DCIT CC 1 4 KOLKATA, KOLKATA V. GREYFORCE INDUSTRIES LIMITED, KOLKATA

ITA 2497/KOL/2025

AI Insights

The case involves an appeal by the Revenue against the order of the CIT(A) which had deleted the additions made by the Assessing Officer (AO) regarding alleged violations of Section 40A(3) of the Income-tax Act, 1961, and unrecorded cash payments for machinery installation. The AO had initially added 3,83,34,071 to the assessee's income, alleging that the assessee made cash payments exceeding 35,000 to a single transporter in a day. The CIT(A) found that these payments were actually made to individual truck drivers and were within the legal limit. Additionally, another addition of 10,00,000 was made based on WhatsApp messages retrieved from a director's phone, which the CIT(A) also deleted due to lack of corroborative evidence. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal.

• Counselvise Citation: [2026] 140 COUNSELVISE.COM (IT) 830568 (ITAT-KOLKATA)
• Duration Of Justice: 2 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-01-2026
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: misc
• Appeal Filed On: 31-10-2025
• Other Referred Cases: Bhandari Construction Company v. Narayan Gopal Upadhye, Mehta Parikh & Co. v. CIT, Smt. Harshila Chordia, Goenka Agencies, C/T v. Durga Prasad More, Teena Bethala
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S ANDEEP KUMAR MEHTA
• Assessee Lawyers: S SOUMITRA CHOUDHRY; ROUNAK JAIN; P. SARKAR; ARS
• Keywords: Business expenditure; Corroborative evidences; Unexplained expenditure; Rejection of books of accounts; Onus to prove
• Section: 131; 69C; 40A(3); 133A

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, KOLKATA BEFORE SHRI RAJESH KUMAR, AM AND SHRI PRADIP KUMAR CHOUBEY, JM ITA No.2497/KOL/2025 (Assessment Year: 2023-24) DCIT CC 1 4 Aaykar Bhawan Poorva, 110, Shanti Pally, Kolkata-700107, West Bengal Vs. Greyforce Industries Limited AMP Baishkhi, Sector-II, Salt Lake, Kolkata-700091, West Bengal (Appellant) (Respondent) PAN No. AABCG9408J Assessee by : S/Shri Soumitra Choudhry & Rounak Jain, P. Sarkar, ARs Revenue by : Shri Sandeep Kumar Mehta, DR Date of hearing: 06.01.2026 Date of pronouncement: 20.01.2026 O R D E R Per Rajesh Kumar, AM: This is an appeal preferred by the Revenue against the order of the Commissioner of Income-tax (Appeals), Kolkata 20, (hereinafter referred to as the “Ld. CIT(A)”] dated 10.07.2025 for the AY 2023- 24. 2. At the outset, we observe from the appeal folder that there is a delay of 31 days in filing the appeal by the department in support of which a condonation petition was filed by the Revenue. It was stated in the condonation petition that the delay has occurred due to obtaining of administrative approvals from the competent authorities, which took quite a long time and accordingly, the delay Printed from counselvise.com Page | 2 ITA No. 2497/KOL/2025 Greyforce Industries Limited; A.Y. 2023-24 may be condoned. The ld. AR, on the other hand, did not oppose the condonation of delay. Considering the reasons cited before us, we are inclined to condone the delay and admit the appeal for hearing. 3. The first issue raised by the Revenue is against the deletion of addition of ₹3,83,34,071/- by the ld. CIT (A) as made by the ld. AO on account of freight payment exceeding to ₹35,000/- to a single transporter in a single day in violation of Section 40A(3) of the Income-tax Act, 1961 (the Act). 3.1. The facts in brief are that during the course of assessment proceedings, the ld. AO noted that the assessee is a cement manufacturing flagship company of Srijan Group. Pertinent to state that survey was conducted on the assessee u/s 133A of the Act on 16.03.2023, during the course of which it was found that assessee has made payments in violation of Section 40A(3) of the Act exceeding to ₹35,000/- per transporter in a single day amounting to ₹3,85,65,679/-. Accordingly, the case of the assessee was selected for scrutiny and disallowance was made of ₹3,83,35,071/- by holding that the same was in violation of Section 40A(3) of the Act. 3.2. In the appellate proceedings, the ld. CIT (A) deleted the addition after taking into consideration the reply and submission of the assessee along with the evidences produced by observing and holding as under:- “5.1 I have duly considered the fact of the case, assessment order and the submissions filed by the appellant. A survey operation u/s 133A of the Act was conducted in case of the appellant company on 10.03.2023. The appellant-company is a manufacture of cement. The assessee is in business of procurement of raw materials such as clinker, gypsum and slag which are the raw material to Printed from counselvise.com Page | 3 ITA No. 2497/KOL/2025 Greyforce Industries Limited; A.Y. 2023-24 manufacture cement. In assessment proceeding, the Assessing Officer observed from purchases and sale register having detail of the raw material (lik clinker, gypsum, slag, cement & bricks) and details of name of suppliers, truck number, weight, name of transporters and freight charge paid during the year under consideration Further, Assessing Officer noticed that the assessee made freight payment in cash in excess of Rs. 35,000/- to a single transporter in a day. Rs. 3,83,34,071/- was added to total income of assessee u/s 40A(3) of the Act. Also, Rs. 10,00,000/- was added to total income of the assessee u/s 69C of the Act alleging unexplained expenditure. In appeal stage, the appellant stated that The Appellant is engaged in the procurement of raw materials such as clinker, gypsum, and slag, which are essential for its cement manufacturing operations. These materials are transported by individual truck owners/drivers who are arranged by facilitators or transport coordinators. These transporters, acting merely as facilitators, introduce truck drivers to the assessee and issue transportation builty slips. Further, the appellant has stated that the transporters collect a commission directly from the truck drivers for issuing these builty slips, and the appellant has no contractual or financial obligation towards these transporters. The appellant made direct payment of freight charges to the truck drivers or vehicle owner. Contrary to the AO's observation regarding violation of section 40A(3), the appellant stated that cash payment were made within the threshold limit of Rs.35,000/- per driver per day. 5.2 After carefully considering the assessment order, the appellant's detailed written submissions & supporting documentary evidence, I find merit in the appellant's contentions. The disallowance of Rs.3,83,34,071/- u/s 40A(3) has been made mechanically by the Assessing Officer without properly appreciating the business model and ground realities ofthe transportation sector. The appellant operates as a manufacturing and trading concern which regularly procures raw materials such as clinker and gypsum through transportation arranged by truck drivers and facilitators. The payments in question were made in cash directly to individual truck drivers-none of whom were paid more than Rs. 35,000 per day in contravention of the statutory limit applicable to transporters. Copy of cash vouchers and ledger account submitted by the appellant. The AO has wrongly presumed that these payments were made to transport companies merely because some facilitator names appeared in memorandum records, ignoring the fact that the appellant's books record the payee- wise breakup with truck numbers and amounts-all of which were below the prescribed limit. The Assessing officer has failed to bring on record any other evidence to proof his contention that the appellant has actually made payment to the transporters and not to the truck drivers, while the assessee repeatedly stated along with supporting evidences that the cash has been paid directly to the truck drivers and not to the transporters. The Assessing Officer has failed to make any independent enquiry whereas the appellant during the course assessment proceedings and as well as during the course of appellate proceeding, filed an affidavit given by the transporters. These transactions were genuine. properly recorded in the regular books of accounts, and supported by affidavits, cash vouchers, builty slips, and ledgers. In order to deal with transportation business, it is common knowledge and accepted fact that payments are made in cash on the spot so that goods can be transported. Printed from counselvise.com Page | 4 ITA No. 2497/KOL/2025 Greyforce Industries Limited; A.Y. 2023-24 5.3 The Hon'ble Supreme Court in the case of Bhandari Construction Company v. Narayan Gopal Upadhye (2007) 3 SCC 163/AIR 2007 SC 1441 the Hon'ble Supreme Court held that a mere suspicion that builders in the country are prone to take part of the sale amount in cash is no ground to accept the story of cash payment to the builder. The appellant, during the course of assessment proceedings as well as appellate proceedings, submitted affidavits from the transporters stating that they had not received any freight charges from the appellant company. Instead, they affirmed that they received commission payments from the truck drivers directly. I also find that this being a provision specifically designed to counter evasion of tax, the principle of strict literal interpretation generally applicable to the Taxing Statutes would not apply very strictly in the case. In the case of Mehta Parikh & Co. v. CIT [1956] 30 ITR 181 (SC) the Court held that, when an affidavit is filed the averment therein is assumed to be correct unless the same is proved otherwise. The law is well settled that Section 40A(3) should not be applied to disallow genuine business expenses borne out of commercial exigencies, particularly where the identity of payees and genuineness of transactions is not in doubt, as held in Smt. Harshila Chordia (298 ITR 349) and Goenka Agencies (263 ITR 145). In view of the above discussion, Assessing Officer is directed to delete the addition of Rs.3,83,34,07/-” 3.3. After hearing the rival contentions and perusing the materials available on record, we find that in this case the assessee has not made payments to transporters in excess of ₹35,000/- in a single day a findings of this effect have been recorded by the ld. CIT (A) after examining the records in detail. We note that even the ld. AO on page no.15 of the assessment order extracted the statement recorded u/s 131 of the Act in which it was accepted by the assessee that the freight charges were paid in cash at the factory premises and these were normally paid to the drivers. We have also examined the individual transporter account which are impounded during the course of survey as available from page no.227 to 652 and find that in none of the cases, the payment exceeding ₹35,000/- was made in cash to the single driver. We note that even the assessee has filed an affidavit of Shri Kushal Singh Singhvi, who is who is director of M/s PISM Logistic Pvt. Ltd. and is engaged in the business of facilitating the transportation services by getting consignments with the independent truck drivers and owners for the Printed from counselvise.com Page | 5 ITA No. 2497/KOL/2025 Greyforce Industries Limited; A.Y. 2023-24 transportation of goods who affirmed on oath that his role is limited to co-ordinating and facilitating the truck drivers/ owners available for transportation of raw material to the premises of the assessee on payment basis. The said person stated that he did not receive any freight payment from the assessee instead the assessee made direct payments to the respective truck drivers. The copy of such affidavit is available at page no.541 to 543 of the Paper Book. Considering these facts on record, we are inclined to hold that the ld. AO has not appreciated the facts correctly on the basis of records available before him during the assessment proceedings, whereas the ld. CIT (A) has examined and correctly analyzed these papers/documents and recorded a very objective finding that payments to these truck drivers were not exceeding the limit as specified u/s 40A(3) of the Act. Consequently, we uphold the order of ld. CIT (A) by dismissing the appeal of the Revenue on this issue. The first issue raised by the Revenue is dismissed. 4. The second issue raised by the Revenue is against the deletion of addition of ₹10 lacs by the ld. CIT (A) as made by the ld. AO on the basis of messages retrieved from the mobile phone of the directors for which corresponding entries were not made in the books of account. 4.1. The facts in brief are that during the course of survey, the survey team retrieved the WhatsApp Chats from personal iPhone 12 Pro Max, Model belonging to Shri Anil Agarwal, who received the cash transactions which were not recorded in the books of account. In the statement recorded of Shri Anil Agarwal, during the course of survey confirmed in the statement recorded u/s 131 of the Act that Printed from counselvise.com Page | 6 ITA No. 2497/KOL/2025 Greyforce Industries Limited; A.Y. 2023-24 the payment was made for installation of machine in Pasta Unit but submitted that he may be allowed some more time to explain the same. Then again, he was confronted on 01.07.2023, when a statement was recorded u/s 131 of the Act and he admitted that the payment was made to the party but that was made out of books of account. The ld. AO therefore noted that the assessee has disclosed only ₹27,14,000/- (cheque +GST) which was paid through banking channel for purchase of machine and ₹10 lacs paid for installment of Pasta Unit, which was not recorded in the books of account and consequently, added the same in the income of the assessee. 4.2. In the appellate proceedings, the ld. CIT (A) deleted the addition after taking into account the submission and contention of the assessee by observing and holding as under:- “5.4 Similarly, the addition of ₹10,00,000/- u/s 69C on account of allege cash payment for pasta machinery is based solely on an unverified and unauthenticated social media message, without any independent inquiry, confirmation, invoice, or seized document from the assessee's premises. The AO has failed to discharge the burden of proof and has instead resorted to presumptive addition based on hearsay, which is impermissible under law, as held in C/T v. Durga Prasad More (82 ITR 540) and Teena Bethala (70 taxmann.com 379). In addition, the books of accounts were neither rejected under Section 145(3) nor were any defects pointed out by the AO. I find that the addition made by Assessing Officer of Rs.10,00,000/- is not sustainable in the eyes of law. Therefore, Assessing Officer is directed to delete the addition of Rs. 10,00,000/-.” 4.3. After hearing the rival contentions and perusing the materials available on record, we find that the survey team though retrieved some WhatsApp messages which referred to payment of cash which was mentioned by the assessee in the statement recorded u/s 131 of the Act and was stated to have been made for the installation of Pasta Machine. On the second occasion the Anil Agarwal again Printed from counselvise.com Page | 7 ITA No. 2497/KOL/2025 Greyforce Industries Limited; A.Y. 2023-24 stated on 01.07.2023, when the statement was again recorded that this was made out of books of account but according to the ld. AO the assessee made cheque payment of ₹27,14,000/- and ₹10,00,000/- paid in cash was not recorded. The ld. CIT (A) deleted the addition by noting that the cash payment for Pasta machine was based on unverified and unauthenticated media messages for which the ld. AO has not conduct any enquiry from the recipient even and no incriminating material was seized during the course of survey. The ld. CIT (A) also noted that the ld. AO has not rejected the books of accounts u/s 145(3) of the Act, nor any defect or deficiency was pointed out. In our opinion, the ld. CIT (A) has correctly deleted the addition as no addition can be made on the basis of statement when there was no corroboration of the same and the ld. AO has not conducted any further enquiry. Consequently, we uphold the order of ld. CIT (A) on this issue by dismissing the second issue raised by the Revenue. 5. In the result, the appeal of the Revenue is dismissed. Order pronounced in the open court on 20.01.2026. Sd/- Sd/- (PRADIP KUMAR CHOUBEY) (RAJESH KUMAR) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) Kolkata, Dated: 20.01.2026 Sudip Sarkar, Sr.PS Printed from counselvise.com Page | 8 ITA No. 2497/KOL/2025 Greyforce Industries Limited; A.Y. 2023-24 Copy of the Order forwarded to: BY ORDER, True Copy// Sr. Private Secretary/ Asst. Registrar Income Tax Appellate Tribunal, Kolkata 1. The Appellant 2. The Respondent 3. CIT 4. DR, ITAT, 5. Guard file. Printed from counselvise.com "