Addition u/s 40A(3) for cash payment to labourers for loading charges deleted

Addition u/s 40A(3) for cash payment to labour for loading charges deleted by ITAT

In a recent judgment, the ITAT Cuttack has deleted additions u/s 40A(3) for cash payments to labourers for loading charges holding that labourers out of common knowledge would not accept payments through banking channels or UPI payment. They work only when cash is paid to them.

ABCAUS Case Law Citation:
ABCAUS 4126 (2024) (07) ITAT

In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming addition made by the Assessing Officer (AO) under the head “loading charges” on account of violation of provisions of section 40A(3) of the Income Tax Act, 1961 (the Act).

The case of the assessee was that cash payments had been made to the labourers, who were doing the work of loading and unloading. It was the submission that the assessee was in the business of transport and these payments to labourers were compulsorily made in cash as no labourers accept payment by cheque or UPI payment.

On the other hand the Department contended that the provisions of Rule 6DD(J) no more apply and there was a violation of provisions of section 40A(3) of the Act. Therefore, the disallowance made u/s.40A(3) of the Act was liable to be upheld.

The Tribunal observed that admittedly, the provisions of Rule 6DD(j) were not available in its original form. The Tribunal noted that a perusal of the provisions of section 40A(3) of the Act specifies that if the payment made to a person in a single day exceeds Rs.10,000/- in cash, the same is liable to be disallowed.

The Tribunal further observed that admittedly, these were labour payments. There was no evidence to suggest that the payments had been made to a single person of an amount exceeding Rs.10,000/-.

Further, the Tribunal opined that the fact was that these were clearly labour payments towards loading charges and the labourers out of common knowledge would not accept payments through banking channels or UPI payment. They work only when cash is paid to them.

Thus, considering the fact in the case, the addition made by the AO and confirmed by the CIT(A) was deleted by the ITAT. 

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