M/S. RAGHOJI TRANSPORT ,,SOLAPUR vs. DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE - 1,, SOLAPUR

The first ground is against the confirmation of disallowance of certain expenses to the tune of Rs.11,65,629/-.

Briefly stated, the facts of the case are that the assessee is engaged in the business of transportation. On examination of the books of account, the Assessing Officer (AO) found that certain expenses, namely, Hamali, Commission, Miscellaneous expenses and Allowance claimed under the head “Truck expenses” in the Profit and loss account were not properly vouched. On being called upon to substantiate the claim, the assessee submitted that the expenses were based on the expense vouchers produced/information provided orally by the drivers of the vehicles. The AO disallowed 15% of Hamali, 10% of Commission, 15% of Miscellaneous expenses and 10% of Allowance, which resulted into total disallowance on this count to the tune of Rs.20,32,760/-. The ld. CIT(A) sustained the disallowance at 10% across the board on these four expenses. The assessee is aggrieved by the sustenance of disallowance to this extent.

Having heard both the sides and perused the relevant material on record, it is seen as an admitted position that all the expenses were not properly vouched. Some of the expenses were recorded even on the basis of information provided orally by the drivers, for which there was no material to back the same. Under these circumstances, it cannot be said that all the expenses were properly vouched and there was no infirmity in the claim. Taking into consideration the peculiarity of the facts and circumstances obtaining in the instant case, I am of the considered opinion that the disallowance at 10% as sustained in the first appeal is in order, which does not call for any further interference. This ground is not allowed.

The only other ground is against the confirmation of disallowance of Rs.11,73,794/- u/s. 40A(2) of the Act.

The facts apropos this ground are that the assessee made certain freight payments to the persons covered u/s. 40A(2)(b) of the Act. The AO observed that the assessee made excessive payments to the specified persons vis-à-vis the third parties.

Having heard both the sides and perused the relevant material on record, it is seen from the impugned order that the assessee specifically stated before the ld. CIT(A) that the excess freight of Rs.25/- per ton was paid to related parties because the vehicles were dedicated specifically to the assessee in contrast to the outsiders, who were providing vehicles only on request and sometimes such a request was not acceded to as well. Since the vehicles of the related parties remained available round the clock and were dedicated specifically to the assessee, the rate charged by the third party transporters cannot constitute a good base for comparison with the rate of freight paid to the related parties. It is further a matter of fact that all the recipients furnished their returns by including the amount of freight received from the assessee and offered the same to tax. Taking into consideration the totality of the facts and circumstances, I am of the considered opinion that the disallowance u/s.40A(2) has been wrongly made and sustained. I, therefore, order to delete the addition.

In the result, the appeal is partly allowed. Order pronounced in the Open Court on 03rd January, 2020.