IN THE INCOME TAX APPELLATE TRIBUNAL DELHI `F' BENCH
BEFORE SHRI U.B.S. BEDI , JM & SHRI A.N. PAHUJA, AM
ITA no.4249/Del/2010
Assessment year: 2007-08
ACIT, V/s .M/s R.A. Castings (P) Ltd.,
Circle 1, Meerut Road,
Muzaffarnagar Muzaffarnagar
[PAN : AABCR770G]
(Appellant) (Respondent)
Assessee by None
Revenue by Dr. B.R.R. Kumar,DR
Date of hearing 09-05-2012
Date of pronouncement 29-06-2012
ORDER
A.N.Pahuja:- This appeal filed on 15.09.2010 by the Revenue against an order
dated 10-06-2010 of the ld. CIT(A), Muzaffarnagar, raises the following grounds:-
1. "That the learned CIT(A) has erred in law and on the
facts in deleting the addition of ``18,98,679/- made u/s
40A(3) of the Income-tax Act, 1961, because the
assessee by making the payments in cash willfully
violated the provisions of section 40A(3) of the Income-
tax Act, 1961. Further the decision of the Hon'ble
Orrissa High Court CIT Vs. Aloo Supply Company
reported in 121 ITR 680 (1980) does not apply in this
case.
2. On the facts and in the circumstances of the case, the
order of the learned CIT(A) deserves to be set aside
and that of the Assessing Officer be restored."
2 I.T.A. no4249/Del./2010
2. At the outset, the Bench rejected the request for adjournment , therebeing no
cogent reasons. Accordingly, considering the nature of issue,& findings of the ld.
CIT(A), the Bench proceeded to dispose of the appeal after hearing the ld. DR.
3. Facts, in brief, as per relevant orders are that e-return declaring nil
income filed on 31.10.2007 by the assessee, manufacturing of M.S. Ingots etc.,
after being processed u/s 143(1) of the Income-tax Act, 1961 (hereinafter
referred to as the Act), was selected for scrutiny with the service of a notice u/s
143(2) of the Act. During the course of assessment proceedings, the Assessing
Officer[AO in short] noticed that the assessee paid an amount of ``94,93,399/- in
cash as freight against G.R. (bilty). To a query by the AO, the assessee replied
that since the company required sponge iron from out station, it had to make
payment to the truck owners in cash exceeding ``20,000/- each. It was submitted
that the truck owner/driver insisted for cash payment and did not accept any
cheque/draft due to expenses to be incurred by him in the way of diesel etc.
While relying upon the decision of Hon'ble Orissa High Court in CIT Vs. Aloo
Supply Company (1980) 121 ITR 680 (Orrissa), the assessee contended that no
disallowance could be made u/s 40A(3) of the Act. However, the AO did not
accept the submissions of the assessee and disallowed an amount of
``18,98,679/- @ 20% of ``94,93,399/- on the ground that provisions of section
40A(3) of the Act were mandatory and merely by fragmenting the cash
payments in 2-3 or more instalments below 20,000/- each, could not support the
assessee's claim. Inter alia, the AO distinguished the decision of Hon'ble High
Court in Aloo Supply Company (supra).
4. On appeal, the ld. CIT(A) allowed the claim of the assessee in the
following terms:-
"5. After careful consideration of appellant submission, my
findings on various issues are as under:-
The provisions of section 40A(3) are applicable only when
there is cash payment of more than ``20,000/- made by a person.
3 I.T.A. no4249/Del./2010
The same view has also been taken in various cash laws quoted by
the appellant in its submissions.
The Assessing Officer has himself accepted the fact that the
assessee has not made cash payments of `20,000/- or more in
a particular day. The only objection of the Assessing Officer is that
the bill against which cash payments of less than ``20,000/- were
made exceeded `20,000/-.
However, in the case of CIT Vs. Triveniprasad Pannalal
(1997) 228 ITR 680 Hon'ble M.P. High Court has held as under:-
"even if cash payment of less than` 2,500/- (now ``20,000/-) is a
break up of three or four transactions, the same is to be allowed. The
words used are "in a sum" i.e. single sum has been used. Therefore,
irrespective of any number of transactions, where the amount does not
exceed `2,500/- in each transaction, the rigours of section 40A(3) will not
apply.
In the present case although each cash payment of less than
`20,000/- in a day is a break up of a particular bill but as held in
above mentioned case, the same are to be allowed and rigours of
section 40A(3) will not apply in this case.
Similar view has also been taken in the case of CIT Vs.
Ashok Iron & Steel Rollling Mills (2010) 320 ITR 101 (All) wherein
the Hon'ble Allahbad High Court has upheld the decision of ITAT as
under:-
Addition u/s 40A(3) is not justified even though the assessee made
several payments to the same person on the same day which aggregate
exceeded ``2,500/- and even when it did not take any plea of any hardship
or exceptional circumstances or that they had no idea that they would
have to pay to the same person on more than one occasion during the
course of particular day.
In view of the above discussion, I hold that the Assessing
Officer was not justified in making addition of `18,97,679/- which is
deleted."
5. The Revenue is now in appeal against the aforesaid findings of the
ld. CIT(A).The ld. DR supported the order of the AO while relying upon decisions
in Attar Singh Gurmukh Singh vs. ITO,191 ITR 667(SC) and TG Mutha vs.
ITO,54 ITD460(Pune).
4 I.T.A. no4249/Del./2010
6 We have heard the ld. DR and gone through the facts of the case.
As is apparent from the aforesaid facts , the assessee claimed expenditure of
``94,93,399/- on account of freight against G.R. (bilty) made in cash. The
assessee claimed that the truck owners/drivers insisted on cash payments and
did not accept any cheque/draft due to expenses to be incurred by them for
diesel/tyre etc. in the way . The ld. CIT(A) found that the assessee did not make
cash payments of ``20,000/- or more in a particular day and in identical
circumstances, Hon'ble MP High Court in the case of Triveniparsad Pannalal,228
ITR 680(MP) held
" Shri Tankha, learned counsel for the Revenue, submitted that if 10 transactions
in a sum of Rs. 2,500 are permitted on the same day with the same party, then it
would amount to defeating the purpose of the provision and its object of check on
transactions in sums exceeding Rs. 2,500. If it is permitted, then virtually it will
frustrate the very purpose of the enactment. That is true, but at the same time,
we cannot cause violence to the language which has been used in the statute. It
does not say that the aggregate of the amount should not exceed Rs. 2,500. The
words used are " in a sum ", i.e., single sum has been used. Therefore,
irrespective of any number of transactions, where the amount does not exceed
Rs. 2,500 in each transaction, the rigours of section 40A(3) will not apply. This is
a technical lacuna in the provision for which we cannot supply the omission and
put the provision in a proper form so that this kind of loophole may not be left.
This view has been taken in the case of CIT v. Aloo Supply Co. [1980] 121 ITR
680 (Orissa) and [1983] 143 ITR (St.) 67."
6.1 The aforesaid decision has subsequently been followed in the case of CIT
Vs. Kothar Sanitation & Tiles P Ltd.,282 ITR 117(Mad) and in Shri Mahabir
Corporation vs. ITO, 258 ITR (AT) 55(Bangalore). Hon'ble jurisdictional
High Court in Ashok Iron & Steel Rollling Mills(supra) upheld the findings of
the ITAT that as no single payment was more than `. 2,500 (now
`20,000/-), the disallowance under section 40A(3) of the Act of the amount
was not justified. Before us, the Revenue did not point out any contrary decision
in their favour. In Attar Singh Gurmukh Singh(supra) relied upon by the ld. DR,
Hon'ble Apex Court while holding that the provisions of s. 40A(3) do not infringe
the fundamental right to carry on a business concluded that the said provision
applies even to payments made for acquiring stock-in-trade and other materials.
5 I.T.A. no4249/Del./2010
The decision in TG Mutha(supra) for the AY 1990-91concerned an issue as to
whether or not the case of the assessee fell within the ambit of the extant rule
6DD(j) of the IT Rules,1962,which is not the case in appeal before us. The ld. DR
did not demonstrate before us as to how these decisions support the case of the
Revenue. In the instant case before us, the ld. CIT(A) concluded that the
assessee did not make cash payments of ``20,000/- or more in a particular
day. In view of this position and in the light of view taken in the aforesaid
decisions by the Hon'ble MP, Madras & jurisdictional High Court, we are not
inclined to interfere. Therefore, ground no. 1 in the appeal is dismissed.
7. No additional ground having been raised before us in terms of residuary
ground no.2 in the appeal, accordingly, this ground is dismissed.
8. No other plea or argument was made before us.
9. In the result, appeal is dismissed.
Order pronounced in open Court
Sd/- Sd/-
(U.B.S. BEDI) (A.N. PAHUJA)
(Judicial Member) (Accountant Member)
NS
Copy of the Order forwarded to:-
1. M/s R.A. Castings (P) Ltd., Meerut Road, Muzaffarnagar.
2. DCIT, Circle-1, Muzaffarnagar.
3. CIT concerned
4. CIT(A), Muzaffarnagar
5. DR, ITAT,'F' Bench, New Delhi
6. Guard File.
True copy
BY ORDER,
Deputy/Asstt.Registrar
ITAT, Delhi
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