THE PR. COMMISSIONER OF INCOME TAX, RAJKOT - 1 vs. JAGVEERSINGH G. KALRA

The appellant revenue in this appeal under section 260A of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) has challenged the order dated 18.6.2018 made by the Income Tax Appellate Tribunal Rajkot Bench, Rajkot (hereinafter referred to as the “Tribunal”) in ITA No.654/Rajkot/2012 by proposing the following question stated to be a substantial question of law:- “Whether the Appellate Tribunal has erred in law and on facts by upholding the order passed by the CIT(A) wherein CIT(A) deleted the disallowance of Rs.2,60,16,000/- on account of transport expenses?”

The assessment year is 2009-10 and the relevant accounting period is the financial year 2008-09. The assessee filed return of income on 29.9.2009 declaring total income of Rs.1,29,79,410/-. The case was selected for scrutiny through CASS. During the course of assessment, the Assessing Officer found from the books of accounts of the assessee that he had debited transportation expenses of Rs.2,60,16,000/- to the profit and loss account. Such expenses were incurred for transportation of goods between Bellary to Kopal Port. The Assessing Officer was of the opinion that the assessee had inflated the transportation expenses while debiting bogus expenses. He, accordingly, raised various issues. After considering the submissions of the assessee, the Assessing Officer disallowed transportation expenses of Rs.2,60,16,000/-. The assessee carried the matter in appeal before the Commissioner (Appeals), who held that the Assessing Officer was not justified in disallowing such expenses and deleted the disallowance. Revenue carried the matter in appeal before the Tribunal but did not succeed.

Mrs. Mauna Bhatt, learned senior standing counsel for the appellant, submitted that in the documents produced by the assessee before the Assessing Officer, the name of the assessee did not figure anywhere and that such documents were in the name of M/s. Alpine International who claimed to be having extensive business of iron ore from Mangalore and Krishnapatnam Ports. Therefore, it was not identifiable with any degree of certainty as to which part of the transportation expenses really pertained to the transportation expenses debited to the assessee's profit and loss account. It was submitted that insofar as the claim of transportation expenses are concerned, both the Ports namely, Mangalore and Krishnapatnam were in opposite directions and that there was no proper justification for the expenses incurred by the assessee. The learned counsel further reiterated the grounds set out in the memorandum of appeal and also referred to the reasoning adopted by the Assessing Officer to assail the impugned order passed by the Tribunal. It was, accordingly, urged that the appeal requires consideration and deserves to be admitted on the question as proposed or as may be formulated by this court.

This court has considered the submissions advanced by the learned senior standing counsel and has perused the orders passed by the Assessing Officer, the Commissioner (Appeals) as well as the Tribunal.

A perusal of the order passed by the Commissioner (Appeals) reveals that after examining the material on record as well as the submissions advanced on behalf of the assessee, he has found that the Assessing Officer had disallowed the transportation expenses mainly on the ground that the expenses are excessive as the assessee could have avoided the additional costs incurred, whereas on behalf of the assessee it had been explained that the assessee had carried out joint business operation with M/s. Alpine International, wherein he had shared 75% to 25% business ratio with M/s. Alpine International since the said business associate was the principal exporter in the case of all the exports carried out. All the procedure relating to purchase including transportation of the goods to the relevant port, clearing of iron ore at the port etc. was being carried out by M/s. Alpine International. The assessee had exported some part of the goods from Mangalore Port and some part of the goods from Krishnapatnam Port. In order to comply with the export orders, the assessee had to acquire iron ore from the mines as soon as the orders were released by the Mining Officer. The Commissioner (Appeals) has referred to the reasons assigned by the assessee for carrying out such mode of activities as well as the explanation given by the assessee that there was shortage of supply of iron ore as it was restricted by the State Government, therefore, in order to comply with the export orders, it was required to acquire the iron ore from the mines wherever it was made available by the mine owners. For the same reason, in respect of Mangalore Port, the assessee had shifted the material at Kopal enroute to Mangalore Port; and in case of Krishnapatnam Port, the assessee had transported the material first to Hospet enroute to Krishnapatnam Port. Besides, due to heavy rains during that time, the transportation had to be done through a longer route which ultimately resulted in extra transportation expenses. The Commissioner (Appeals) was, accordingly of the view that in order to fulfill the export orders, if the assessee was required to incur certain additional expenses regarding the same it had to be treated as legitimate business expenditure. The Commissioner (Appeals) referred to the decision of the Delhi High Court in the case of CIT v. Dalmia Cement (Bharat) Ltd., 254 ITR 377(Del.) for the proposition that once it is established that there was nexus between the expenditure and the purpose of business, the revenue cannot justify claim to put itself in the armchair of the businessman or in the position of the Board of Directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. The Commissioner (Appeals) has referred to various other decisions of different High Courts and has found that applying the parameters laid down in the said decisions, in the present case, the transportation expenses incurred by the assessee are for the smooth facilitation of the business and the procedure adopted by the assessee to shift goods from mines to plots and thereafter transporting the same was also for the purpose of bona fide business needs and, therefore, the Assessing Officer was not justified in sitting in the armchair of the assessee and directing him to carry out business in such manner as he thinks proper.

As regards the genuineness of the expenses incurred by the assessee, the Commissioner (Appeals) has noted that the assessee had filed various documentary evidences and had, therefore, discharged his onus by providing the documents mentioned in the earlier part of the order. After duly appreciating the material on record, the Commissioner (Appeals) found that the transportation expenses incurred by the assessee were genuine and the disallowance made by the Assessing Officer was not justified on this count.

The Tribunal, in the impugned order has re-appreciated the material on record and has concurred with the findings recorded by the Commissioner (Appeals). On behalf of the appellant nothing has been pointed out to show that the Tribunal has placed reliance upon any irrelevant material or that any relevant material has been ignored, nor has anything been pointed out to dislodge the findings of fact recorded by the Tribunal based on appreciation of the material on record. Under the circumstances, the impugned order passed by the Tribunal being based upon concurrent findings of fact recorded by it after appreciating the material on record, in the absence of any perversity being pointed out therein, does not give rise to any question of law.

In the light of the above discussion, it cannot be said that the impugned order passed by the Tribunal suffers from any legal infirmity so as to give rise to any question of law, much less, a substantial question of law, warranting interference. The appeal, therefore, fails and is, accordingly, dismissed. (HARSHA DEVANI, J) (A. P. THAKER, J) Z.G. SHAIKH