DCIT CIRCLE 1(1), GWALIOR vs. SWASTIK ROADLINES P LTD, GWALIOR

Per LALIET KUMAR, J.M.:

This appeal of Revenue is directed against the order of Commissioner

of Income Tax (Appeals)-Gwalior, dated 27-02-2019, for the AY.2010-11, raising the following Grounds:

“1. Whether on the facts and circumstance of the case the CIT(A) justified in law in deleting addition of Rs.33,25,633/- made on account of disallowance u/s 40(a)(ia) of the Income Tax Act, 1961 in view of SLP Granted by the Hon'ble

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Supreme court in the case of CIT V/s Ansal Land Mark Township (P) Ltd. taxmann. Com63(SC)." 2. "Whether on the facts and circumstances of the case, Rule 31 AC A of the IT Rules 1962, and Board's circular No. 10 on 16.12.2013 binding upon the CIT(A)." 3. "Whether on the facts and circumstances ofthe case the CIT(A) justified in law in shifting onus of burden of proof upon the AO in deleting addition of Rs. 95,00,000/- made on account of disallowance ofRs.1,00,00,000/from Fright & Truck Running expenses." 4. "Whether on the facts and circumstances of the case the CIT(A) justified in law in shifting onus of burden of proof upon the AO in deleting addition of Rs. 24,00,000/- made on account of disallowance of Rs. 25,00,000/-from Freight and Truck Repair & Maintenance expenses." 5. "Whether on the facts and circumstances of the case the CIT(A) justified in law in shifting onus of burden of proof upon the AO in deleting addition of Rs. 1,00,00,000/- made on account of disallowance under the head of depreciation." 6. "Whether on the facts and in the circumstances of the case, the order of the Ld. CIT(A) is perverse to the facts." 7. "Any other ground that may be adduced at the time of hearing."

Company, registered under the provisions of The Companies Act, 1956. For

the AY.2010-11, the assessee-company had e-filed its return of income on

08-10-2010 declaring therein total income NIL and claiming a refund of

Rs.6,44,994/- on account of TDS in excess of tax payable on returned

income.

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had furnished each and every information/documents sought for by the

Assessing Officer.

Ground Nos.1 & 2:

wrongly allowed the disallowance u/s.40(a)(ia) of the Act, relying upon the

decision of Hon’ble Supreme Court in the case of CIT Vs. Ansal Land Mark

Township (P) Ltd., [73 taxmann.com 63] (SC).

Further, in this regard, our attention was drawn by the Ld.DR to

Pgs.21-22 of the CIT(A)’s order, wherein the CIT(A) has held has under:

“………….Subsequently, appellant furnished certificate of Chartered Accountant (Annexure ‘A’) under first proviso to Section 201(1) of the Act certifying that payee M/s Tata Motors Finance Ltd. has furnished his return of income for A.Y.2010-11 and included said amount of Rs.42,66,552/- in his income and paid due taxes. This Annexure being in the nature of "additional evidence" was forwarded to present A.0 for consideration who submitted Remand Report and raised several objections such as Second Proviso to Sec.40(a)(ia) applicable to A.Y.2013-14 onwards and not to A.Y.2010-11 and as per Annexure A figure of interest shown Rs.42,66,552/- received by M/s Tata Motors Finance Ltd. instead of interest claimed Rs.33,25,633/- by appellant, Ld. A.O. also very strongly contended that as per Rule 31ACB assessee is required to furnish Annexure A alongwith Form 26A, but assessee has not filed such Form 26A as required by Rules. In rejoinder filed vide letter dated 04.05.2018, Ld. A.R of the assessee placed reliance on decision of New Alignment Vs ITO(2016)69 Taxmann.com 122(Ko1) wherein itt was held that Second Proviso inserted in Section 40(a)(ia) of the Act by Finance Act 2012 should be given retrospective effect from 01.04.2005. I have perused the case law relied upon by the asses see and found that courts

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have been almost unanimous in holding that second proviso to Section 40(a)(ia) should be given retrospective effect. Hon'ble Delhi High Court in the case of CIT Vs Ansal Land Mark Township (P)Ltd. 347 ITR 647(Del) and Hon'ble ITAT, Agra in the case of Rajeev Kumar Agarwal Vs Add.CIT, Mathura in ITA No.337/Agra/2013 have held the said amendment as retrospective in nature. With regard to difference in amount paid to M/s Tata Motor Finance Ltd., it has been clarified that Ld.A.O. has made disallowance of Rs.33,25,633/- for non-deduction of IDS for interest paid to Tata Motor Finance Ltd. and thus, there was no discrepancy in both the figures. After due consideration, I find significant force in the argument of the appellant that there is no discrepancy in the figure mentioned in Ledger A/c and amount disallowed by A.O. Even if the recipient has shown more amount, then same should not be viewed adversely because assessee is not at fault for such mistake. As far as objection of Ld. A.O. with regard to compliance of Rule 31ACB is concerned which requires submission of Form 26A with certificate Annexure 'A' is concerned, I find approach of Ld. A.O. being hyper-technical. He has given more importance to technicalities instead of factual aspect of the case. Nevertheless, during appellant proceedings, Id AR of the assessee filed Form 26A. In view of this, A.O is directed to grant relief of Rs.33,25,633/- representing interest paid to M/s Tata Motor Finance Ltd. for which necessary details/evidences in Form 26A & Annexure A has been filed by the appellant. As far as disallowance of Rs.6,81,657/- towards interest paid to M/s Tata Motors Capital Ltd. is concerned, the assessee has not furnished any certificate of Chartered Accountant in Form 26A & Annexure to prove that payee has offered such amount as income in his return and paid due taxes. In view of this, addition of Rs.6,81,657/-is hereby confirmed and addition of Rs.33,25,633/- is ordered to bedeleted. However, ld AO is directed to grant relief if appellant files Form 26A & Annexure in respect of interest paid to M/s Tata Motors Capital Ltd. before him, then assessee will be eligible for relief of Rs.6,81,657/-. Subject to above remarks, ground of appeal is partly allowed”.

4.1. In this regard it was submitted by the Ld.DR that the action on the

part of the Ld.CIT(A) was not correct in allowing the benefit of the evidence

furnished by the assessee, evidencing the filing of Form-26A by M/s.Tata

Motors Finance Ltd.

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4.2. On the contrary, Ld.AR representing the assessee had submitted that

the action on the part of Ld.CIT(A) was in accordance with law and also in

accordance with proviso to Section 40(a)(ia) of the Income Tax Act [Act].

4.3. We have heard the rival submissions and perused the material

available on record. As is clear from the provisions of Section 40(a)(ia) of

the Act, if the payee had filed the return of income and shown the interest

income in the Profit & Loss A/c which is clear from the Form-26A filed by

the assessee, which was sent by the Ld.CIT(A) to the Assessing Officer for

verification and the Assessing Officer thereafter had submitted the report but

simultaneously taken the objection that the said certificate of Form -26A was

not filed before the Assessing Officer. In our view, the objections of

Assessing Officer before the CIT(A) and before the Ld.DR is technical in

nature and once the content of Form-26Awere not disputed, then the

assessee is entitled to the benefit of proviso to Section 40(a)(ia) of the Act,

for that purpose we may fruitfully rely upon the decision of the Hon’ble

Supreme Court in the case of CIT Vs. Ansal Land Mark Township (P) Ltd.,

[73 taxmann.com 63] (SC) (supra). Accordingly, Ground Nos.1 & 2 raised

by Revenue are dismissed.

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Ground No.3:

Ld.CIT(A) had upheld the rejection of books of account. For that purposes

he has drawn our attention to the findings recorded by the Ld.CIT(A) at

Pgs.19-20 to the following effect:

“Ground# 1: Rejection of book results u/s 145 : 8. Adverting to ground wise discussion, it is seen that by raising ground# 1appellant has challenged the assessment order as unsustainable in law because income was not computed in accordance with the audited books of accounts wherein no defects were found in maintenance of books of accounts by ld AO. Because, as per appellant, books of accounts were not rejected by invoking the provision of Section 145 of the Act by specifying any defects, Ld. A.O. cannot make addition and thus impugned assessment order deserves to be discarded. I have duly considered the contention of the appellant and took noticeof observations made in the assessment order that during assessment proceedings, books of accounts with details were produced which were examined on test-check basis. My attention was also drawn to the fact that Ld. A.O. neither pointed out any defects nor expressly rejected , books of accounts, so, as per Id AR of the assessee profit disclosed ' in audited books cannot be disturbed and additions/disallowances cannot be made. In support of this proposition, Ld.A.R placed reliance on few case laws. After carefully going through the assessment order, it is seen that Ld.A.O. has clearly observed various defects/discrepancies in maintenance of bills/vouchers and otherrecords. In case of large number of expenses, supporting bills/vouchers were not even produced before A.O. for verification, so, considering non-compliance and defects of serious nature (non- production of bills/vouchers) ld AO has no other option but to reject book results. This is true that he has not expressly rejected the book results by invoking the provision of Sec. 145(3) of the Act. But ld AO has impliedly rejected the books of accounts though failed to mention specific section i.e 145(3) of the Act but in essence he had rejected the book results. Hon'ble Supreme Court in the case of CIT v/s MC Millan & Co. 33 ITR 182 (SC)has held that CIT(A) has powers to reject the books of accounts even if not done by AO. Therefore, looking to serious defects and non-compliance on the part of the assessee to the satisfaction of AO. I hereby exercise my powers and invoke the provision of Sec. 145(3) of the Act and

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reject the book results as declared by the assessee. In view of this, ground# 1fails”.

5.1. It was submitted that after recording the rejection of books of account,

the Ld.CIT(A) in para 10.3 had recorded that the Assessing Officer never

asked the assessee u/s.142(1) of the Act vide order sheet to produce

bills/vouchers relating to the impugned expenses. The Assessing Officer has

merely asked the assessee to prove the details such as Name, Address and

PAN details, to whom the trade payments were made. The said details were

provided by the assessee.

The Ld.DR had submitted that contrary to the above such

observations, Ld.CIT(A) at Pg.31 has mentioned that the bills/vouchers for

expenses were not produced during the appellate proceedings as well as in

the assessment proceedings. However, thereafter the Ld.CIT(A) had deleted

the addition of Rs.95 Lakhs and had confirmed the adhoc disallowance of

Rs.5 Lakhs. It was submitted that theLd.DR had not himself verified that

books of account and bills/vouchers for the purpose of deleting the

additions. He had submitted that once the CIT(A) had upheld the rejection

of books of account, then, some guess work is required to be done and

without verification of the books of account, more particularly, the

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bills/vouchers, it was not appropriate for the Ld.CIT(A) to reduce the adhoc

disallowed made by the Assessing Officer to only Rs.5 Lakhs instead of

Rs.1 Crore.

5.2. Per contra, Ld.AR had submitted that the expenses of the assessee

drastically have reduced from 76.64% to 73.56% in the assessment year

under consideration and further it was submitted that the Revenue cannot be

given a second hearing to the case and no fruitful purpose would be served

for remanding back the matter to the file of CIT(A) or to the file of AO. He

had submitted that once the books of account is rejected, then, the AO

cannot make adhoc disallowance of the expenditure and he was required to

specifically provide the details of bills/vouchers, which were in his

understanding were not correct or excessive. He had further submitted that

the action on the part of the Ld.CIT(A) was in accordance with law.

5.3. We have heard the rival submissions and perused the material

available on record. In our considered opinion, once the books of account

have rejected by the Assessing Officer and confirmed by the CIT(A), then, it

was incumbent upon both the lower authorities i.e., AO as well as the

CIT(A) to physically verify the bills/vouchers of the expenditure and specify

the expenditure which in the estimation of both the authorities were

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excessive or was not related to the business of the assessee or was bogus.

Needful was not done by the Ld.CIT(A) and he had reduced the

disallowance from Rs.1 Crore to Rs.5 Lakhs. In view of the above, we are

of the opinion that this issue is required to be remanded back to the file of

Ld.CIT(A) with a direction to verify the bills/vouchers and give a

categorical finding as to the nature of expenditure incurred by the assessee,

which were found to be excessive/bogus etc.

We may like to point out that while examining the bills/vouchers,

pertaining to freight and track running expenses, if the Ld.CIT(A) comes to

the conclusion that the expenditure were more than Rs.1 Crore, then, he will

not enhance the disallowance from Rs.1 Crore to any other amount. In the

converse if the Ld.CIT(A) comes to the conclusion that the expenditure

(bills/vouchers) pertaining to freight and truck running expenditure were

found to be in order, then, no disallowance would be made or the

disallowance would be restricted to the actual bills/vouchers found to be

inaccurate/bogus/excessive. This exercise would be done by the CIT(A) in

accordance with law, after giving due opportunity of hearing to the assessee.

It is expected the Ld.CIT(A) shall pass a reasoned and speaking order in this

respect, after dealing with contentions, submissions and evidences, if any,

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filed by the assessee, in accordance with law. Hence, the Ground No.3,

raised by the Revenue is treated as allowed for statistical purposes.

Ground No.4:

Assessing Officer in deleting the addition of Rs.24 Lakhs made on account

of disallowance of Rs.25 Lakhs from Freight and Truck Repair &

Maintenance Expenses. In this regard, Ld.DR has drawn our attention to the

order of Ld.CIT(A), which is as under:

“11. It has been observed in the assessment order that the assessee has claimed a sum of Rs.2.59 crores towards Truck repair & maintenance expenses. Ld.A.O. has observed in para 3 of assessment order .that because assessee failed to produce supporting bills and vouchers relating to truck repair & maintenance expenses he could not verify the veracity of genuineness of the claim of the said expenses. Although he has very fairly accepted that expenditure incurred in relation to repair & maintenance is a normal business expenditure but since the assessee failed to discharge his onus to prove he genuineness of expenses a lump sum disallowance of Rs.25 lacs was made out of the said expenses. On the other hand, the appellant has contended that an ad-hoc disallowance made out of said expenses without any basis, calculation, evidences and premises is not sustainable especially when the A.O did not find any defects in books of accounts. It has been also contended that Ld.A.O. never pointed out any defects in bills and vouchers produced before him during the assessment proceedings alongwith books of accounts and al1egation of non production of supporting bills and vouchers is factually incorrect statement. On this issue, arguments and contention of the appellant and comments of Ld.A.O. in remand report remained the same as made with reference to ground #3 pertaining to ad-hoc disallowance of Rs.l crore out of freight expense and truck running expenses. I have perused the material placed on record and gone through the remand report submitted by Ld.A.0. and rejoinder fi1ed by the appel1 ant on this issue and find that facts, contention and findings remaining the same, I follow my decision with regard to ground No.3 wherein I

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upheld that ad-hoc disallowance without any cogent and positive material is not sustainable. As far as production of bills/vouchers for verification before AO is concerned, it is seen that ldAO andappellant are making contrary claims whereas appellant has categorically denied this charge and claimed that proper bills/ vouchers were maintained and duly produced before AO during assessment proceedings. On verification of case records, it is seen that assessee furnished Ledger A/c containing details of payments vouchers no. mode of payment, amount etc. However, nothing could be ascertained whether assessee was specifically asked to produce bills/ vouchers and also whether assessee actually produced such evidences before AO. In my view, unti1 & unless, assessee i s specif1cal 1 y ask to comply certain direction, he cannot be held guilty of non-compliance. But on verification of ledger A/c, it is seen that majority of expenses were incurred through cheques and meant for purchase of tyres, spares, Petrol/oil, repairing etc which are normal routine business expenses. However, presuming that certain bi11s and vouchers remained to be produced before A.O as well as before undersigned, I consider it -fair and reasonable and to meet the both ends of justice a lump sum disallowance of Rs.1,00,000/- is hereby sustained and appellant will get a relief of Rs.24,00,000/-(Rs.25,00,000 - Rs.1,00,000). Hence, ground#4 of appeal is partly allowed”.

6.1. The Ld.DR submitted that the finding recorded by the Ld.CIT(A) was

incorrect and was not in accordance with law. He had submitted that this

issue is also remanded back to the file of the CIT(A) for factual verification.

6.2. Per contra, the ld.DR relied upon the para 11 of the CIT(A)’s order

and our attention was drawn to the verification of the case record done by

the CIT(A). Further, the payments were made through the banking channels

for the purchase of tyres, spares and petrol/oil. It was submitted that no

interference is called in this regard.

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6.3. We have heard the rival contentions and perused the material

available on record. The Ld.CIT(A) had passed a detailed order, after

verifying the case record and thereafter had restricted the disallowance to

Rs.1 Lakh instead of Rs.25 Lakhs. Since the Ld.CIT(A) had verified the

record and nothing had been pointed by the Ld.DR that the record which

was verified was not sufficient to come to the conclusion or the finding

recorded by the Ld.CIT(A) in para 11 was incorrect or contrary to the facts.

In the light of the above, we do not find any reason to interfere with the

findings giving by the Ld.CIT(A). Accordingly, the Ground No.4 of the

Revenue appeal is dismissed.

Ground No.5

had dealt with this issue and had brush aside the objections of the AO, while

deleting the disallowance of Rs.1 Crore.

7.1. The Ld.AR, drawn our attention to the order passed by the Ld.CIT(A)

and also the remand report given by the AO pursuant to the documents filed

by the assessee.

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7.2. We have heard the rival contentions and perused the material

available on record. The Ld.CIT(A) had passed a detailed order as

mentioned in para 12.2 & 12.3 to the following effect:

“12.2. During the appellate proceedings, Id AR of the assessee furnished proof of ownership of assets/vehicles as Annx C-l to C-60 with regard to 16 trucks (in fact 15 trucks) al1eged by AO as owned by other persons as per information sourced from website of M P State Transport Department. As per evidences filed as "additional evidences" these vehicles were transferred to Buyers between 01.04.2010 to 31.03.2013, hence ownership is shown in the name of such persons on the website of M.P. Transport Department during month of March 2013 when enquiry was conducted by AO. However, fact remains that these trucks were in the ownership of appellant during the period F.Y. 2009-10 as evident from copies of "RC History" filed as 'additional evidence'. These evidences were duly forwarded to AO who recommended that disallowance should be sustained because assessee failed to submit photocopy of 'Original RC' and other evidence to prove that assessee was owner of vehicle during I F.Y. 2009-10. In remand report, Id AO also has stated that assessee 1 failed to submit any evidence with regard to other discrepancies discussed in the assessment order. 12.3 Due consideration is given to the facts of this case inter alia submission made and evidences including additional evidences brought on record. Appellant was engaged in the business of transportation wherein Vehicles/Trucks were mainly used as Plant & Machinery. During the year under consideration, assessee claimed depreciation to the tune of Rs.8.73 crores as detailed below (Annexure A):

It is evident from the assessment order that ld AO has expressed his doubt in relation to claim of depreciation in respect of "Trucks" and not in relation to any other assets. As far

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as allegation of AO with regard to 16 trucks (in fact 15 trucks-one duplicate entry) is concerned same has been satisfactorily explained by submitting history of ownhip [Annex C1l to C-60] retrieved from website of MP State Transport Deptt. On the basis of this proof, it is established beyond doubt that appellant was the owner of these 15 trucks during the relevant period and doubt expressed by Id AO is found untenable because ld AO failed to appreciate the facts in true perspective. Ld AO, in remand report has expressed is objection that photocopy of "original RC" have not been produced as evidence. In my considered view, approach of AO is hyper-technical & venial and has no merits because there should not be any doubt about the data available on official website of MP State Govt. AO has simply driven by mere suspicion. It is evident from "Depreciation Chart" (Annx A) enclosed with Return of Income that during the year, appellant has claimed depreciation @50% on the Trucks worth Rs.6,30,22,810/- purchased before 30.09.2009 and @15% (for half year) on the Trucks worth Rs.4,28,87,9277- purchased after 30.09.2009. Ld AO has though in principle agreed that as per provision inserted by IT (third amendment) Rules 2009 w.e.f. 01.04.2009 assessee is eligible to claim depreciation @50% on new commercial vehicles purchased/ acquired between 01.01.2009 to 01.10.2009. Thus, there is no dispute that rate of depreciation claimed @50% was as per the provision of relevant Rules. Although, during assessment proceedings, assessee provided the details of purchase of New Commercial Vehicles (Trucks) with Truck No. Registrati on No./ Chesis No., Date of Regi strati on and amount capitalized. On bei ng asked, the appel 1 ant has also suppli ed the copies of purchase Invoice, Ownership Track Record (showing Chesis No & Registration date etc.) and copy of RC (Certificate of Registration) in respect of trucks purchased during the year in majority of cases. I can understand the predicament of the appellant in collecting the details which is roughly 10 years old. In my considered view, these details/ documents are sufficient to prove the claim of depreciation @50% on the vehicles purchased before 01.10.2009. Appellant has also contended that company used to purchase new chesis with driver cabin from Tata Motor dealers and then installed puff paneled, heat resistence container on it. Integrated unit was then mounted on the container with Air Conditioner Unit which takes 10 to 15 days. The registration of vehicle only happens once the truck is ready in all resepct i.e. chesis, driver cabin, container & AC are installed. On the basis of information made available, it is seen that by latest 29.09.2009, all the trucks were registered with M.P. State Transport Deptt. So, as far as test of "put to use" is concerned, same can be taken as satisfied because ld AO has not pointed out any discrepancy in the claim that vehicles were "not put to use". Ld AO has simply made negative observation about 'put to use' aspect without pointing out any specific instance where condition of put to use was violated by the appellant. It would also be pertinent to mention that in the immediate preceedings year, appellant has shown vehicles in the block ,50% depreciation rate and shown opening WDV at Rs.70,73,007/- (as on 01.04.2009). Relevant A.Y.2009-10 was under scrutiny and Id AO while passing order u/s 143(3) of the Act did not make any disallowance in respect of claim of depreciation which proves bonafides about claim of depreciation made by the appel1ant. One should not forget very vital fact that books of accounts of the appellant have been subjected to Audit u/s 44AB and the Auditors have not raised any doubt about correctness of claim of

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depreciation. Ld AO has made a huge disallowance of depreciation to the tune of Rs.1 Crore simply on the basis of surmises, conjutures and on suspicion basis. It has been held in the case of Ashokpal Daga (HUF) v/s CIT by MP High Court dated 12.01.1996 (MP HC) and Hon'ble Supreme Court in the case of Dhirajlal Girdharilal v/s CIT 26 ITR 736 (SC) holding that suspicion however strong cannot take place of proof. In view of above discussion, I find that adhoc disallowance of Rs.1 Crore out of depreciation claimed by the assessee has no proper basis and disallowance was made in arbitrary manner without bringing any positive evidence on record. On the other hand, the appellant by furnishing evidence could satisfactorily justify the allowability of entire claim of depreciation. So, in view of factual matrix of the case, I am of considered view that no disallowance is required to be made out of claim of depreciation. Hence, disallowance of Rs.1 Crore made by ld AO is hereby ordered to be deleted”.

7.3. In fact in the order passed by the CIT(A), it is categorically mentioned

that the case of the assessee was decided on scrutiny u/s.143(3) of the Act

and no doubt by the AO in the AY.2009-10 in respect of claim of

depreciation .

The record further shows that the assessee has given the details of the

trucks along with Chassis number, which were put to use after being

registered with MP State Transport Department. This information was also

available on the website of the MP State Transport Department. In our view,

for the purpose of claiming the depreciation, the assessee was required to

prove that the asset was put to use in the year under consideration. For the

purposes of claiming the depreciation for the trucks, it would be sufficient if

the trucks were registered with the Transport Authorities before the cut-off

date and have a valid petrol/oil receipt showing the consumption of fuel.

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This had sufficiently been demonstrated by the assessee before the

authorities below. In view of the above, we do not find any discrepancy in

the order of the Ld.CIT(A) and accordingly, the Ground No.5 raised by the

Revenue is dismissed.

statistical purposes.

Order pronounced in the open court on 09-01-2020

Sd/- Sd/- (Dr. M.L. MEENA) (LALIET KUMAR) ACCOUNTANT MEMBER JUDICIAL MEMBER TNMM