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TaxTMI 
2024 (7) TMI 899
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....firmed by the ITAT to Rs. 65,20,741/- (ii) Disallowance of loading and unloading expenses of Rs. 12,12,400/- sustained by the Ld.CIT(A) and confirmed by the ITAT to Rs. 1,81,860/-. 3. The facts relating to the respective disallowances are reproduced in the penalty order as under:- "Disallowance u/s. 40A(3) Rs. 1,77,20,9471-: During the course of assessment proceedings the assessing officer observed from the cash book of M/s SNR Logistics that the assessee has made cash payment in excess of Rs. 20,000/-. Accordingly, show cause was issued requesting the assessee as to why the amount paid in cash the excess of Rs. 20,000/- to a single party in a day should not be disallowed. The assessing officer did not accept the reply of the assessee as the assessee is in the business of transport of goods by road, trucks and trailers. The assessee was to hire the trucks and trailers from other transporters and individual truck owners and used to supply to the client companies. The assessee was not the owner of any trucks. The assessee was paying rent on hired trucks and was in turn giving the same on rent to others. The payments given by the assessee to the truck drivers formed part of ren....
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.... and upheld the order of Ld.CIT(A)." 4. As is evident from the above the assessee is a transporter , conducting his business by hiring trucks and rent paid on account of this hiring of trucks was found in some cases to have been done in cash, in violation of section 40A(3) of the Act, leading to disallowance being made under the said section. Similarly loading and unloading expenses claimed to have been incurred by the assessee were disallowed on account of the same being non verifiable. And to the extent addition made by the AO was confirmed in appeal by the ITAT, penalty for concealment/furnishing of inaccurate particulars of income was levied on the assessee as per section 271(1)(C) of the Act. 5. The ld. Counsel for the assessee pointed out that the Assessing Officer levied penalty noting that, with respect to the disallowance made u/s 40A(3) of the Act, it was a clear case of concealment of income since substantial payments had been made in violation of Section 40A(3) of the Act and an attempt was made by the assessee to pass on the same as advance; and both the ld. CIT(A) as well as ITAT had concurred with the said view in quantum appeal. That, with respect to the loading a....
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....CIT(A) in quantum proceedings and confirmed by the ITAT; that, therefore, the assessee has concealed the particulars of income. Our attention was drawn to paragraph No.6 of the order of the ld. CIT(A) as under:- "The appellant in its ground of appeal assailed the AO in levying penalty of Rs. 2278213/- u/s 271(1) (c) of the Act. The AO in penalty order u/s 271(1) (c) of the Act noted that the assessment u/s 143(3) was completed on 29.12.2011 by making disallowance u/s 40A (3) of Rs. 1,77,20,947 and disallowance of loading/unloading expenses of Rs. 12,12,400/- The appellant challenged that assessment order before the CIT(A), who partially allowed the appeal. The assessee challenged the order of the CIT(A) before the Hon'ble ITAT. The Hon'ble ITAT dismissed the appeal of the assessee and upheld the order of the order of the CIT(A). The AO therefore taking into account the relief granted by the CIT(A) and the order of the Hon'ble ITAT which upheld the order of the Ld. CIT(A) initiated and levied penalty u/s 271(1)(c) of the Act and passed order imposing penalty of Rs. 22,78,213/- which is 100% of the tax escaped and confirmed by the CIT(A) and confirmed by the Hon'ble....
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.... the books of account regularly maintained and subjected to audit, but are also supported by proper documentary evidences. The documents filed at various levels in quantum proceedings clearly prove and substantiate the fact that these expenses were incurred in connection with specific transportation trips which originated from a specific location and terminated at the other. These documents also contained full and complete details of not only the names of the payees but also the detailed mention as to the specific purposes for which the same were incurred. All these and other details filed by the Appellant before the AO and the appellate authorities in quantum proceedings have never been disputed - either by the Revenue or even by the Tribunal. The Appellant further places on record that the books of account regularly maintained and the documentary evidences supporting the same were verified by the auditors who issued an unqualified audit report under section 44AB of the Act categorically certifying in Form No.3CD as to there being several transactions of cash payments in excess of the prescribed threshold limit and as to these having been incurred on account of business necessity,....
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....ptions like 'business expediency' as carved out in the law are clearly subjective in nature and there can always be a difference of opinion between two persons in this regard. This fact gets substantiated by observing the development of the case in the quantum proceedings wherein the AO thought that every single expenditure in excess of the prescribed threshold limit aggregating to Rs. 1,77,20,947/- was in violation of the provisions of section 40A (3) of the Act and that nothing was thus covered under the exceptions. Contrary to her view, the CIT(A) in a very elaborated order separated this aggregate expenditure into two parts (i) an aggregate sum of Rs. 1,12,00,206/- covered under the exceptions in view of several reasons as mentioned in the body of the order; and (ii) the balance figure of Rs. 65,20,741/- not covered under the exceptions, thus liable for disallowance under section 40A (3) of the Act. Even the Tribunal confirmed the view of the first appellate authority for the reasons stated in the body of the order. This aspect is required to be considered in the undisputed factual backdrop that the Appellant is engaged in the business of transportation and every single....
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....ely believed that the cash payments being made to meet business exigencies were covered in the exceptions carved out to section 40(A)(3) of the Act, in Rule 6DD of the Income Tax Rules, 1962. The circumstances in which these payments were made in cash in violation of the provisions of Section 40A(3) of the Act were explained stating that the assessee being engaged in the business of transportation, wherein he conducted his business by hiring trucks and the transportation being done across the length and breadth of the country and it was not possible every time to make payment by the specified modes since it would have resulted either in non-crystallization of the transportation contracts or in substantial delay in their execution. That, in such business exigencies, therefore, the payment had been made in violation of the provisions of Section 40A(3) of the Act in cash in excess of Rs. 20,000/-. * That mere disallowance of claim of expense would not attract levy of penalty. 13. We have considered the contentions of the ld. Counsel for the assessee and we find merit in the same ,that the mere disallowance of expenses u/s 40A(3) of the Act in the present case would not invite the l....
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....rted the assessee's case. He drew our attention to the findings of the Hon'ble High Court in the said case holding that as long as the assessee has not concealed any material fact or any factual information given by him has not been found to be incorrect, he will not be liable to imposition of penalty u/s 271(1)(c) of the Act, even if the claim made by him is unsustainable in law, provided that he either substantiates the explanation offered by him or the explanation even if not substantiated is found to be bona fide. The said decision we agree with the Ld. Counsel for the assessee supports the case of the assessee for levying no penalty. 16. Accordingly, we hold that the levy of penalty on the addition made on account of disallowance made u/s 40A(3) of the Act is not sustainable and we direct deletion of the same. 17. We regard to the addition made by disallowing loading and unloading expenses, the contention made by the assessee before the ld. CIT(A) is as under:- "2.2.1 In so far as the penalty levied in respect of the other disallowance on account of loading and unloading expenses is concerned, suffice is to state that while this expenditure was disallowed at Rs. 12,12,400/....
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.... of levying penalty there against clearly does not arise, as there is no absolute finding as to the assessee having actually concealed his income. - ITO vs. Bombaywala Readymade Stores (2015) 55 taxmann.com 258 Gujarat HC; - CIT vs. Aero Traders (P.) Ltd. (2010) 322 ITR 316 - Delhi HC; - CIT vs. Arjun Prasad Ajit Kumar- (2008) 214 CTR 355-Allahabad HC; - Surat Fashions Ltd. vs. ACIT-ITA No. 3368/AHD/2008-Ahmedabad ITAT: - ETCO Profiles (P.) Ltd. vs. ACIT (2015) 61 taxmann.com 470 - Mumbai- ITAT - Narayan Singh J. Deora Vs. ACIT-ITA No. 5895/Mum/2010-Mumbai ITAT - ACIT Vs. Allied Construction - (2008) 26 SOT 50 - Delhi ITAT - ITO Vs. Ravi Khurana - (2008) 174 Taxman 26 - Delhi ITAT" 18. On going through the above, we find that the disallowance made on account of loading and unloading charges was a mere ad-hoc disallowance. The disallowance was not based on any finding of fact that the assessee had claimed bogus expenses of loading and unloading. It was made merely because the claims were not fully verifiable and therefore it was considered fit to disallow 15% of the expenses incurred by the assessee on lump-sum basis . Also while holding that the expenses not verifi....