THOMSON GRANITES PRIVATE LIMITED,KOMBODINJAMAKKAL V. ACIT, CIRCLE 1(1), THRISSUR

ITA 253/COCH/2024

AI Insights

The case involves Thomson Granites Pvt. Ltd., which appealed against the order of the National Faceless Appeal Centre, Delhi, for the Assessment Year 2014-15. The company, engaged in mining, had its income tax return assessed by the AO, who disallowed significant expenditures on fuel and directors' remuneration, citing section 40A(3) and section 40(a)(ia) of the Income Tax Act. The company contested these disallowances, arguing the genuineness of the transactions and the necessity of cash payments due to business exigencies. The Tribunal examined the applicability of section 40A(3) in light of rule 6DD and relevant judicial precedents, ultimately deciding in favor of the appellant.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 474733 (ITAT-COCHIN)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-03-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2014-2015
• Other Referred Cases: CIT v. Suresh Kumar Agarwal [2001] 117 Taxman 2 (All), Ramadity Investments v. CIT [2004] 138 Taxman 231 (Del), K. Abdu & Co. v. ITO [2008] 170 Taxman 297 (Ker), Smt. Harshila Chordia v. ITO [2008] 298 ITR 349 (Raj), Attar Singh Gurmukh Sinch v. ITO 191 ITR 667, Sri Laxmi Satyanarayana Oil Mill v. CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: LEENA LAL
• Assessee Lawyers: ANEESH VISHWANATHAN
• Section: 40A(3); 191; 40(a)(ia)

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH BEFORE SHRI INTURI RAMA RAO, AM AND SHRI PRAKASH CHAND YADAV, JM ITA No. 253/Coch/2024 Assessment Year: 2014-15 Thomson Granites Pvt. Ltd. .......... Appellant X/616, Kambodinjamakkal Thazhekkad P.O., Thrissur 680697 [PAN: AACCT0876E] vs. ACIT, Circle - 1(1) .......... Respondent Aayakar Bhavan, Municipal Office Road Sakthan Thampuran Nagar Thrissur 680001 Appellant by: Shri Aneesh Vishwanathan, CA Respondent by: Smt. Leena Lal, Sr. D.R. Date of Hearing: 09.01.2025 Date of Pronouncement: 06.03.2025 O R D E R Per: Inturi Rama Rao, AM This appeal filed by the assessee is directed against the order of the National Faceless Appeal Centre, Delhi [CIT(A)] dated 09.02.2024 for Assessment Year (AY) 2014-15. 2. Brief facts of the case are that that appellant is a company engaged in the business of mining. The return of income for AY 2914-15 was filed on 29.11.2014 declaring income of Rs. 2 ITA No. 253/Coch/2024 Thomson Granites Pvt. Ltd. 6,11,35,670/-. Against the said return of income, the assessment was completed by the by the ACIT, Circle – 1(1), Thrissur (hereinafter called \"the AO\") at a total income of Rs. 11,55,53,760/-. While doing so the AO disallowed the expenditure incurred in cash on fuel or Rs. 4,44,47,632/- u/s. 40A(3) of the Income Tax Act, 1961 (the Act) and remuneration to the Directors of Rs. 72,00,000/- invoking provisions of section 40(a)(ia) & 40A(3) of the Act. 3. Being aggrieved by the assessment order, an appeal was filed before the CIT(A) contending that provisions of section 40A(3) of the Act has no application, inasmuch as, the genuineness of the transactions were not in doubt and the cash payments were made on account of business exigencies. The appellant also relied on the following judgements: - i) CIT v. Suresh Kumar Agarwal [2001] 117 Taxman 2 (All) ii) Ramadity Investments v. CIT [2004] 138 Taxman 231 (Del) iii) K. Abdu & Co. v. ITO [2008] 170 Taxman 297 (Ker) However, the CIT(A) confirmed the additions, while holding that section 40(a)(ia) had no application in respect of Directors’ remuneration. 4. Being aggrieved, the appellant is in appeal before us in the present appeal. 5. The learned A.R. submits that provisions of section 40A(3) of the Act has no application in respect of fuel expenditure as well as 3 ITA No. 253/Coch/2024 Thomson Granites Pvt. Ltd. remuneration paid to the Directors as the genuineness of the expenditure was noi in question. In this connection he relied on the decisions of Suresh Kumar Agarwal (supra) and the judgement of the Hon'ble Rajasthan High Court in the case of Smt. Harshila Chordia v. ITO [2008] 298 ITR 349 (Raj) and Hon'ble Supreme Court in the case of Attar Singh Gurmukh Sinch v. ITO 191 ITR 667. 6. On the other hand the learned Sr. DR seriously opposed the submissions of the learned A.R. and submits that fuel expenditures were incurred by paying cash to the sister concern only. She further submits that as regards remuneration to Directors, there was no justification for making payment in cash. Thus, she submits that no interference in the impugned order is called for. 7. We have heard the rival contentions of both the parties and perused the material available on record. The only issue that arises for our consideration in the present appeal is whether the AO was justified in disallowing the deduction claimed in respect of expenditure on fuel and remuneration to the Directors payment of which is no made by cross cheques or bank drafts. Provisions of section 40A(3) of the Act empowers the AO to disallow any deduction claim as expenditure in respect of which the payment was not made by cross cheques of bank drafts. We perused the provisions of section 40A(3) of the Act. In our considered opinion the provisions of section 40A(3) are not absolute, as evident from rule 6DD of Income Tax Rules. These provisions of section 40A(3) 4 ITA No. 253/Coch/2024 Thomson Granites Pvt. Ltd. cannot be read in isolation. This section must be read along with rule 6DD enumerating the exception circumstances under which the provisions of section 40A(3) has no application, which included, inter alia, payments made to the agencies for procuring material could not be disallowed. The press note dated 02.05.1969 issued by the Ministry of Finance clarified that the provisions of section 40A(3) has no application in respect of payments made to agents who solely acting as commission agent. The dealers of petroleum products only acts only as commission agents of petroleum companies.. The relevant part of the note is extracted as under: - “6DD.9-1 Payment to arhatiyas, clarifications –Press note, dated 2.5.1969 provides that provisions do not apply to payments made by commission agents (arhatiyas) for goods received by them for sale on commission or consignment basis. For the same reason, the requirement does not also apply to advance payments made by the commission agent to the party concerned against supply of goods. However, where a commission agent (arhatiya) purchases goods on his own account, and not on commission basis, the requirement will apply in that case. 8. Further, we find that the genuineness of the expenditure is not in question and, therefore, the ratio of the judgements of the Hon'ble Andhra Pradesh High Court in the case of Sri Laxmi Satyanarayana Oil Mill v. CIT and Smt. Harshila Chordia (supra) and Suresh Kumar Agarwal are clearly applicable where in the Hon'ble High Courts took the view that when the genuineness of the expenditure is not in question, provisions of section 40A(3) has no application. 5 ITA No. 253/Coch/2024 Thomson Granites Pvt. Ltd. Similarly with regard to the Directors’ remuneration, The Directors have offered the remuneration in their respective hands and it is tax neutral transaction and the payees are identified and genuineness of the expenditure is also not in doubt. Therefore, the reasoning adopted by the us in respect of expenditure incurred on fuel, equally hold, good in respect of Directors’ remuneration. In the light of the above legal discussion we are of the considered opinion that having due regard to the circumstances under which the cash payments exceeding Rs. 20,000/- were made, the claim for allowance on expenditure is not hit by section 40A(3) of the Act. Accordingly the AO is directed to allow the deduction. 9. In the result, the appeal filed by the assessee stands allowed. Order pronounced in the open court on 6th March, 2025. Sd/ Sd/- (PRAKASH CHAND YADAV) JUDICIAL MEMBER (INTURI RAMA RAO) ACCOUNTANT MEMBER Cochin, Dated: 6th March, 2025 n.p. Copy to: 1. The Appellant 2. The Respondent 3. The Pr. CIT concerned 4. The Sr. DR, ITAT, Cochin 5. Guard File Assistant Registrar ITAT, Cochin "