आयकर अपीलीय अिधकरण, ‘बी’ Ɋायपीठ, चेɄई। IN THE INCOME TAX APPELLATE TRIBUNAL ‘B’ BENCH: CHENNAI ŵी एबी टी. वकŎ, Ɋाियक सद˟ एवं ŵी एस. आर. रघुनाथा, लेखा सद˟ के समƗ BEFORE SHRI ABY T. VARKEY, JUDICIAL MEMBER AND SHRI S.R. RAGHUNATHA, ACCOUNTANT MEMBER आयकर अपील सं./ITA No.970/Chny/2023 िनधाŊरण वषŊ /Assessment Year: 2014-15 Sivakarthikeyan Transports, 23, Pasuapthypuram, Karur – 639001. Tamil Nadu. [PAN: AAIAS 3396N] Vs. The Income Tax Officer, Ward-2, Karur. (अपीलाथᱮ/Appellant) (ᮧ᭜यथᱮ/Respondent) अपीलाथŎ की ओर से/ Assessee by : Shri S. Sridhar, Advocate ŮȑथŎ की ओर से /Revenue by : Shri D. Hema Bhupal, JCIT सुनवाई की तारीख/Date of Hearing : 19.06.2024 घोषणा की तारीख /Date of Pronouncement : 04.09.2024 आदेश / O R D E R PER S.R. RAGHUNATHA, A.M : This appeal by the assessee is arising out of the order of the Commissioner of Income Tax (Appeals), [NFAC], Delhi [hereinafter “CIT(A)] in DIN & Order No.ITBA/NFAC/S/250/2023- 24/1054458891(1), dated 19.07.2023. 2. The grounds of appeal raised by the assessee are as under: (A) The order passed by the Learned CIT(A) is against the probabilities and evidence of facts put forth before it and also contrary to settled principles with regard to the law on taxation. ITA No.970/Chny/2023 :- 2 -: (B) The Respondent while making disallowance under Section 40A(3) has failed to take note of the fact that the expenditure payments by cash were made in the course of business due to unavoidable circumstance falling under exceptional circumstance provided under Rule 6DD of the Income Tax Rule. (C) The CIT(A) ought to have appreciated the fact the section 40A(3) of the Act would not be made applicable in the context of settlement of consolidated bills issued for accommodating the customers of the appellant who had credit facilities. (D) The impugned order of the Respondent was passed without considering the commercial expediency limb in the proviso below section 40A(3A) of the Act which could be considered as independent limb by carving out exceptions to the main disallowance provision in section 40A(3) of the Act. (E) The Respondent and the Assessing officer finding no fault / doubt on the genuineness of the payments, have erred in disallowing the same u/s 40(A)(3) of the Income Tax Act (F) Disallowance under section 40A(3) is not sustainable as the recipient has filed return of income and paid tax on the same. (G) The learned Commissioner of Income Tax (Appeals) ought to have appreciated that the provisions of section 40A(3) do not apply to and for transport payments. (H) The Learned CIT(A) has failed to appreciate the fact that the Transportation of Over Dimensional Loads will cost penal charge levied by the RTOs and these ODC charges are inevitable to the business of the Appellant particularly when For Siva Karthikeyan Transports, they transported the component of the BHEL. The Respondent has grossly erred in sustaining the disallowance of the entire amount of expenditure of Rs.3.08,761/- claimed by the Appellant under the head Penalty charges. The CIT(A) being a quasi-judicial authority should have dealt with the expenditure disallowance in a holistic way, by disallowing only a certain percentage of the Expenditure for want of Voucher proofs. 3. Brief facts of the case are that the assessee is an AOP, carrying on the business of lorry transports having own vehicles and also hired the vehicles for hire charges, filed its return of income for the A.Y. 2014- 15 on 07/11/2014 by declaring total income of Rs.5,50,000/-. The ITA No.970/Chny/2023 :- 3 -: assessee’s Case was selected for scrutiny under CASS and the assessment was concluded on 26/12/2016 by disallowing an expenditure of Hire charges of Rs.9,03,290/-, Repairs and maintenance of Rs.25,03,866/- and Over dimensional charges of Rs.3,08,761/-, altogether to the tune of Rs.37,15,915/- for the reason that these payments have made in cash in violation of Section 40A(3) of the Act and brought to tax. Aggrieved by the order of the AO, the assessee preferred an appeal before the Ld.CIT(A), NFAC, Delhi. 4. The ld.CIT(A), NFAC by considering the submissions of the assessee and by going through the records, relief has been given to assessee by allowing certain expenditure by holding as under in his order dated 19/07/2023. 1) Hire charges of Rs.9,03,290/- The Ld.CIT(A) has deleted the addition of Rs.4,92,674/- as the freight charges paid in cash was below the limit of Rs.35,000/- to per person and per day as per Section 40A(3) of the Act, as against the limit considered by the AO of Rs.20,000/- and sustained the addition of Rs.4,10,616/-. 2) Repairs and maintenance of Rs.25,03,866/- ITA No.970/Chny/2023 :- 4 -: The addition of Rs.25,03,866/- has been sustained, as these payments are made in cash in violation of Sec.40A(3) of the Act. 3) Over dimensional charges(ODC) of Rs.3,08,761/-: This addition of Rs.3,08,761/- was also confirmed by the Ld.CIT(A), stating that the assessee has not produced any proof for this expenditure. Aggrieved by the order of the Ld.CIT(A), NFAC, Delhi, the assessee preferred an appeal before us. 5. The Ld.AR argued that both the lower authorities have erred in passing the order by disallowing these expenditure as violation of section 40A(3) of the Act is contrary to the law as there is a proviso, which gives exceptions of cash payment beyond the limit fixed under section 40A(3). The Ld.AR drew our attention to the decision of the Hon’ble High court of Madras in the case of N.Mohammed ali Vs. ITO [2016] 65 Taxmann.com 189(Mad), even though the decision was held in favour of revenue in respect of section 40A(3), their lordships has discussed the question of business expediency to make the payment in cash. The relevant extract is given below: “18. Question No.4:- The fourth question revolves around business expediency. This question has arisen for consideration in view of the proviso to sub-section (3) of section 40A. At this stage it would be ITA No.970/Chny/2023 :- 5 -: relevant to extract sub section (3) as well as proviso to sub-section (3) which reads as und "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 an account payee cheque drawn on a bank or account payee bank draft, exceeds twenty thousand rupees, no deduction shall be allowed in respect of such expenditure. Proviso to (3A) reads as follows: Provided that no disallowance shall be made and no payment shall be deemed to be profits and gains of business or profession under sub-section (3) and this sub-section where a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft. exceeds twenty thousand rupees, in such cases and under such circumstances as may be prescribed, having regard to the nature and extent of banking facilities available, considerations of business expediency and other relevant factors;’' 19. As seen from the proviso, the question in relation to sub-section (3) has to be examined with reference to the three things indicated in the proviso. They are (1) the nature and extent of banking facilities (2) considerations of business expediency and (3) other relevant factors. 20. In other words, under sub-section (3), where an assessee incurs an expenditure which involves payment of more than Rs.20,000/- to a single person on a single day, he is not entitled to any deduction in respect of such expenditure. The rule under sub section (3) is not very rigid. It admits of three exceptions, which are narrated in the proviso. If an assessee could prove that having regard to the nature and extent of banking facilities, or having regard to the consideration regarding business expediency or having regard to the other relevant factors, it would not be possible for him to make payments by way of cheque or demand draft, the assessee would, still, be entitled to deduction. Therefore, it is for the assessee to prove the existence of (1) nature and extent of banking facility that compelled him to make payment in cash (2) consideration of business expediency that compelled him to make Payments in cash and (3) any other relevant factors that would justify such a payment.” ITA No.970/Chny/2023 :- 6 -: 6. The Ld.AR argued that as per the proviso to Section 40A(3A), where there is a business expediency, the cash payment can be made towards expenditure, which will not violate the provisions of Section 40A(3) and prayed for allowing ground of appeal of the assessee in respect of expenditure disallowed on account of all three heads. 7. Further, the ld.AR stated that the expenditure on account of Repairs and maintenance paid in cash to the tune of Rs.25,03,866/- is paid to the drivers and cleaners, who have acted as agents of the assessee to spend towards repairs & maintenance of lorries for the long journeys and also to remote areas. Therefore, applying the exceptions provided in Rule 6DD, no addition can be made when these expenditures have been incurred through the agents in the midway of the transport journey and prayed for setting aside the orders of the lower authorities. In support of the claim of the assessee, the Ld.AR relied on the decision of the Hon’ble High Court of Gujarat in the case of Anupam Tele Services Vs.ITO [2014] 43 taxmann.com 199 (Guj), wherein their lordship held that cash payment in excess of the limit prescribed is not disallowed U/s.40A(3) was to be made in respect of payment made to principal by agent. ITA No.970/Chny/2023 :- 7 -: 8. In respect of addition made on account expenditure of Over dimensional consignments (ODC) of Rs.3,08,761/-, the Ld.AR stated that these expenditure are commonly spent in this nature of business, which is not a penalty in nature. The transporting cargo of over dimension of the consignment as well as the weight of the consignment exceeds the limit allowed under the permit granted by the RTO and the limits laid down under the Motor Vehicle Act, 1988 and the rules made thereunder. However, without ODS loads, heavy boiler components cannot be transported for BHEL and the transported supposed to pay the additional tax amount thereon. This expenditure has been paid to Government department and hence allowable expenditure even though the same has been paid in cash in excess of Rs.20,000/- per day and hence prayed for setting aside the order of the Ld.CIT(A) by deleting the addition of Rs.3,08,761/-. 9. Per contra the Ld.DR relied on the order of the Ld.CIT(A) and stated that as per the ledger accounts furnished by the assessee, it is evident that these cash payments are made in excess of the limits prescribed under section 40A(3) of the Act and prayed for dismissing the appeal of the assessee. ITA No.970/Chny/2023 :- 8 -: 10. We have heard the rival contentions and gone through the orders of the lower authorities below. The assessee is into the business of transport and having own lorries and also hiring the lorries and paying freight charges. During the assessment year 2014- 15, the assessee has paid certain expenditure in cash in excess of the limits fixed under Section 40A(3) of the Act on account of Hire charges to the drivers, repairs and maintenance of vehicles to the drivers and cleaners and over dimensional charges to the RTO authorities. These expenses have disallowed by the AO while framing the assessment U/s.143(3) of the Act and the same has been confirmed by the Ld.CIT(A). Before us, the Ld.AR furnished the Profit and loss account of the Assessee and shown that the revenue during the relevant assessment year was Rs.6.05 Crores. The corresponding expenditure paid towards hire charges was Rs.3.53 crores and the cash payment made beyond the limit of Rs.35,000/- per person in a single day was only Rs.4,10,616/-. Further, the repairs & maintenance of Rs.68.21 Lakhs has been spent during the year and corresponding expenses made in cash payment was Rs.25.03 lakhs. According to the Ld.AR it is only 4% of the revenue which has been spent by the assessee in cash, which is in excess of limits prescribed U/s.40A(3) of the Act and the same is due to ITA No.970/Chny/2023 :- 9 -: emergency expenses to be spent during the transportation of cargo to the long route destinations, ranging from 5 days to 15 days duration. 11. Firstly, the payment of Hire charges made in cash beyond the prescribed limit was only Rs.4,10,616/-. Considering the peculiar facts and circumstances of the case and nature of business carried on by the assessee, the amount spent in cash of Rs.4.10 lakhs is only 0.67% of the revenue declared by the assessee. The assessee’s claim of such expenditure as business expediency and following the hon’ble Madras High court’s observation in the case N.Mohammed ali Vs. ITO (Supra) with regard to exception for cash payment on account of business expediency, we are inclined to delete the addition of Rs.4,10,616/- and allow the appeal of the assessee in this ground. 12. In respect of expenditure spent in cash for Repairs and maintenance of Rs.25,03,866/-, the assessee has explained the requirement of cash during the movement of cargo for long distance destinations and also heavy lorries and thereby the cash payments have been made to drivers and cleaners in excess of limit prescribed under section 40A(3) of the Act. Again considering the peculiar facts and circumstances of the case and the cash payments are made to ITA No.970/Chny/2023 :- 10 -: drivers and cleaners to be spent for repairs and maintenance of vehicles during the movement of cargo and considering them as agents of the assessee and relying on the decision of the Hon’ble Gujarat High court in the case of Anupam Tele Services Vs.ITO (supra), we are deleting the disallowance of impugned expenditure of Rs.25,03,866/- and allow the appeal of the assessee. 13. Next issue before us was to adjudicate was Rs.3,08,761/- paid in cash in excess of Rs.20,000/- per transaction towards over dimensional Consignments (ODC). We note that these expenses have been made by the assessee in cash for transporting cargo of over dimension of the consignment as well as the weight of the consignment exceeds the limit allowed under the permit granted by the RTO and the limits laid down under the Motor Vehicle Act, 1988 and the rules made thereunder. Since, these amounts are paid to the Government authorities and also considering the fact that these payments are made by the drivers / cleaners during the movement of lorries with cargo for different destinations, we are of the considered view that the disallowance is not warranted u/s.40A(3) of the Act and hence we direct the AO to delete the same and allow the appeal of the assessee in this ground also. ITA No.970/Chny/2023 :- 11 -: 14. In the result the appeal of the assessee is allowed. Order pronounced on 04 th September, 2024. Sd/- (एबी टी. वकŎ) (ABY T. Varkey) Ɋाियक सद˟ / Judicial Member Sd/- (एस. आर. रघुनाथा) (S.R. Raghunatha) लेखा सद᭭य /Accountant Member चे᳖ई/Chennai, ᳰदनांक/Dated: 04 th September, 2024. JPV आदेश कᳱ ᮧितिलिप अᮕेिषत/Copy to: 1. अपीलाथŎ/Appellant 2. ŮȑथŎ/Respondent 3. आयकर आयुƅ/CIT, Madurai 4. िवभागीय Ůितिनिध/DR 5. गाडŊ फाईल/GF