by the assessee at pages 5-20 of the paper book shows that the assessee, during the impugned assessment year owned 48 trucks which were used for the purpose of business. Therefore, the assessee is bound to incur expenses in cash during the movement of those vehicles especially in remote areas, during night time and at places where the banking facility is not readily available for meeting routine expenses such as purchase of diesel and lubricants, routine and exceptional repair and maintenance, fooding of staff, toll gate charges, etc. 13. We find, somewhat identical question had come up before the Hon'ble Delhi High Court in the case of R.C. Goel vs. CIT, vide ITA No. 636/2012, order dated 4th September, 2012. In that case, the assessee was a mobile railway catering contractor. The AO noted that the assessee had purchased goods and supplies to t....
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.... those trains, its personnel are deployed for sale of small articles of daily necessity and use to the passengers. Per force, the payments received by them are necessarily in cash. These amounts are collected and in turn handed over to the assessee. The assessee in terms of its contract is bound to maintain constant supplies in the trains and ensure that at no point in time can the passengers be deprived of these articles (which are food articles, soft drinks and other items necessary for travel). In the course of such transactions, it sources these articles from M/s. Shruti Enterprises. Apparently, that concern is also a small time one and insists on cash payments for ensuring continuity and timely supplies. Whilst, the Court is conscious and does not in any manner wish to comment adversely on the larger public interest element embedded in Section 40A and the underlying principle, at the same time, the Court also notes that the proviso seeks to relieve to a certain extent, the measure of hardship which might be imposed upon small businesses and professionals who are engaged in activities and are dependent entirely on timely cash flow. It is in such cases that Rule 6DD - which was ....
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.... a sum exceeding ten thousand rupees otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft, such expenditure shall not be allowed as a deduction: Provided that where an allowance has been made in the assessment for any year not being an assessment year commencing prior to the 1st day of April, 1969, in respect of any liability incurred by the assessee for any expenditure and subsequently during any previous year the assessee makes any payment in respect thereof in a sum exceeding ten thousand rupees otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft, the allowance originally made shall be deemed to have been wrongly made and the Assessing Officer may recompute the total income of the assessee for the previous year in which such liability was incurred and make the necessary amendment, and the provisions of section 154 shall, so far as may be, apply thereto, the period of four years specified in sub-section (7) of that section being reckoned from the end of the assessment year next following the previous year in which the payment was so made: Provided further that no disallowance under this sub-section shall be made where any pay....
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....is given by the seller for payment to be made by way of cash." 33. CBDT further clarified that "the above circumstances are not exhaustive but illustrative. There could be cases other than those falling within the above categories which would also meet the requirements of rule" 34. The ITAT had considered the above mentioned CBDT Circular and had rightly concluded that the circumstances as spelt out in CBDT Circular No. 220 (supra) were not exhaustive but were merely illustrative of situations where business exigencies required that the payments be made in cash. The ITAT also referred to the decision of the Gujarat High Court in Hasanand Pinjomal v. CIT (1978) 112 ITR 134 (Guj.) wherein the Court had observed that the practicability would have to be judged from the angle of a businessmen and not the Revenue. 35. In the present circumstances neither the genuineness of the payment nor the identity of the payee is disputed. The only controversy that needs to be addressed is whether the ITAT's decision that such payments had been made by the Assessee on account of business exigencies is perverse. 36. In the present case, the AO does not dispute that the Assessee carried on ....