In the case of Manikanta Concerns vs. DCIT, ITAT Hyderabad held that the shortage at the time of purchase and the shortage at the time of sale are two different issues and it cannot be said by any stretch of imagination that once the assessee has claimed shortage at the time of purchase, he cannot claim shortage at the time of sales. In the present case, the claim of the assessee for shortage at the time of sale was duly supported by the certificate issued by the concerned customer confirming the shortage.
In the second grounds of appeal it was held that the work of unloading and loading was done in the late evenings and as the payments have to be made to ‘hamalies’ immediately after the completion of work on the same day, the collective payment made in cash to the autorised agent was a matter of business exigency.
Fact of the Case
The assessee in the present case was a partnership firm engaged in the business of rice trading. From the trading account, A.O. noticed that the assessee have claimed deduction of a sum of Rs.1206896/- paid towards rate differences, shortage and excess moisture content to the maize purchasers. The assessee therefore was called by the A.O. to offer its explanation in the matter. The A.O. was not fully satisfied with the explanation offered by the assessee and accordingly, the deduction claimed by the assessee on account of such shortage to the extent of Rs.7,01,536 was disallowed by him in the assessment completed under section 143(3) vide order dated 27.12.2007. Against the order passed by the A.O., an appeal was preferred by the assessee before the Ld.CIT(A) who did not find merit in the submission made by the assessee and proceeded to confirm the addition made by the A.O on the ground of failure of the assessee to prove the claim. Aggrieved assessee filed the appeal before the Tribunal.
During the course of assessment proceedings, it was also noticed by the A.O. that payments in cash exceeding Rs.20,000 were made by the assessee to one Mr. K. Narendra Babu on account of ‘Coolie charges’ aggregating to Rs.7,47,120. Since the said payments were made on regular basis and some other payments were made by the assessee to the concerned party through cheques, the A.O. was of the view that the impugned payments made in cash could have been made by the assessee through cheques. In this regard, the explanation offered by the assessee that the payments in cash were made as a matter of business exigency was not found acceptable by the A.O. and by invoking the provisions of section 40A(3), he made disallowance of Rs.1,49,424 being 20% of the cash payments of Rs.7,47,120 sustained by the ld CIT(A) in the appeal which is the another grounds of appeal before the Tribunal.
Contention of the Revenue
The assessee has claimed moisture loss on purchase @ 0.57% which was allowed by the AO. But again the assessee has claimed the shortage on account of moisture content at a very higher rate of 4.8% sold to M/s. PEC Ltd. No reason for claiming the moisture content @ 4.8% was given nor any evidence was submitted before the A.O. to prove that how the entire shortfall of 1,122.45 quintals was claimed in a single bill No. 20 dated 0205.2004 sold to M/s. PEC Ltd. Onus is on ‘the assesses to submit complete details and evidence before claiming any deduction and the assessee has failed to discharge its onus.
The assessee has made cash payment of Rs.7,47,120/- to Shri K.Narendra Babu, authorized agent of the assessee for making payment to the railway license labour for loading and unloading of the maize. The cash payment was made on different intervals to Shri K.Narendra Babu, authorized agent of the assessee. The appellant has failed to submit why the cheque payment was not made to Shri K.Narendra Babu, agent of the assessee when he was having a bank account. The right way was to issue cheque to Shri K.Narendra Babu, who should have deposited it in its bank account and as and when the labour payment was to be distributed he should have withdrawn from his bank account.
Contention of the Assessee
In support of the claim, the assessee submitted copies of related Railway Receipts under which maize has been transported and the certificate issued by the PEC Ltd confirming the deduction towards shortage in weight and excess moisture content before ld. CIT(A).
On the second grounds, the assessee submitted that the payments in cash were made as a matter of business exigency since the loading and unloading work happens to be at late night and payment to ‘hamalies’ needs to be made immediately.
Held by the Tribunal
The Tribunal considered the certificate of deduction as proper evidence and held that Ld. CIT(A) was not justified in confirming the disallowance made by the A.O. on this issue by completely overlooking the said evidence. According to the Tribunal, the clinching evidence in the form of certificate issued by PEC Limited, was filed by the assessee before the Ld. CIT(A) as additional evidence and although a clear mention of the same was made in the written submission filed before him, which is also evident from the relevant portion of the written submission reproduced by the Ld. CIT(A) in his impugned order, no cognizance of the same was taken by the Ld. CIT(A). The Ld. DR has not been able to dispute that the confirmation certificate dated 11.08.2009 issued by PEC Limited is sufficient to support and establish the claim of the assessee for shortage of 1122.45 quintals of maize in the supply made to the said party as well as the deduction of Rs.7,01,532 made by the said party for such shortage. His only contention is that the assessee already having claimed shortage in respect of purchase of maize, the claim for shortage at the time of sale again amounts to double deduction. We are unable to accept this contention of the learned D.R. The shortage at the time of purchase and the shortage at the time of sale are two different issues and it cannot be said by any stretch of imagination that once the assessee has claimed shortage at the time of purchase, he cannot claim shortage at the time of sales. In the present case, the claim of the assessee for shortage at the time of sale was duly supported by the certificate issued by the concerned customer confirming the shortage and the Ld. CIT(A), in our opinion, was not justified in confirming the disallowance made by the A.O. on account of such shortage. Therefore, order of Ld.CIT(A) was set aside and A.O. was directed to delete the addition made on account of shortage.
With respect to another ground of appeal, the Tribunal relied upon the submission made by the ld. counsel of the assessee that the work of unloading maize from lorries and loading the same into railway wagons some-times was done in the late evenings and since the payments on account of Hamali Charges were required to be made by the concerned contractor to Hammalis immediately after the completion of the work, he demanded payments in cash which the assessee was compelled to make. This position was also supported by the certificate issued by the concerned contractor Mr. K. Narnedra Babu dated 13.12.2007. A perusal of the written submission filed by the assessee on this issue before the Ld. CIT(A) also shows that a specific reference was made by the assessee to this certificate and relying on the same, it was contended that the impugned payments in cash were made in the exceptional circumstances. The Tribunal considered it sufficient to show that the impugned payments in cash were made by the assessee in the exceptional circumstances as specified in Rule 6DD of the I.T. Rules, 1962 and therefore, no disallowance under section 40A(3) is called for such cash payments. The disallowance made by the A.O. confirmed by the CIT(A) was deleted.