The Income Tax Appellate Tribunal, Delhi Bench “D”, reverses application of Disallowance under Sec.40A(3) of Income Tax Act as the genuineness of the transaction was not doubted by the Assessing Officer.
The Appeal was filed by Mr.Kedarnath Sawhney, engaged in the business of transport contract challenging the order of the CIT(A) in confirming the addition of Rs.88,71,511/- made by the Assessing Officer invoking the provisions of Section 40A(3) of the Income Tax Act.
The cause of action for the appeal arose when the Assessing Officer noted several cash payments exceeding Rs. 20,000/- in a day and accordingly added Rs.88,71,511/- to the total income. The Assessing Officer found that the said expenses were tenable to disallowance under section 40A(3) of the Income Tax Act read with Rule 6DD of the Income Tax Rules. The finding of the Assessing Officer was upheld by CIT(A) and Principal CIT.
The application of S.40A(3) of the Income Tax Act was opposed by the Appellant by stating that the expenses to the tune of the noted amount were in the nature of payments made to truck drivers against the expenses to be incurred in the course of transportation of goods involving long transit periods such as diesel expenses, routine and exceptional repairs and maintenance of the vehicles, toll charges, their food expenses, etc. He further contended that incurring such expenses in cash was necessary because such drivers/running staff are unable to avail banking facilities during the transit period and that such persons are illiterate and not exposed to routine banking activities and further that 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.
The Income Tax Appellate Tribunal relying on the case of R.C. Goel vs. CIT, , bearing identical facts and the decision in Honey Enterprises vs. CIT, held –
“The assessee in terms of its contract is bound to deliver the goods within the stipulated time. In the course of such transportation, the assessee is bound to incur expenses for putting fuel in the vehicle, payment of toll gate charges, incurring of expenses for routine and exceptional repairs and maintenance apart from fooding expenses of the staff. Since the AO has not doubted the genuineness of the expenses as no such disallowance has been made and the AO has made only disallowance u/s 40A(3) of the Act on the basis of the bills/vouchers/ledger account produced before him, we are of the considered opinion that the disallowance u/s 40A(3) made by the AO under the facts and circumstances of this case is not justified and the provisions of 6DD(k) will come to the rescue of the assessee.”
Accordingly, the order of the CIT(A) was set aside and the addition made the Assessing Officer was directed to be deleted.
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