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Income Tax Appellate Tribunal, “B”
Before: SHRI S.S.GODARA & DR. DIPAK P. RIPOTE
ORDER
PER DR. DIPAK P. RIPOTE, AM:
This appeal filed by the Assessee is directed against the order of ld. Commissioner of Income Tax(Appeals)-8, Pune, dated 20.09.2019for the A.Y. 2003-04. The assessee has raised the following grounds of appeal: “1. On the facts and in the circumstances of the case the CIT(A) has grossly erred in sustaining the addition of Rs 25,00,000/- in respect Of transportation charges.
2. On the facts and in the circumstances of the case the CIT(A) has failed to consider the fact that transport charges paid by the appellant have not been doubted in assessments of any of the subsequent years and therefore following the principle of consistency no addition on adhoc basis can be made on the same ground in A. Y. 2003-04. Mr.Shivaji Jagannath Bhosale (A)
3. On the facts and in the circumstances of the case the Assessing Office has grossly erred in making the addition of Rs. 25,00,000/- on adhoc basis by comparing the Gross Profits of the business of the appellant with the of his brother in as much as the level and manner of operations of both o them differs substantially.
4. Onthe facts and in the circumstances of the case the CIT(A) as well as the Assessing Officer has grossly erred in not considering the fact that the appellant was not required to make TDS on transportation charges in A.Y.2003-04 since section 40(a)(ia) which makes it incumbent on the assessee to make TDS was introduced with effect from A. Y. 2004-05. 5. On the facts and in the circumstances of the case the CIT(A) has erred in sustaining the addition of Rs. 1,67,924/- in respect of salary expenses. 6. On the facts and in the circumstances of the case the Assessing Officer has grossly erred in making the addition in respect of salary expense by, merely comparing the salary paid in A. Y. 2003-04 with that of A. Y. 2004- 05.” 2. We have heard both the parties and perused the records.
The facts mentioned in the assessment order that the Assessee is carrying on the business in an individual capacity under name and style M/s. Shrinath Transport Company of truck plying using his own trucks and also hiring the truck from the family members and outsider. The assessee provides transportations to the committed customers by executing contracts for a specific period and to others also who are his non-committed customers. The assessee is also carrying out the business of trading in truck tyres and tubes as his ancillary line of activity.
2 Mr.Shivaji Jagannath Bhosale (A)
Ground Number 1 to 4 are with respect to Addition of Rs.25,00,000/- made by the AO :
4.1 The Assessing Officerhas disallowed Rs.25,00,000/- out of Rs.4,95,00,470 claimed to have been paid by the assessee to the outside trucks.The AO has discussed the said addition in para 7 of the assessment order . the relevant part of the para 7 is reproduced here under: “From the above submission made by the assessee it is clear that as far as the purchase of outside transport is concerned the assessee does not have any documents to prove the genuineness of the expenses paid in cash for transport purchase as no bills of the transport providing party is available and even the delivery notes are not available with the assessee to prove the expenses. Mere production of self made cash vouchers in support of the claim for expenditure does not prove the claim made by the assessee. The expenses claimed by the assessee made in cash on the basis of the self made vouchers without support of the third party bills raises doubts of genuineness, when the assessee is showing G.P of 8.07% as against the G.P. shown by the brother of the assessee at 22.17% in the same line business from whom the assessee is purchasing transport. This shows that the expenses/payments made by the cash vouchers are inflated to reduce the profit of the assessee. As the assessee has not discharged the onus cast on him to prove the claim for deduction of expenditure as self made cash vouchers are not adequate proof in view of the low GP shown by the assessee as brought out above. Reliance to this effect is placed on the decision in the case of CIT Vs Chandravilas Hotel 164 ITR 102(Guj). Further the assessee in not able to give circumstantial evidence to establish genuineness of the claim which is otherwise sought to be 3 Mr.Shivaji Jagannath Bhosale (A) proved by direct evidence or secondary evidence as pronounced in the decision CIT Vs Southern Sea Foods Ltd. 215 ITR 176. Further, the important point to note here is that the assessee is purposely not deducing tax at source on these payments made for purchase of transport from outside even though the assessee was required to do so. This fact has been dealt with by the auditors in the audit report by the auditors and the auditors had qualified in the Audit report stating in the Point 27(b) as Unger:
As per the contention of the proprietor of the Firm, it is highly impossible to keep proper track of each and every vehicle crossing TDS limit as the number of vehicles being deployed by the firm is quite high one. Hence TDS is not deducted from the payments made to truck owners.
If this is the reason for not deducting tax at source in respect of the transport deployed from outside, then how the assessee is maintaining Truck Numberwise list of sundry creditors in which the amount as low as Rs. 68/- due from the creditors has been recorded. The list of such creditors runs into 11 pages containing approximately 90 entries on each page and the total creditors are shown at Rs. 77,50,237/-. The auditors in the audit report had confirmed the above facts that the debtors and creditors are subject to verification, which proves beyond doubt that the assessee had deliberately hidden the true and correct picture of debtors and creditors while getting the books of accounts audited by the auditor also. From the above it can clearly be concluded that the assessee is not deducting the tax at source on the payments made to the outside trucks because by doing so he deducts, he will have no opportunity to inflate the expenses and show low Gross profits as 4 Mr.Shivaji Jagannath Bhosale (A) brought out in the foregoing paragraphs. That is to say that in the case of sister concern of the assessee run by his brother the GP offered is 22.17% however, in the case of assessee it is 8.07% only. Without prejudice to the above facts if the depreciation for new trucks purchased during the year is added back for arriving at the GP of the assessee for the year the GP works out to 10.38%. Considering the above facts the assessee’s contention that the depreciation on new trucks has eaten away his profits is not tenable and therefore, it is proved beyond doubt that the assessee has inflated the expenses.
Further, it is, pertinent to note here that the law has been amended recently to mandatorily deduct tax at source as per the provision of section 40a(ia) of the Act to curb such practices, which the assessee has been using to inflate the expenses and deflate its profits.
In view of the foregoing out of the total expenses paid in cash for purchase of transport of Rs. 4,95,00,470/-, an amount of Rs. 25,00,000/- (approx. 5% of 4.95 crs.) is disallowed and added to the total income of the assessee.”
4.2 Ld.CIT(A) has confirmed the addition.
4.3 Ld. AR submitted that the AO has wrongly relied on the GP of Assessee’s brother and AO has wrongly relied on the Section 40(a)(ia) . The Section 40(a)(ia) was applicable from AY 2004-05. The Ld.AR further submitted that in the business of the assessee, he has to hire the trucks from outside parties and payments to such parties are made in cash. Ld.AR submitted that the AO has not 5 Mr.Shivaji Jagannath Bhosale (A) doubted the receipts of the assessee. So to earn the receipt assessee has to hire the trucks. Hence, the entire expenditure is for the purpose of business of the assessee.
4.4 The Ld. DR submitted that the assessee has not submitted any documentary evidence other than the self made vouchers for claiming the payments. Ld.DR submitted that the assessee has not submitted confirmations from the parties to whom the payments were made in cash. The DR submitted that the AO has not made the disallowance u/s 40(a)(ia) of the Act.
We have heard both the parties perused the records. It is fact mentioned in the assessment order that the assessee is in the business of transportation. The AO has disallowed Rs.25,00,000/- out of Rs.4,95,00,470/- claimed as amount paid to outside trucks. It is also a fact that assessee only submitted self-made vouchers as evidence for claiming the expenditure. Even before us, the Assessee has not submitted any evidence to substantiate his claim. The onus is on assessee to prove that the expenditure was wholly and exclusively for the purpose of business of the assessee. In this case the assessee has failed to substantiate his claim by producing documentary evidence. Therefore, we are of the opinion that the AO has rightly disallowed only Rs.25,00,000/- which is approximately 5% of Rs.4,95,00,470/-. It is important to mention here that the AO has not made the 6 Mr.Shivaji Jagannath Bhosale (A) disallowance u/s 40(a)(ia) of the Act but the disallowance is on account of failure to prove the genuineness of the expenditure. Therefore, ground number 1 to 4 of the assessee are dismissed.
Ground Numbers 5 and 6 are regarding addition of Rs.1,67,924/- sustained by the Ld.CIT(A).
6.1 The relevant portion of the CIT(A)’s order is as under : “The appellant has not maintained any muster roll and any visitor dairy as required by the relevant act to ascertain the number of employees. The appellant stated that the wages and bonus, paid by the appellant to the tune of Rs. 16,79,247/- is justifiable during the year under consideration keeping in mind the nature of the business. The appellant’s contention that the comparison of salary payment made in the year under consideration and the next year is not relevant given the nature of business seems logical, however , the possibility that the appellant has shown higher amount to reduce the profit cannot be ruled out as the appellant had not maintained the required books. Without any supporting documents the claim of the appellant cannot be justified merely on business nature. The AO has made an addition of Rs. 3,58,105/- which is difference of the salary and wages paid in FY 2003-04 and FY 2002-03 (i.e. Rs. 16,79,247- Rs. 13,21,141). The addition of difference amount Rs. 3,58,106/- is about 21% of the total wages and salary paid in the year under consideration. Keeping in mind the contention of the appellant and the AO’s argument, it would serve justice to add 10% of Rs. 16,79,247 i.e. total wages and salaries paid in the year under consideration that comes to 1,67,924/-.”
7 Mr.Shivaji Jagannath Bhosale (A)
6.2 The Ld.AR merely submitted that the assessee has incurred the expenditure on Salary and bonus. Ld.AR submitted that in this business the payments are normally in cash.
6.3 Ld.DR relied on the order of the AO.
6.4 We have heard both the parties and perused the records. It is a fact that payments were made in cash and assessee only submitted self-made vouchers as evidence. Even before us the Ld.AR has not submitted any documents to prove the genuineness of the payments. The onus is on assessee to prove the genuineness of the expenditure claimed. Therefore, we agree with the Ld.CIT(A). Hence, the addition of Rs.1,67,924/ is confirmed. Thus, the ground number 5, 6 of the appellant are dismissed.