Sri. Southady Premanath, vs Department Of Income Tax

Asst. Commissioner of Income-tax, Circle 2(1), Mangalore. ... Appellant

Vs.

Shri Solthady Premanath, 'Shreyas', Behind BC Centre, B.C.Road, Jodumarga, Bantwal-574219. ... Respondent PAN: AFTPP 5608 P

Appellant by: Dr.K.Shankar Prasad, JCIT(DR). Respondent by: Shri Raveesha Rao, CA.

Date of hearing : 09/02/2015 Date of pronouncement: 20/02/2015

Per Smt. P.MADHAVI DEVI, JM:

This is an appeal filed by the revenue against the order

of the CIT(A), Mysore, dated 17/10/2013 for the assessment

year 2010-11. The revenue is aggrieved by the order of the

CIT(A) in deleting the addition of Rs.54,81,759/- made by the

Assessing Officer (AO) holding that the payments are made in

cash in contravention of the provisions of sec.40A(3) of the SP No.118 & ITA No.946/Bang/2013 Smt. Santosh Devi.

Page 2 of 7 Income-tax Act, 1961 [hereinafter referred to as 'the Act' for

short].

2. Brief facts of the case are that the assessee, an

individual, who is engaged in the business of executing civil

construction contract work, filed his return of income on

12/10/2010 for the assessment year 2010-11 declaring a total

income of Rs.53,62,690/-. During the assessment proceedings

u/s 143(3), the AO perused the books of account of the assessee

and noticed that the assessee has made purchases from many

suppliers and the payments were in the range of Rs.18,000/- to

Rs.19,000/- every day. Therefore, the AO issued a notice u/s

133(6) of the Act to various suppliers of materials to verify the

claims of the assessee. The suppliers complied with the notices

and furnished the ledger extracts of the assessee in their books

on different dates. On verification of the books of account of the

assessee as well as of the suppliers, the AO observed that the

assessee had paid amounts of Rs.17,000/- to Rs.19,500/- on

almost all the days during the financial year 2009-10. Therefore,

he issued summons u/s 131 of the Act to the proprietor of

M/s.Rachana Service Centre,[RSC] Melkar, Bantwal Tq. The

proprietor appeared and during the course of recording of her

statement, she also filed a copy of the ledger extract of the

assessee as appearing in her books of account. As per the said

statement, it was explained that the transactions with the

assessee during the financial year were done in cash and are SP No.118 & ITA No.946/Bang/2013 Smt. Santosh Devi.

Page 3 of 7 reflected in the ledger extracts and the cheque payments and

transfer through NEFT and RTGS are not recorded in the ledger.

The AO, therefore, came to the conclusion that all the payments

made by the assessee are cash payments. The assessee was

also examined u/s 131 of the Act and during the course of

recording of the statement; the assessee filed a copy of the

ledger extract of M/s.RSC as appearing in his books of account.

It was confirmed that all the payments made were indeed cash

payments and the AO found that the payments were in split in

books to avoid applicability of sec.40A(3) of the Act. He further

observed that the purchases are all done by different truck or

lorry drivers and though cumulatively the amounts paid to

M/s.RSC exceeded Rs.20,000/- per day, but since the purchases

are for different vehicles belonging to the assessee, split of bills

was made to see that no single bill exceeded Rs.20,000/-. On a

query from the AO, the assessee stated that he was not aware of

the amendment to sec.40A(3) and he voluntarily agreed for

disallowance during the scrutiny proceedings. Taking the same

into consideration, the AO has made the addition u/s 40A(3) of

the Act.

3. Subsequently, the assessee filed an appeal before the

CIT(A) stating that as per the provisions of sec.40A(3), the

provisions are applicable to each expenditure and since each

expenditure did not exceed Rs.20,000/- in the case of the

assessee, the provisions of sec.40A(3) are not applicable. He SP No.118 & ITA No.946/Bang/2013 Smt. Santosh Devi.

Page 4 of 7 further stated that the assessee's case is covered by the

exception provided in clause (k) to rule 6DD of the IT Rules, as

the drivers of the vehicles, being agents of the assessee, make

payments for the fuel purchased for the vehicles driven by them

and cannot make payment by cheque or DD. Bills and vouchers

in respect of fuel purchase are also produced for verification. It

was stated that at the time of assessment proceedings, the

assessee had agreed for addition on alleged cash payments

without understanding the facts of the case and correct position

in law and therefore prayed for setting aside of such disallowance

u/s 40A(3).

The CIT(A), after considering the assessee's

submissions, had held that fuel has been supplied by M/s.RSC to

different vehicles, as can be seen from the vehicle numbers and

the names of the drivers noted in the bills. He observed that the

drivers cannot make payment by cheque while purchasing fuel,

and since drivers are provided with imprest cash, they purchase

fuel as and when they require fuel and the same is submitted to

the assessee for reimbursement, this act comes within the

exception provided under clause (k) of rule 6DD of the IT Rules.

He, therefore, accepted the contentions of the assessee and

deleted the addition against which the Revenue is in appeal

before us.

4. The learned Departmental Representative placed

reliance on the order of the AO and stated that the assessee has SP No.118 & ITA No.946/Bang/2013 Smt. Santosh Devi.

Page 5 of 7 himself admitted during the course of recording of statement u/s

131 that the payments were split up to avoid the rigor of the

provisions of sec.40A(3) of the Act. He further submitted that

the CIT(A) has granted relief by holding that the transaction falls

within clause (k) of rule 6DD whereas drivers of the assessee

cannot be called as the agents of the assessee. In support of

this contention, he placed reliance upon the decision of the

Tribunal at Pune in the case of DCIT vs. Vijaykumar

Rameshchand & Co. (2007) 108 ITD 626(Pune) wherein it was

held that drivers are not the agents of the owners.

Learned counsel for the assessee, on the other hand,

supported the order of the CIT(A) and placed reliance upon the

decision of the Tribunal at Bangalore in the case of Shree

Mahaveer Corporation vs. ITO (2002) 258 ITR 0055 wherein it

was held that the provisions apply to individual payments and not

to the total payments a day. He has drawn our attention to the

various bills enclosed at pages 5 to 88 of the paper book to

demonstrate that none of the payments to RSC or any other

centre exceeded Rs.20,000/- at a time.

5. Having regard to the rival contentions and the material

on record, we find that the provisions of sec.40A(3) are attracted

where an assessee incurs 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 Rs.20,000/- such a claim is SP No.118 & ITA No.946/Bang/2013 Smt. Santosh Devi.

Page 6 of 7 not allowable i.e. in such circumstances, no deduction shall be

allowed in respect of such expenditure. Rule 6DD of the IT Rules

prescribes the cases and circumstances in which a payment or

aggregate of payments exceeding Rs.20,000/- may be made to a

person in a day, otherwise than by an account payee cheque

drawn on a bank or account payee bank draft. Thus rule 6DD

applies only to payment or aggregate of payment made to any

person on a single day by the assessee. It is not in dispute that

the aggregate of payments made to RSC by the assessee on a

single day has exceeded Rs.20,000/-. But it is to be kept in mind

that each of the payments to RSC or other service centre is on

account of a different truck and a driver. It is also to be noted

that the general practice in the petrol pump is to supply fuel only

for cash payments and as a general practice the service centre

would not accept cheque or would not make credit sales of fuel.

In such circumstances, the assessee would have to make

payment by cash only. Further, as held by the ITAT at Bangalore

in the case of Shree Mahaveer Corporation (cited supra), when

each of the payments did not exceed Rs.10,000/- [as per the

prescribed limit for the assessment year 1993-94] the provisions

of sec.40A(3) were not applicable. As regards the decision of

the Tribunal at Pune in the case of Vijaykumar Rameshchand &

Co. (cited supra), a driver is different from the agent and cannot

be held as an agent of the assessee. Therefore, applying this

principle, we hold that the finding of the CIT(A) on this issue is SP No.118 & ITA No.946/Bang/2013 Smt. Santosh Devi.

Page 7 of 7 not correct. However, as seen from the evidence placed before

us, though the recipient of the payment is one and the same,

each of the payments, is on a different truck and driver and

therefore each payment has to be considered separately and

cannot be aggregated to apply the provisions of sec.40A(3). In

view of the same, we are of the opinion that the provisions of

sec.40A(3) are not applicable and we uphold the finding of the

CIT(A) though on a different reasoning.

In the result, the revenue's appeal is dismissed.

Pronounced in the open court on 20th of February, 2015.

sd/- sd/- (Abraham P George) (Smt. P.Madhavi Devi) ACCOUNTANT MEMBER JUDICIAL MEMBER eksrinivasulu

Copy to:

1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. 6. Guard file

By order

Assistant Registrar Income-tax Appellate Tribunal Bangalore