CENTRAL ARYA ROAD TRANSPORT,KOLKATA vs. ACIT, CIR-56, KOLKATA, KOLKATA

Ground No. 1 relates to the addition of Rs.23,49,968/- made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on account of the alleged undisclosed transactions made by the assessee with TATA Group of Companies. Assessment Year: 2011-2012 Central Arya Road Transport

The assessee in the present case is a partnership firm, which is carrying on the business as a Transport Contractor. The return of income for the year under consideration was filed by the assessee on 30.09.2011 declaring total income of Rs.37,89,531/-. As found by the Assessing Officer during the course of assessment proceedings, the total amount of Rs.23,49,968/- paid by TATA Group of Companies as reflected in Form No. 26A was not disclosed by the assessee in its books of account. When this position was confronted by the Assessing Officer to the assessee, the later denied of having received any such amount from the TATA Group of Companies. Not satisfied with this explanation of the assesese, the Assessing Officer treated the amount of Rs.23,49,968/- as the undisclosed income of the assessee and made addition to that extent to the total income of the assessee. On appeal, the ld. CIT(Appeals) confirmed the said addition made by the Assessing Officer.

We have heard the arguments of both the sides and also perused the relevant material available on record. The ld. Counsel for the assessee has submitted that a similar incident was happened in the earlier year and the explanation offered by the assesese that it had not done any business with the TATA Group of Companies was accepted by the Assessing Officer. He has contended that the amount in question added by the Assessing Officer as income of the assessee actually does not belong to the assessee and this addition is made by the Assessing Officer without making any further inquiry. He has contended that this issue may, therefore, be sent back to the Assessing Officer for deciding the same afresh after making the necessary enquiry and after giving the assessee an opportunity to substantiate its case. We are inclined to accept this contention of the ld. Counsel for the assessee and since the ld. D.R. has also not raised any objection for sending the matter to the Assessing Officer for necessary verification, we set aside the impugned order of the ld. CIT(Appeals) on this issue and restore the matter to the file of the Assessing Officer for deciding the same afresh on merit in accordance with law after giving the Assessment Year: 2011-2012 Central Arya Road Transport assessee an opportunity of being heard and after making the necessary enquiry/ verification. Ground No. 1 is accordingly treated as allowed for statistical purposes.

Ground No. 2 relates to the issue of disallowance of Rs.3,25,594/- made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on account of education expenses incurred in respect of Ms. Shreya Arya.

During the year under consideration, expenditure incurred on the education of Ms. Shreya Arya, a daughter of the partner of the assesese- firm was claimed as deduction by the assessee. In support of this claim, it was submitted on behalf of the assesese that the said expenditure was incurred for the education of daughter of the partner in order to learn the business ethics and manner to improve in the operational area of the logistics dimension. It was also submitted that she had joined the business after the completion of education as key person in aviation sector. This explanation of the assessee was not found acceptable by the Assessing Officer and relying on the decision of the Hon’ble Madras High Court in the case of M. Subramaniam Bros. & Sons –vs.- CIT (250 ITR 769), he held that the expenditure in question incurred by the assessee for education of the daughter of the partner was personal in nature and it was not related to the assessee’s business. He accordingly disallowed the said expenditure, which was confirmed by the ld. CIT(Appeals).

we have heard the arguments of both the sides on this issue and also perused the relevant material available on record. Although the ld. Counsel for the assessee has cited certain judicial pronouncements in support of the assessee’s case on this issue, we are of the view that the deductibility of the expenditure of the nature in question depends on the facts and circumstances of the case. Although the ld. Counsel for the assessee has submitted that the daughter of the partner was an employee of the assessee-firm, it is observed that she was appointed as employee Assessment Year: 2011-2012 Central Arya Road Transport only from 01.04.2010 i.e. just before sending her for education in August, 2010. It is also noted that there were more than 100 employees working with the assessee-firm and the daughter of the partner alone was sent for education by the assessee-firm. It is also observed that there was no such Scheme framed or implemented by the assessee-firm for giving education to the other employees. Keeping in view all these facts and circumstances of the case, we are of the view that even though education expenses were partly borne by the assessee-firm as pointed out by the ld. Counsel for the assessee and she had also joined the business of the assessee-firm after the completion of education, the expenditure in question remains to be personal in nature of which business expediency cannot be said to be established. We, therefore, find no merit in Ground No. 2 and dismiss the same.

Ground No. 3 relates to the disallowance of Rs.2,89,220/- made by the Assessing Officer under section 40A(3) of the Act and confirmed by the ld. CIT(Appeals).

On examination of the details of Rake Expenses and Demurrage charges, it was found by the Assessing Officer that a sum of Rs.2,89,220/- was paid by the assessee in cash on 31.03.2011. He, therefore, invoked the provision of section 40A(3) and made a disallowance of Rs.2,89,220/-. On appeal, the ld. CIT(Appeals) confirmed the said disallowance.

We have heard the arguments of both the sides on this issue and also perused the relevant material available on record. The ld. Counsel for the assessee has invited our attention to the details of the amount of Rs.2,89,220/- paid in cash as on 31.03.2011 as placed on page no. 35 to 38 of the paper book to point out that the said amount was paid by the assessee to different individuals and none of the payments so made in individual case exceeded Rs.20,000/-. He has submitted that since the consolidated amount was debited by the assessee in the cash book, the Assessment Year: 2011-2012 Central Arya Road Transport Assessing Officer understood it as a one payment made in cash and wrongly invoked section 40A(3). The ld. D.R., on the other hand, submitted that this stand taken by the assessee requires verification by the Assessing Officer. We find merit in this contention of the ld. D.R. The impugned order of the ld. CIT(Appeals) on this issue is accordingly set aside and the matter is restored to the file of the Assessing Officer for deciding the same afresh after verifying the claim of the assessee that the amount in question paid in cash represented different payments made to the labour which did not exceed Rs.20,000/- in any individual case. Ground No. 3 is accordingly treated as allowed for statistical purposes.

Ground No. 4 relates to the issue of disallowance of Rs.15,38,100/- made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on account of demurrage charges. The explanation offered by the assessee in this regard was that the said charges were related to various works done for South Eastern Railways and Madras Cements in railway sliding. The assessee, however, could produce only one money receipt of Rs.1,82,900/- before the Assessing Officer in support of its case on this issue. The Assessing Officer, therefore, allowed the claim of the assessee for demurrage charges only to the extent of Rs.1,82,900/- and made a disallowance of the balance amount of Rs.15,38,100/-. On appeal, the ld. CIT(Appeals) confirmed the said disallowance.

We have heard the arguments of both the sides on this issue and also perused the relevant material available on record. The ld. Counsel for the assessee has submitted that the disallowance of Rs.15,38,100/- on account of demurrage charges was made by the Assessing Officer for want of supporting evidence and although this issue was specifically raised by the assessee in the appeal filed before the ld. CIT(Appeals), he did not decide the same on merit. He has contended that the relevant documentary evidence is available with the assessee and urged that one more opportunity may be given to the assessee to produce the same for Assessment Year: 2011-2012 Central Arya Road Transport verification before the Assessing Officer. Since the ld. D.R. has also not raised any objection for sending the matter back to the Assessing Officer for verification, we set aside the impugned order of the ld. CIT(Appeals) on this issue and restore the matter to the file of the Assessing Officer for deciding the same afresh after giving one more opportunity to the assessee to support and substantiate its claim by producing the relevant supporting evidence. Ground No. 4 is accordingly treated as allowed for statistical purposes.

Ground No. 5 relates to the issue of disallowance of Rs.2,87,314/- made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on account of business promotion expenses.

During the course of assessment proceedings, the assessee could not produce the relevant details and documents required by the Assessing Officer for verifying its claim for business promotion expenses of Rs.2,87,314/-. The Assessing Officer, therefore, disallowed the said expenses, which the ld. CIT(Appeals) confirmed.

We have heard the arguments of both the sides on this issue and also perused the relevant material available on record. As pointed out by the ld. Counsel for the assessee from the year-wise details given on page no. 14 of the paper book, the business promotion expenses were regularly claimed by the assessee even in the earlier years and the quantum of such expenses claimed in the year under consideration was quite comparable with that of the earlier years. Keeping in view this position, we find merit in the contention of the ld. Counsel for the assessee that the entire expenses claimed by the assessee on account of business promotion expenses cannot be disallowed and an estimated disallowance can be made out of such expenses for the unverifiable element involved therein. In our opinion, it would be fair and reasonable to disallow 25% out of the business promotion expenses on account of unverifiable element. We Assessment Year: 2011-2012 Central Arya Road Transport accordingly restrict the disallowance out of business promotion expenses to 25% and allow partly Ground No. 5 of the assessee’s appeal.

Ground No. 6 relates to the issue of disallowance of Rs.5,25,359/- made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on account of travelling expenses.

We have heard the arguments of both the sides on this issue and also perused the relevant material available on record. It is observed that the relevant facts relating to this issue are similar to the issue of disallowance on account of business promotion expenses as involved in Ground No. 5 of the assessee’s appeal inasmuch as entire travelling expenses claimed by the assessee were disallowed by the Assessing Officer for want of the supporting details and documents. As pointed out by the ld. Counsel for the assessee, travelling expenses incurred by the assessee in the earlier years were duly allowed and keeping in view the same, the entire travelling expenses claimed by the assessee in the year under consideration cannot be disallowed for want of the details and documents. It would be fair and reasonable to disallow 25% of such expenses for the unverifiable element. We accordingly restrict the disallowance on account of travelling expenses to 25% and allow partly Ground No. 6 of the assessee’s appeal.

As regards the issue in Grounds No. 7 & 8 relating to the disallowance made by the Assessing Officer and confirmed by the ld. CIT(Appeals) out of Lorry Maintenance expenses and Construction & Development expenses, it is observed that the relevant details in support of its claim for the said expenses were not fully furnished by the assessee. It was also noted by the Assessing Officer that the said expenses were mainly claimed by the assessee through self-made vouchers. He, therefore, made a disallowance of 1% out of Lorry Maintenance expenses Assessment Year: 2011-2012 Central Arya Road Transport and Construction & Development expenses, which the ld. CIT(Appeals) confirmed.

Having considered all the facts of the case and the reasons given by the Assessing Officer in the assessment order, we find that the disallowance of 1% of the Lorry Maintenance expenses and Construction & Development expenses is quite fair and reasonable and the ld. CIT(Appeals) is fully justified to confirm the same. Grounds No. 7 & 8 are accordingly dismissed.

As regard the issue involved in Ground No. 9 relating to the disallowance of Rs.6,75,229/- made on account of interest expenses under section 40(a)(ia), the limited contention raised by the ld. Counsel for the assessee is that all the five parties to whom the said interest was paid by the assessee have declared the amount of interest in their returns and have also paid tax thereon. Relying on the decision of the Hon’ble Supreme Court in the case of Hindusthan Coka Cola Limited, he has contended that the Assessing Officer may be directed to verify this claim of the assessee and allow appropriate relief on such verification. We accordingly restore this issue to the file of the Assessing Officer for the limited purpose of verifying the claim of the assessee and allow appropriate relief to the assessee in accordance with the decision of the Hon’ble Supreme Court in the case of Hindusthan Coka Cola Limited.

In the result, the appeal of the assessee is treated as partly allowed. Order pronounced in the open Court on April 10, 2019.