Nikhil Jain (L/H of Beena Jain), New Delhi V. ACIT Circle-31(1), New Delhi

ITA 7880/DEL/2019

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 6904 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 6 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-04-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2016-2017
• Appeal Filed On: 27-09-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJIV MAHAJAN
• Assessee Lawyers: PUNEET RAI
• Keywords: Capital asset; Income from undisclosed sources; Principle of natural justice; Commercial expediency; Capital expenditure; Set aside; Capital Gains
• Section: 40A(3); 201; 191; 20

Judgement Text

IN TH E INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : SMC - 1 : NEW DELHI (THROUGH VIRTUAL HEARING) BEFORE SHRI R. K. PANDA, ACCOUNTANT MEMBER ITA NO . 7880 /DEL/201 9 ASSESSMENT YEAR : 20 1 6 - 17 NIKHIL JAIN (L/H OF BEENA JAIN), H - 41, GREEN PARK EXTN., N EW D ELHI. P AN: A AGPJ1088H VS ACIT, CIRCLE - 31(1), NEW DELHI. (APP ELL A NT ) (RESPONDENT) A SSESSEE BY : SHRI S. KRISHNAN, ADVOCATE & SHRI PUNEET RAI, CA RE VENUE BY : SHRI SANJIV MAHAJAN, SR. DR DATE OF HEARING : 2 7 . 0 1 . 20 2 1 DATE OF PRONOUNCEMENT : 08 . 0 4 . 20 2 1 ORDER TH IS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 30 TH JULY, 201 9 OF THE CIT(A) - 11 , NEW DELHI, RELATING TO ASSESSMENT YEAR 20 1 6 - 17 . 2. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASS ESSEE IS A N INDIVIDUAL HAVING INCOME FROM HOUSE PROPERTY, BUSINESS & PROFESSION, CAPITAL GAINS AND OTHER SOURCES. SHE FILED H ER RETURN OF INCOME ON 12 TH OCTOBER, 20 1 6 DECLARING THE TOTAL INCOME AT RS. 18,21,460/ - . DURING THE COURSE OF ASSESSMENT PROCEEDIN GS, THE AO NOTED THAT THE ASSESSEE HAS NOT DISALLOWED ANY AMOUNT IN EXCESS OF RS.20,000/ - PAID ITA NO. 7880 /DEL/201 9 2 TO A PERSON IN A DAY OTHERWISE THAN BY ACCOUNT PAYEE CHEQUE OR ACCOUNT PAYEE BANK DRAFT AS PER PROVISIONS OF SECTION 40A(3), THE DETAILS OF WHICH ARE AS UNDER: - I ) FREIGHT CHARGES PAID TO TRUCK WALA FOR TRANSPORTING COAL TO ASSESSEE S FACTORY AT SAMPLA : RS.8,81,493/ - II) MACHINERY REPAIRS : RS.1,72,408/ - III) STAFF WELFARE EXPENSES : RS.57,800/ - IV) EXPENSES ON MOBILE : RS.32,400/ - V) PAYMENTS MADE FOR PU RCHASE OF COAL : RS.13,16,786/ - 3. HE FURTHER OBSERVED FROM FORM NO. 3CD FURNISHED BY THE ASSESSEE WHEREIN IT HAS BEEN CLEARLY MENTIONED THAT THE ASSESSEE HAS MADE PAYMENTS AMOUNTING TO RS.24,60,887/ - IN CASH TO VARIOUS PARTIES. HE, THEREFORE, ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE ADDITION SHOULD NOT BE MADE INVOKING THE PROVISIONS OF SECTION 40A(3) OF THE IT ACT. 4. SO FAR AS PURCHASE OF COAL/FREIGHT CHARGE WAS CONCERNED, IT WAS SUBMITTED BY THE ASSESSEE THAT IT IS THE TRADE PRACTICE TO PURCHASE C OAL THROUGH AGENTS FROM DIFFERENT SUPPLIERS IN THE COUNTRY WHICH DEPENDS ON ITS AVAILABILITY. THE AGENTS EARNED COMMISSION ON THE TRANSACTIONS MADE THROUGH THEM EITHER FROM THE BUYER OR FROM THE SELLER. ON THE ISSUE OF PAYMENT OF MACHINERY REPAIRS, IT WA S SUBMITTED THAT THE MACHINES ARE PRONE TO BREAK - DOWN AND REQUIRE IMMEDIATE REPAIRS. IT WAS SUBMITTED THAT THE ASSESSEE COULD NOT WAIT TO COMPLY WITH THE PROCEDURAL FORMALITIES OF MAKING PAYMENTS THROUGH BANKING CHANNELS . SO FAR AS STAFF WELFARE EXPENSES ARE CONCERNED, IT WAS SUBMITTED BY THE ASSESSEE THAT THE PAYMENTS WERE ITA NO. 7880 /DEL/201 9 3 MADE TO HOSPITAL WHEN ONE OF THE FACTORY WORKERS HAD SUSTAINED SEVERE INJURIES ON DUTY AND NEEDED TO BE PROVIDED IMMEDIATE MEDICAL CARE. HOWEVER, THE AO WAS NOT SATISFIED WITH THE EXPL ANATION GIVEN BY THE ASSESSEE AND MADE ADDITION OF RS.24,60,887/ - TO THE TOTAL INCOME OF THE ASSESSEE FOR VIOLATION OF PROVISIONS OF SECTION 40A(3) OF THE IT ACT. 5. IN APPEAL, THE LD.CIT(A) DELETED THE DISALLOWANCE OF RS.57,800/ - FOR VIOLATIONS OF PROVIS IONS OF SECTION 40A(3) ON ACCOUNT OF STAFF WELFARE EXPENSES. SO FAR AS THE REMAINING AMOUNT IS CONCERNED, THE LD.CIT(A) UPHELD THE ACTION OF THE AO BY OBSERVING AS UNDER: - 5.2.1 I HAVE CAREFULLY CONSIDERED THE OBSERVATIONS OF AO AND SUBMISSIONS OF APPEL LANT. IT IS SEEN THAT AS PER FORM 3CD FURNISHED BY ASSESSEE, AO NOTED THAT ASSESSEE HAD MADE PAYMENTS OF MORE THAN - RS.20,000/ - IN CASH AMOUNTING TO RS.24,60,887 / - TO VARIOUS PARTIES FOR FREIGHT INWARDS/MACHINERY REPAIRS/MOBILE PHONE/COAL PURCHASE/STAFF WEL FARE. WITH RESPECT TO PURCHASE OF COAL AMOUNTING TO RS. 13,16,786/ - AND FREIGHT CHARGES PAYMENT FOR TRANSPORTING COAL TO ASSESSEE S FACTORY AMOUNTING TO RS. B,8L,493/ - , APPELLANT HAS SUBMITTED THAT HE DID NOT PURCHASE COAL DIRECTLY FROM THE SUPPLIERS BU T PROCURED IT FROM AGENTS APPOINTED BY SUPPLIERS TO SELL COAL IN THEIR REGION AGAINST PAYMENT OF COMMISSION. HE HAS - FURTHER SUBMITTED THAT IDENTITY OF THE SUPPLIER IS KNOWN ONLY WHEN THE TRUCK DRIVER REACHES HIS DESTINATION AND BEFORE THE COAL IS UNLOAD ED BUYERS HAS TO PAY TO THE TRUCK DRIVER THE ENTIRE AMOUNT TOWARDS COAL, FREIGHT CHARGES, ENROUTE EXPENSES AND LOADING & UPLOADING EXPENSES IN CASH. HE HAS ALSO SUBMITTED THAT IF HE FAILS TO MAKE THE CASH PAYMENT, AGENT DIVERTS THE TRUCK TO SOME OTHER BU YERS. THEREFORE; IT BECOMES DIFFICULT TO DISPLEASE THE AGENTS AS THE TRUCK DRIVERS DO NOT ACCEPT PAYMENT BY CHEQUE. WITH RESPECT TO MACHINERY REPAIRS AMOUNTING TO RS. 1,72,408/ - HE HAS SUBMITTED HE HAS SUBMITTED THAT IN CASE OF MACHINERY BREAK DOWN/REPLA CEMENT OF PARTS TO MAKE THE MACHINE FUNCTIONAL, THE ASSESSEE HAD TO .PAY IN - CASH AND PAYMENTS WERE MADE TO MECHANIC IN CASH. 5.2.2 I HAVE CAREFULLY CONSIDERED THE OBSERVATIONS OF AO AND SUBMISSIONS OF APPELLANT. APPELLANT HAS CLAIMED THAT PAYMENTS WERE MADE IN CASH AS THE OTHER PARTY INSISTED ON PAYMENTS IN CASH OR OTHERWISE THE TRUCKS WOULD BE DIVERTED AND THAT IT WAS PURCHASED FROM THE AGENT OF SUPPLIERS. HOWE4VER, NO EVIDENCE HAS BEEN SUBMITTED BY APPELLANT TO ESTABLISH HIS CLAIM. MOREOVER, IF ITA NO. 7880 /DEL/201 9 4 THE CLA IM OF APPELLANT IS ACCEPTED THEN IT WOULD AMOUNT TO DEFEATING THE OBJECTIVE OF ENACTMENT AS APPELLANT HAS NOT BEEN ABLE TO MAKE A CLAIM OF UNAVOIDABLE CIRCUMSTANCE AND GENUINE DIFFICULTY SO AS TO CLAIM BENEFIT OF RULE 6DD. MOREOVER, IT ALSO NOT THE CASE OF APPELLANT THAT HER AGENT HAS MADE THE PAYMENT ON HER BEHALF IN CASE OF EXPENDITURE ON ACCOUNT OF FREIGHT CHARGES AND PURCHASE OF COAL. IT IS ALSO TO BE NOTED THAT GENUINE AND BONAFIDE TRANSACTIONS ARE NOT TAKEN OUT OF SWEEP OF SECTION 40A(3). RELIANCE IS PLACED ON THE JUDGMENT OF HON BLE SUPREME COURT IN THE CASE OF ATTAR SINGH GURMUKH SINGH VS. ITO (SC) 191 ITR 667. WITH RESPECT TO THE CLAIM OF APPELLANT THAT NO SHOW CAUSE NOTICE WAS ISSUED, IT IS NOTED THAT THE AMOUNT OF PAYMENT IN CASH WHICH WAS IN VIO LATION OF SECTION 40A(3) WAS ALREADY MENTIONED IN FORM 3CD OF APPELLANT S AUDIT REPORTS AND THEREFORE, HE WAS WELL AWARE OF THE FACT THAT THERE WAS VIOLATION OF THE PROVISIONS OF SECTION 40A(3). FURTHER, DISALLOWANCE U/S 40A(3) IS AN ABSOLUTE DISALLOWANCE WHICH IS MANDATORY IN NATURE UNLESS THE CASE FALLS UNDER THE EXCEPTIONS PROVIDED, AS SUCH, AO WAS NOT REQUIRED TO PLACE ANY MATERIAL ON RECORD. THEREFORE, I FIND NO BASIS TO INTERFERE IN THE ORDER OF AO WITH RESPECT TO PAYMENT OF RS. 8,81,493/ - ON ACCOUNT OF FREIGHT CHARGES AND RS. 13,16,786/ - ON ACCOUNT OF PURCHASE OF COAL IN CASH. SIMILARLY, WITH RESPECT TO MACHINERY REPAIRS APPELLANT HAS NOT SUBMITTED ANY EVIDENCES REGARDING THE CLAIM THAT THE PAYMENT IN CASH OF RS. 1,72,408/ - WAS MADE BECAUSE OF UNAVO IDABLE CIRCUMSTANCES. ACCORDINGLY, DISALLOWANCE WITH RESPECT TO PAYMENT IN CASH OF RS. 8,81,493/ - ON ACCOUNT OF FREIGHT CHARGES, RS. 13,16,786/ - ON ACCOUNT OF PURCHASE OF COAL AND RS. 1,72,408/ - ON ACCOUNT OF MACHINERY REPAIRS U/S 40A(3) IS SUSTAINED. 6 . AGGRIEVED WITH SUCH ORDER OF THE CIT(A), THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL BY RAISING THE FOLLOWING GROUNDS: - 1. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN AFFIRMING THE ACTION OF THE ASSESSING OFFICER BY CONFIRMING THE DISALLOWANC E OF EXPENSES OF RS 24,03,087 U/S 40A(3) OF THE INCOME TAX ACT. 2. THAT THE LD. CIT(A) HAS ERRED IN LAW BY CONFIRMING THE DISALLOWANCE OF RS 32,400/ - FOR PURCHASE OF MOBILE PHONE IN CASH WHICH IS A CAPITAL EXPENDITURE ON WHICH SECTION 40A(3)OF THE INCOME TAX ACT IS NOT APPLICABLE. HENCE, ADDITION OF RS 32,400/ - MAY PLEASE BE DELETED. 3. THAT THE LD. CIT(A) HAS ERRED IN LAW AND FACTS OF THE CASE BY CONFIRMING THE DISALLOWANCE OF RS 13,16,786/ - U/S 40A(3) FOR PURCHASE OF COAL AND RS 8,81,493/ - U/S 40(A)(3) FOR PAYMENT OF FREIGHT MADE TO THE AGENT AS A TRADE PRACTICE AND BUSINESS COULD NOT CONDUCTED IF PAYMENT WAS NOT MADE IN CASH. HENCE, ADDITION OF RS 21,98,279/ - MAY PLEASE BE DELETED. ITA NO. 7880 /DEL/201 9 5 4. THAT THE LD. CIT(A) HAS ERRED IN LAW AND FACTS OF THE CASE BY CONFIR MING THE DISALLOWANCE OF RS 1,72,408/ - U/S 40A(3) OF THE ACT FOR MACHINERY REPAIR AGAINST PAYMENT MADE TO MECHANIC UNDER COMPELLING CIRCUMSTANCES . HENCE, ADDITION OF RS L,72,408/ - MAY PLEASE BE DELETED. 5. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS WHILE CONFIRMING THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER EVEN THOUGH THE ASSESSING OFFICER DID NOT ISSUE ANY SHOW CAUSE NOTICE TO THE ASSESSEE BEFORE MAKING THE ADDITIONS U/S 40(A)(3) OF THE ACT. THEREFORE IT S A CLEAR VIOLATION OF PRINCIPLES OF NATURAL JUSTICE AND ADDITIONS NEEDS TO BE DELETED. 6. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS WHILE CONFIRMING THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER AS THERE IS NO FINDING BY THE AO AND CIT APPEALS THAT THE EXPENSES HAVE NOT B EEN INCURRED BY THE ASSESSEE. FURTHER EXPENSES IN CASH HAVE BEEN MADE IN EXCEPTIONAL /UNAVOIDABLE CIRCUMSTANCES BY THE ASSESSEE. THUS ADDITIONS NEEDS TO BE DELETED. 7. THAT, THE APPELLANT CRAVES LEAVE TO ADD, ALTER, DELETE & MODIFY ANY OF THE GROUND OF AP PEAL AT THE TIME OF HEARING. 7 . THE LD. COUNSEL FOR THE ASSESSEE STRONGLY CHALLENGED THE ORDER OF THE CIT(A) IN SUSTAINING THE ADDITION OF RS.24,03,087/ - U/S 40A(3) OF THE ACT OUT OF THE TOTAL ADDITION OF RS.24,60,887/ - . HE SUBMITTED THAT THE ASSESSEE IS A MANUFACTURER OF TEXTILES AND IT REQUIRES CONSTANT SUPPLY OF COAL. REFERRING TO PAGES 37 TO 58 OF THE PAPER BOOK, THE LD. COUNSEL SUBMITTED THAT THE PAYMENTS WERE MADE FOR PURCHASE OF COAL . HE SUBMITTED THAT W ITHOUT CONSTANT SUPPLY OF COAL THE ASSESSEE COULD NOT HAVE CONTINUED THE MANUFACTURING PROCESS. HE SUBMITTED THAT THE AO HAS NOT DISPUTED THE GENUINENESS OF THE PURCHASES OR THE PAYMENTS , BUT, HAS DISALLOWED ONLY ON ACCOUNT OF VIOLATIONS OF THE PROVISIONS OF SECTION 40A(3) OF THE ACT. HE SUBMITTE D THAT IN THIS CASE SINCE THE SUPPLIERS ARE NOT KNOWN TO THE ASSESSEE AND THE PURCHASES WERE MADE FROM THEIR AGENTS, IT WOULD HAVE PRACTICALLY BEEN IMPOSSIBLE ON THE PART OF THE ASSESSEE TO MAKE THE PAYMENT S THROUGH ACCOUNT PAYEE CHEQUE OR ITA NO. 7880 /DEL/201 9 6 BANK DRAFT. HE SUBMITTED THAT SINCE CERTAIN PURCHASES HAVE TO BE MADE ON URGENT BASIS, THEREFORE, IT WOULD NOT HAVE BEEN POSSIBLE ON THE PART OF THE ASSESSEE TO WAIT FOR THE BANKING PROCESS TO BE COMPLETED. FURTHER, SUCH PAYMENTS SO MADE ARE ONLY TO THE TUNE OF RS.13,16 ,786/ - OUT OF THE TOTAL ACTUAL PURC HASES OF RS.13,17,16,762/ - , WHICH IS HARDLY 1% OF THE TOTAL PURCHASES. FURTHER, THE ASSESSEE HAS ALSO PAID CST ON THE PURCHASES AND C - FORM WAS ALSO ISSUED TO THE SUPPLIERS. THE PURCHASES ARE REFLECTED IN THE VAT RETURNS OF THE ASSESSEE AND THE VAT/CST ASSESSMENT FOR F.Y. 2015 - 16 WAS ALSO COMPLETED IN WHICH NO DISCREPANCY HAS BEEN FOUND WITH REGARD TO PURCHASE OF COAL BY THE ASSESSEE. THE LD. COUNSEL SUBMITTED THAT THE EXPENSES INCURRED TOWARDS PAYMENT OF COAL FALLS WITH IN THE PROVISO TO SECTION 40A(3) OF THE ACT. REFERRING TO THE DECISION OF THE AGRA BENCH OF THE TRIBUNAL IN THE CASE OF NEW KALPANA ENT. UDYOG VS. ITO, VIDE ITA NO.49/AGRA/2015, HE SUBMITTED THAT UNDER IDENTICAL CIRCUMSTANCES, IT WAS HELD THAT THE PAYMENT MADE TO THE COAL AGENTS FOR PURCHASE OF COAL AND PAYMENT MADE TO TRUCK DRIVERS FOR FREIGHT SHOULD NOT BE DISALLOWED U/S 40A(3) OF THE ACT R.W. RULE 6DD OF THE IT RULES, 1962. 8. SO FAR AS FREIGHT INWARD EXPENSES OF RS. 8,81,493/ - IS CONCERNED, HE SUBMITTE D THAT OUT OF THE TOTAL FREIGHT EXPENSES OF RS.25,74,906/ - , THE CASH COMPONENTS INCLUDES RS.8,81,493/ - WHICH MAINLY RELATES TO PURCHASE OF COAL. HE SUBMITTED THAT THE ASSESSEE HAD TO PAY CASH TO THE TRUCK DRIVERS FOR EXPENSES OF FREIGHT ON PURCHASE OF COAL UNDER COMPULSION AND EXIGENCIES OF TRANSACTION. THE LOWER AUTHORITIES HAVE NOT DISPUTED REGARDING THE GENUINENESS OF THE PAYMENTS AS ITA NO. 7880 /DEL/201 9 7 THERE IS NO DISALLOWANCE OUT OF THAT EXPENSE. HE SUBMITTED THAT AS PER THE PROVISO TO SECTION 40A(3), IN THE CASE OF PAY MENT MADE FOR PLYING, HIRING OR LEASING GOODS CARRIAGES, THE AMOUNT HAS BEEN ENHANCED TO RS.35,000/ - PER DAY AND NOT RS.20,000/ - . THEREFORE, THE PAYMENTS WHICH DID NOT EXCEED RS.35,000/ - ARE NOT COMING WITHIN THE PURVIEW OF SECTION 40A(3) OF THE ACT. HE SUBMITTED THAT IN THE INSTANT CASE, ONLY ONE PAYMENT OF RS.44,556/ - EXCEEDED RS.35,000/ - AND THE REMAINING PAYMENTS ON ACCOUNT OF FREIGHT INWARD EXPENSES ARE BELOW RS.35,000/ - . THEREFORE, THE ADDITION MADE U/S 40A(3) SHOULD BE DELETED. 9. SO FAR AS THE MACHINERY REPAIRS OF RS.1,72,408/ - IS CONCERNED, HE SUBMITTED THAT OUT OF THE TOTAL MACHINERY REPAIR EXPENSES OF RS.27,49,934/ - , ONLY AN AMOUNT OF RS.1,72,408/ - HAS BEEN INCURRED IN CASH WHICH, AGAIN, ARE DUE TO SUDDEN BREAKDOWN OF MACHINERY THAT REQUIRED IMMEDIATE REPAIR OR REPLACEMENT OF PARTS TO MAKE THE MACHINE FUNCTIONAL TO AVOID PRODUCTION LOSS. THEREFORE, NO DISALLOWANCE U/S 40A(3) IS CALLED FOR. 10. SO FAR AS THE PURCHASE OF MOBILE PHONE AMOUNTING TO RS .32,400/ - IS CONCERNED, HE SUBMITTED THAT THE SAME HAS BEEN SHOWN UNDER THE FIXED ASSETS AND NOT CLAIMED AS AN EXPENDITURE IN THE P&L ACCOUNT . T HEREFORE, NO DISALLOWANCE U/S 40A(3) IS CALLED FOR. REFERRING TO THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF A T TAR SINGH GURMUKH SINGH VS. ITO, REPORTED IN 1 91 ITR 667, HE SUBMITTED THAT THE PROVISIONS OF SECTION 40A(3) ONLY EMPOWERS THE AO TO DISALLOW THE DEDUCTION CLAIMED AS EXPENDITURE IN RESPECT OF WHICH PAYMENT IS NOT MADE BY ITA NO. 7880 /DEL/201 9 8 CROSSED CHEQUE OR CROSSED BANK DRAFT. THE PAYMENT BY CROSSED CHEQUE IS INSISTED TO ENABLE THE ASSESSING AUTHORITY TO ASCERTAIN WHETHER THE PAYMENT WAS GENUINE OR WHETHER IT WAS OUT OF THE INCOME FROM UNDISCLOSED SOURCES. THE TERMS OF SECTION 40A(3) ARE NOT ABSOLUTE. CONSIDERATION OF BUSINESS EXIGENCY AND OTHER RE LEVANT FACTORS ARE NOT EXCLUDED. GENUINE AND BONA FIDE TRANSACTIONS ARE NOT TAKEN OUT OF THE SWEEP OF THE SECTION. RELYING ON VARIOUS OTHER DECISIONS, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE DISALLOWANCE MADE BY THE AO AND SUSTAINED BY THE CI T(A) IS UNCALLED FOR AND SHOULD BE DELETED. THE LD. COUNSEL FOR THE ASSESSEE ALSO RELIED ON THE FOLLOWING DECISIONS: - I) KALYAN CONSTRUCTIONS VS. ITO, ITA NO.2113/HYD/2017; II) HARSHILA CHORDIA VS. ITO, (2008) 298 ITR 349 (RAJ); III) ITO VS. PRANAY TOWERS (2016) 52 I TR (TRIB) 258 (ITAT DELHI); IV) KGL NETWORK (P) LTD. VS. ACIT (2018) 66 ITR (TRIB) 371 (ITAT DELHI); AND V) S.G. ENTERPRISES VS. ACIT, ITA NO.275/DEL/2012 11. THE LD. DR, ON THE OTHER HAND, HEAVILY RELIED ON THE ORDER OF THE CIT(A). HE SUBMITTED THAT THE LD.CI T(A) HAS GIVEN VALID REASONS WHILE SUSTAINING THE PART DISALLOWANCES MADE BY THE AO U/S 40A(3) OF THE IT ACT. HE ACCORDINGLY SUBMITTED THAT THE ORDER OF THE LD.CIT(A) BEING BASED ON FACTUAL ASPECT AND AS PER THE PROVISIONS OF THE ACT, THE SAME SHOULD BE U PHELD AND THE GROUNDS RAISED BY THE ASSESSEE SHOULD BE DELETED. ITA NO. 7880 /DEL/201 9 9 12 . I HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES , PERUSED THE ORDERS OF THE AO AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. I HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE ME. I FIND, THE AO, IN THE INSTANT CASE MADE AN ADDITION OF RS.24,60,887/ - U/S 40A(3) OF THE ACT ON THE GROUND THAT THE ASSESSEE HAS MADE CERTAIN PAYMENTS IN EXCESS OF RS.20,000/ - BY CASH OTHER THAN BY ACCOUNT PAYEE CHEQUE O R BANK DRAFT OR PAY ORDER AND, THEREFORE, HAS VIOLATED THE PROVISIONS OF SECTION 40A(3) OF THE ACT. I FIND, THE LD.CIT(A) UPHELD THE ACTION OF THE AO IN RESPECT OF PAYMENT OF RS.8,81,493/ - ON ACCOUNT OF FREIGHT CHARGES, RS.13,16,786/ - ON ACCOUNT OF PURCHA SE OF COAL AND RS.1,72,408/ - ON ACCOUNT OF MACHINERY REPAIRS. HE ALSO SUSTAINED THE DISALLOWANCE MADE BY THE AO ON ACCOUNT OF PURCHASE OF MOBILE AMOUNTING TO RS.32,400/ - . HE, HOWEVER, DELETED THE DISALLOWANCE ON ACCOUNT OF STAFF WELFARE EXPENSES. IT IS THE SUBMISSION OF THE LD. COUNSEL THAT THE LOWER AUTHORITIES HAVE WRONGLY INVOKED THE PROVISIONS OF SECTION 40A(3) OF THE IT ACT ON ACCOUNT OF FREIGHT CHARGES, MACHINERY REPAIRS, EXPENSES ON MOBILE AND PAYMENTS MADE FOR PURCHASE OF COAL. 13. SO FAR AS THE PURCHASE OF COAL FOR RS.13,16,786/ - IS CONCERNED, I FIND, OUT OF THE TOTAL PURCHASE OF RS.13,70,16,762/ - , THE CASH PURCHASES ARE ONLY TO THE TUNE OF RS.13,16,786/ - . I FIND MERIT IN THE SUBMISSION OF THE LD. COUNSEL THAT AT CERTAIN TIMES THE COAL HAS TO BE PURCHASED THROUGH THE AGENTS WHICH WAS SUPPLIED THROUGH THE TRUCK DRIVERS OF THE SUPPLIERS. THE ASSESSEE WAS BOUND TO PROCURE THE COAL TO KEEP THE FURNACE GOING TO SUSTAIN THE PRODUCTION. THEREFORE, PROCUREMENT OF COAL ITA NO. 7880 /DEL/201 9 10 AGAINST CASH PAYMENT WAS A BUSINES S NECESSITY. FURTHER, THE ASSESSEE HAS ALSO PAID CST ON PURCHASES AND THE C - FORM ISSUED TO THE SUPPLIER IS ALSO PRODUCED BEFORE THE LOWER AUTHORITIES. THE PURCHASES ARE REFLECTED IN THE VAT RETURNS OF THE ASSESSEE AND THE VAT AUTHORITIES HAVE NOT FOUND A NY DISCREPANCY IN THE VAT/CST ASSESSMENT FOR F.Y. 2015 - 16 . FURTHER, THE PURCHASE OF COAL HAS NOT BEEN DISPUTED OR DOUBTED BY THE LOWER AUTHORITIES FOR WHICH THE GENUINENESS OF THE PURCHASE IS ALSO NOT IN DOUBT. I FURTHER FIND, THE AGRA BENCH OF THE TRIBU NAL IN THE CASE OF NEW KALPA NA ENT. UDYOG VS ITO, VIDE ITA NO.49/AGRA/2015, UNDER SOMEWHAT IDENTICAL CIRCUMSTANCES, HAVE HELD THAT THE PAYMENT MADE TO THE COAL AGENTS FOR PURCHASE OF COAL AND PAYMENT MADE TO TRUCK DRIVERS FOR FREIGHT SHOULD NOT BE DISALLOW ED U/S 40A(3) R.W. RULE 6DD OF THE IT RULES. IN THIS VIEW OF THE MATTER, I HOLD THAT THE ORDER OF THE CIT(A) SUSTAINING THE DISALLOWANCE OF RS.13,16,786/ - U/S 40A(3) OF THE ACT IS NOT JUSTIFIED. ACCORDINGLY, THE SAME IS DIRECTED TO BE DELETED. 14. SO F AR AS THE FREIGHT INWARD EXPENSES OF RS. RS.8,81,493/ - IS CONCERNED, I FIND THE SAME IS MAINLY RELATED TO PURCHASE OF COAL. I FIND, MERIT IN THE ARGUMENT OF THE LD. COUNSEL THAT THE ASSESSEE HAD TO PAY THE CASH TO THE TRUCK DRIVERS FOR EXPENSES OF FREIGHT ON PURCHASE OF COAL AS A COMPULSION AND EXIGENCY OF TRANSACTION. FURTHER, THE LOWER AUTHORITIES HAVE NOT DISPUTED THE GENUINENESS OF THE PAYMENT ON ACCOUNT OF FREIGHT CHARGES SINCE NO DISALLOWANCE HAS BEEN MADE. I ALSO FIND MERIT IN THE ARGUMENT OF THE LD. COUNSEL THAT AS PER THE PROVISO TO SECTION 40A(3) IN THE CASE OF PAYMENT MADE FOR PLYING/HIRING OR LEASING GOODS CARRIAGES, ITA NO. 7880 /DEL/201 9 11 THE PROVISIONS OF SUB - SECTION (3) AND 3A SHALL HAVE EFFECT AS IF FOR THE WORDS TWENTY THOUSAND RUPEES , THE WORDS THIRTY FIVE THOUSAND RUPEES HAVE BEEN SUBSTITUTED. FROM THE DETAILS FURNISHED BY THE LD. COUNSEL, I FIND, MOST OF THE PAYMENTS ARE BELOW RS.35,000/ - . IN VIEW OF THE ABOVE AND IN VIEW OF THE D E CISION OF THE AGRA BENCH OF THE TRIBUNAL IN THE CASE OF NEW KALPANA ENT. UDYOG VS. ITO (SUPRA) IN THE PRECEDING PARAGRAPH, I DIRECT THE AO TO DELETE THE ADDITION. 15. SO FAR AS THE MACHINERY REPAIR OF RS. 1,72,408/ - IS CONCERNED, I FIND, OUT OF THE TOTAL MACHINERY REPAIRS OF RS.27,49,934/ - ONLY RS.1,72,408/ - HAD BEEN INCURRE D BY THE ASSESSEE IN CASH. IN MY OPINION, THE EXPLANATION OF THE ASSESSEE THAT CERTAIN EXPENSES HAD TO BE INCURRED IN CASH DUE TO CERTAIN BREAKDOWN OF THE MACHINERY THAT REQUIRES IMMEDIATE REPAIRS BY REPLACEMENT OF PARTS TO MAKE THE MACHINE FUNCTIONAL TO AVOID PRODUCTION LOSS, IS A COMMERCIAL EXPEDIENCY AND THE GENUINENESS OF THE EXPENDITURE HAS NOT BEEN DOUBTED. I, THEREFORE, HOLD THAT DUE TO THE EXTRAORDINARY NATURE OF THE EXPENDITURE THE TECHNICALITIES SHOULD NOT STAND IN THE WAY AND THE DISALLOWANCE U /S 40A(3) IS UNCALLED FOR. 16. SO FAR AS THE DISALLOWANCE ON ACCOUNT OF MOBILE PHONE OF RS.32, 400/ - IS CONCERNED, I FIND MERIT IN THE ARGUMENT OF THE LD. COUNSEL THAT THE PHONE WAS SHOWN IN THE BALANCE SHEET AS A CAPITAL ASSET AND WAS NOT CLAIMED AS AN EX PENDITURE. THE HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF KALYAN CONSTRUCTION S VS. ITO, VIDE ITA NO.2113/HYD./2017, HAS HELD THAT PROVISIONS OF SECTION 40A(3) DO NOT APPLY TO PURCHASE OF AN ASSET. RESPECTFULLY FOLLOWING THE ITA NO. 7880 /DEL/201 9 12 SAID DECISION, I HOLD THAT THE DISALLOWANCE U/S 40A(3) OF THE ACT ON ACCOUNT OF PURCHASE OF MOBILE PHONE SHOWN IN THE BALANCE SHEET AS AN ASSET IS UNCALLED FOR. ACCORDINGLY, THE ORDER OF THE CIT(A) SUSTAINING THE DISALLOWANCE U/S 40A(3) ON ACCOUNT OF PURCHASE OF MOBILE PHONE FOR R S.32,400/ - IS SET ASIDE AND THE AO IS DIRECTED TO DELETE THE ADDITION. 1 7 . IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED . THE DECISION WAS PRONOUNCED IN THE OPEN COURT ON 0 8 .0 4 .20 21 . SD/ - ( R. K. PANDA ) ACCOUNTANT MEMBER DATED: 0 8 TH APRIL, 2021. DK COPY FORWARDED TO : 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASSTT. REGISTRAR, ITAT, NEW DELHI