Payment made in excess of Rs 20000/- should be allowed if made in business exigency

1.Deduction for shortage in weight at the time of sale and purchase should be considered separately.  2.

Brief of the case:

Deduction for shortage in weight at the time of sale and purchase should be considered separately.

1.ITAT held in Manikanta Concerns Vs DCIT that if the assesse had claimed deduction of shortage in weight or quality at the time of purchase then it did not mean that assesse could not claim deduction of shortage in weight or quality at the time of sale. Moreover as certificate/ debit note was also presented before the AO which was given by the purchasing party depicting that the amount had been deducted of shortage in weight and quality issue vide bill no 20. So as deduction on account of shortage in weight and quality issue on sale and purchase were 2 separate things which should considered separately.

So as deduction on account of quality had been allowed, in the same way deduction on account of shortage in weight should also be allowed.

Payment made in excess of Rs 20000/- should be allowed if made in business exigency.

2. If the payment had been made to the party more than Rs 20000/- in cash in business exigency and moreover if the payment could not be delayed because of circumstances then it should not be disallowed because it was under the exception of rule 6DD. As the assesse had made payment in cash of more than Rs 20000/- to the agent who in turn would distribute to the Hamli for unloading of maize which could not be delayed because as per contract payment had to be made immediately after completion of work and work was done in late evening.

Facts of the case:

The return of income for the year under consideration was filed by it on 01.11.2005 declaring total income of Rs.5,45,790. From the trading account filed by the assesse along with its return of income, it was noticed by the A.O. that in addition to the shortage of 1177.74 quintals of maize, a deduction of Rs.12,06,896 was claimed by the assessee on account of difference in quality because of high moisture content and rate of maize supplied which was disallowed by the AO on the plea that the amount was significantly very high. So assesse went into appeal.

The assesse had made payment in cash exceeding Rs 20000/- to the Hamali for unloading of maize which AO disallowed as per sec 40A(3). But assesse was of the view that the payment had been in the business exigency which was not acceptable by the AO so assesse went into appeal.

Contention of the assesse.

Assessee was of the view that there was shortage in weight and some quality issue in the material supplied to the party, So the purchasing party raised debit note depicting the amount debited against the concerned bill no in the name of assesse which was presented before AO. So the amount deducted by the purchasing party should be allowed as deduction to the assesse.

Assessee was of the view that as the payment in cash in excess of Rs 20000/- had been made to the agent of the Hamali and the payment made to each individual Hamali was less than Rs 20000 Moreover as the work was done in the late evening and as per contract payment with the agent of Hamali payment had to be made immediately after the completion of work. So it was because of business exigency that payment had been made in cash in excess of Rs 20000/- . So this should not be disallowed.

Contention of the revenue:

1.Revenue was of the view that deduction on account of moisture content had been allowed to the assesse but the shortage in weight was disallowed because the amount involved was substantially high. Moreover the assesse had already claimed deduction in respect purchase account.

Revenue was of the view that as the payment had been made in excess of Rs 20000/- so as per sec 40A(3) the payment made for unloading should be disallowed. Payment should be made by A/c payee cheque or crossed cheque.

Held by ITAT:
1.ITAT held that shortage in weight at the time of purchase and sale were 2 different things which should be considered separately. Moreover as the assesse had enclosed the certificate issued by the purchasing party depicting the amount debited from the account of assesse for shortage in weight. The assesse had also enclosed the copy of account of the related party. So deduction on account of shortage in weight should be allowed to the assesse.

ITAT held that as the assesse had made payment in cash in excess of Rs 20000/- in business exigency which should be allowed to the assesse. Moreover as the payment had been made to the contractor not to the individuals because the as per the contract term payment had to be made immediately after the work got completed. So the above payment should be allowed to the assesse.

Appeal of the assesse was allowed.