Disallowance 40A3 for cash payments by brick kiln quashed as payments made to truck drivers at night after banking hours at village without banking facilities
ABCAUS Case Law Citation:
ABCAUS 3180 (2019) (10) ITAT
Important case law relied upon by the parties:
CIT vs. Raja Pal Automobiles (2010) 320 ITR 185 (All)
CIT vs. Suresh Kumar Agarwal (2001) 249 ITR 113 (All)
CIT vs. Chaudhary & Co., (1996) 217 ITR 0431
Dy. CIT vs. K.C.P. Shivaraman (2017) 49 CCH 193
Disallowance for cash payments by brick kiln
In the instant case, the appeal of the assessee was directed against the order of CIT(A) passed u/s 143(3) of the Income Tax Act, 1961 (the Act) in confirming disallowance u/s 40A(3) of the Act being cash payments by brick kiln to the agents of coal suppliers.
The assessee firm was engaged in the business of running a brick kiln. During the course of assessment proceedings, the Assessing Officer (AO) made a disallowance u/s 40A(3) of the Act, in respect of cash payments made to truck drivers and to the agents of coal suppliers who had supplied coal through trucks at the brick kilns of the assessee firm.
According to the A.O. the assessee on its own convenience, made payment in cash violating the provisions of section 40A(3) read with Rule 6DD and no exceptional circumstances as enumerated in Rule 6DD could be found applicable in those cases where the payments were made in cash exceeding Rs.20,000/-.
The assessee went in appeal before the CIT(A), who allowed only part relief to the assessee. The relief provided was in respect of payment made to truck drivers as the CIT(A) observed that the nature of the payments coupled with the fact of non – existence of banking facility in village Ballarpur, the appellant could take advantage of Rule 6DD of the Income Tax Rules. For rest of the payments the CIT(A) observed that the suppliers had not insisted for cash payments and hence he upheld the addition.
Before the Tribunal, the assessee submitted that the primary fuel used in the brick kilns is coal. The area from where the assessee operated was a hub of hundreds of other Brick Kiln owners. Similar business practices were followed by all the brick kiln owners as well as by the assessee.
It was stated that there were no coal suppliers in the area and they made the supplies through their agents and truck drivers who continuously roam in the area. The assessee depended on various such agents of coal suppliers and truck drivers who bring coal for making supplies in the area. These agents and truck drivers insist for making cash payments against purchase of coal. These agents and truck drivers also do not have any bank account in the area and insist on cash payments.
The assessee drew attention to exeception provided in Rule 6DD(g) and submitted that the village from where the assessee operated was not having banking facilities on the said date. To substantiate this fact the assessee produced a certificate of Gram Pradhan. Even the assessee was having a bank account in SBI which was 30 kms far from the assessee’s business place.
It was also submitted that the payments had also been made on Sundays and Bank Holidays. Hence those cases clearly fall in exception provided in clause (j) to Rule 6DD.
The assessee also submitted that the payments had been made on account of business expediency. In this regard the following facts were also submitted :
- The primary fuel used in the brick kilns is coal. There were no coal suppliers in the area. The assessee procured coal from the agents and truck drivers of coal suppliers who continuously roam in the area. The assessee depended on various agents of coal suppliers and truck drivers who bring coal from far flung areas for making supplies in the area.
- These agents and truck drivers insist for making cash payments against purchase of coal. These agents and truck drivers also do not have any bank account in the area and insist on cash payments.
- The area from which the assessee operates is a hub of hundreds of other Brick Kiln owners who run brick kilns in the area. Similar business practices are followed by all the brick kiln owners as well as by the assessee.
- If the assessee insists on making payment through account payee cheque he will not be able to procure coal and as such he will not be able to carry on business.
- The truck drivers make delivery during the night because of ‘NO ENTRY’ of heavy vehicles during day time and insist for cash payments at that point of time only.
- Thus, if the assessee is not an exception to generally followed business practices in the area and of he does not adopt the same business practices he will not be able to run the business
In view of the above, the assessee submitted that the payments made by the assessee fall within the proviso to Section 40A(3) which clearly states “Provided that no disallowance shall be made and no payment shall be deemed to be the profits and gains of business or profession under sub-section (3) and this subsection 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”.
The Tribunal observed that there was no banking facility at the village where assessee had the kiln as also observed by the CIT(A). It was also noticed that since, the truck drivers and the coal agents deliver the coal at night because of heavy vehicles cannot ply during the daytime and insistance for cash payments, hence the assessee was obliged to do the cash payments as per business practice in that area where number of brick kilns existed.
The Tribunal noted that the A.O. had not found any fault with the payment nor has disbelieve the payment made for the coal suppliers who were duly registered with the VAT department. The payment had not been doubted by the A.O. or by the CIT(A).
In view of the facts that the payments were made after the banking hours and that too at village where there were no banking facilities, the Tribunal opined that the disallowance sustained by the CIT(A) is not covered u/s 40A(3) read with Rule 6DD. The CIT(A) was not justified in confirming part additions under the same set of facts.
The Tribunal allowed the we allow relief to the assessee and the ground of appeal was allowed.
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