ACIT, CIRCLE - 40, KOLKATA , KOLKATA vs. SRI RAJENDRA SETHIA, KOLKATA

O R D E R

PER S.S.Godara, Judicial Member:

ACIT Cir-40 Kol. Vs. Sh. Rajendra Sethia Page 2 On perusal of the profit & ;loss account of the assessee, it is found that the assessee has shown sRs.10,56,97,905/- as Vehicle Maintenance under the proprietorship concern namely M/s Western Carriers for the Financial Year 2011-12. The AR was asked during the course of hearing to explain the nature of the expenditure and produce the supporting evidence thereof The AR has only produced the list of vehicle maintenance per vehicle wise. After verification of the documents produced by the AR, it is found that the assessee has not produced the documentary evidence. After that the assessee was show caused vide letter dated 17.03.2015. The relevant portion of the show cause as under: " 3.. You are requested to produce the details of Vehicle Maintenance during the year under consideration along with bills and explain the source of fund with supporting evidence. !f you fail do so, you are show caused as to why not the entire amount of Vehicle Maintenance as unexplained expenditure .... " in response to this, the AR of the assessee has filed reply and the relevant portion the same is as under: .............. So far as vehicle maintenance expenses are concerned, the assessee had already submitted full details relating to the vehicle No. and the amount spent. The assessee has vehicles which are round about 200 and since they are run through the country and there are about 69 branches and all the relevant Bills and vouchers pertaining to maintenance expenses are being kept at the branches. Source of expenses incurred by the branches on account of maintenance expenses is the availability of the cash in different branches remitted by the head office " The reply of the assessee is duly considered. After verification of the reply of the AR, it is found that the assessee has failed to produce the supporting evidence for the expenditure incurred under the head of Vehicle Maintenance. However, the expenditure under the head of Vehicle Maintenance might be viable in the nature of transport business. Therefore considering the nature of the business and the provisions of section 37(1) of the Act, a sum of Rs. 1,05,69,7901- @ 10% of the expenses is disallowed and included in the total income of the assessee firm. 4.1 Appellant's submission is reproduced hereunder :- Ground No. 7 relates to the disallowance of Rs.1,05,69, 790/- which has been made by the A.O on estimate at 10% of the total claim made by the appellant under the head Vehicle maintenance. Briefly stated facts relating to this issue are that the appellant is running transport business and its turnover during the year has been Rs.5,19,71,60,035/-. The appellant's total expenditure towards vehicle maintenance comes to Rs.10,56,78,905/-. The reasoning given by the A.O for making disallowance on estimate which is recorded in Para 3.02 has been that appellant failed to produce the supporting evidence for the expenditure incurred under the head Vehicle maintenance. It is also observed by the A.O that the expenditure under the head of vehicle maintenance might be viable in the nature of transport business carried on by the appellant.

ACIT Cir-40 Kol. Vs. Sh. Rajendra Sethia Page 3 Therefore, considering the nature of the business and the provisions of Sec. 37 (1) of the Act a slim of Rs.I,05,69,7901- on estimate calculated@ 10% of the total expenses has been disallowed. It is necessary to state that in response to the queries raised by the A.O as to explain the nature of the expenditure and to produce the supporting evidences thereof the appellant had produced the list of vehicle maintenance per vehicle wise (highlighted). It is recorded by the A.O Query raised by the A.O on this point was replied by the appellant in writing as under:- So far as vehicle maintenance expenses are concerned, the assessee had already submitted full details relating to the vehicle No. and the amount spent. The assessee has vehicles which are round about 200 and since they are run throughout the country and there are about 69 branches and all the relevant Bills & vouchers pertaining to maintenance expenses are being kept at the branches. Source of expenses incurred by the branches on account of maintenance expenses is the availability of the cash in different branches remitted by the head office. " Now, the A.O has made observation that upon verification of the documents produced by the AIR (highlighted) it was found that the appellant had not produced the documentary evidence. Since the A. o. required further explanation on this issue the appellant had replied and the A. a. has subtracted appellant's reply in the order of assessment as under: - ............ So far as vehicle maintenance expenses are concerned, the assessee had a/ready submitted full details relating to the vehicle No. and the amount spent. The assessee has vehicles which are round about 200 and since they are run through the country and there are about 69 branches and all the relevant Bills and vouchers pertaining to maintenance expenses are being kept at the branches. Source of expenses incurred by the branches on account of maintenance expenses is the availability of the cash in different branches remitted by the head office " As a matter of fact, it is also on record that during the year the appellant purchased 58 vehicles over and above the old vehicles already owned by the appellant and used in the business of transportation. A reference to Schedule 'D' of Audited Ales would show fresh acquisition of Trucks/ Trailers of the amount of Rs.13,77,43,363/-. The result is that whereas there is increment of receipts from carrying from Rs.510 crore to RS.519 crore, the payments made to transport owners for carrying the goods is reduced from Rs.464 crore to Rs.453 crores. This is as a matter of fact because of paramount consideration that during the year the appellant acquired 58 transport trucks/ trailors at for Rs.13,77,43,363/-. Expenses of Rs.10,56,78,905/- relating to vehicle maintenance expenses are fully recorded in the accounts with all relevant details and have been examined by the A.O. It was already pointed out by the appellant to the A.O that all relevant Bills & vouchers are duly maintained at different branches scattered all over India. This aspect of the matter and the explanation of the appellant has not been controverted and/or assailed by the ACIT Cir-40 Kol. Vs. Sh. Rajendra Sethia Page 4 A.O and only an estimate disallowance at 10% of the total expenditure incurred under the head vehicle maintenance expenses has been made out by the A.O. This estimated disallowance at 10% has no basis at all. The reasoning given by the A.O on this issue is no reasoning as it is simply proceeding on estimate basis without giving any reason to just disallow a portion of such expenses without pointing out any defect or lacuna in the explanation by the appellant and the accounts examined by him. It is, therefore, the submission of the appellant that the A.O has without assigning any valid ground made the disallowance and that also on estimation which is totally uncalled for. It is to be pointed out with reference to the Income Tax Assessments of the past years that there has been no such disallowance made by the A.O out of vehicle expenses. It may also be submitted that these vehicle expenses relate to repairs, cost of parts, tiers, tubes etc. and all these expenses are fully verifiable and recorded in the accounts. The appellant submits that these ad hoc disallowance of business expenditure which are duly recorded in accounts and details are available cannot be made. A reference to the decision of the Hon'ble Calcutta High Court in of 2007 reported in 384 ITR 267 in the case of Ashok Surana vs. CIT is invited It is not the case of the A.O that the appellant was unable to adduce satisfactory evidences that the expenses were incurred for the purpose of business. As a matter of fact, the A.O has himself admitted that such expenses are viable in the transport business which is carried on by the appellant. The A.O has not brought on record any evidence to show that the expenses claimed are not for the purpose of business. In this view of the matter, it is the submission of the appellant that the estimated disallowance made by the A.O is totally uncalled for. The expenses incurred are wholly and exclusively for the purpose of business. The A.O has not pointed out any expense under this head that may be said to be unverifiable. Hence, the A.O has proceeded to make estimated disallowance which is totally uncalled for. . To conclude, it is the submission of the appellant that the disallowance as made out by the A.O proceeding as it does on the observations as made in the order of assessment is totally uncalled for. Your Honour's kind attention is invited to the orders of assessment in the case of the appellant for the Asstt. Years 2010-11 & 2011-12 and it will be apparent that such type of disallowance was not made at all. The appellant is consistently following same system of accounting and there has been no occasion to disturb the accounts by making disallowance as has been made in the year under appeal. 4.2 I have considered the facts of the case and the submissions of the appellant. The assessee had claimed Rs.10,56,97,905/- as Vehicle Maintenance under the proprietorship concern namely M/s. Western Carriers for the Financial Year 2011-12. The AR was asked during the course of ACIT Cir-40 Kol. Vs. Sh. Rajendra Sethia Page 5 assessment hearing to explain the nature of the expenditure and produce the supporting evidence thereof. The AO not being satisfied with the submissions of the assessee disallowed 10% of the expenses amounting to Rs.1,65,69,790/-. The submissions of the appellant has been perused. It is seen that the AO has proceeded to disallow on estimate basis without pointing out any defect or lacuna in the explanation by the appellant. The assessee has about 200 vehicles which are plying throughout the country and they maintain are about 69 branches and all the relevant Bills and vouchers pertaining to maintenance expenses are being kept at the branches for obvious reasons. During assessment proceedings the assessee had already submitted full details relating to the vehicle No. and the amount spent on such vehicles, it can be seen that no specific details were asked for after the submissions. It cannot be expected from the assessee to produce all the details for every vehicle. The AO had every right to seek specific details as desired by him. The appellant has submitted that there has never been such disallowance made by the A.O. out of vehicle expenses in the past assessment years. The appellant has submitted that these vehicle expenses relate to repairs, cost of parts, tyres, tubes etc. and all these expenses are fully verifiable and recorded in the accounts, . The appellant has relied upon the decision of the Hon'hle Calcutta High Court in of 2007 reported in 384 ITR 267 in the case of Ashok Surana vs. CIT. It is not the case of the A,O. that the appellant was unable to adduce satisfactory evidences that the expenses were incurred for the purpose of business. As a matter of fact, the AO has himself admitted that such expenses are viable in the transport business which is carried on by the appellant. The AO has not brought on record any evidence to show that the expenses claimed are not for the purpose of business. The AO has not taken any step to verify the expenses. The AO has not pointed out any expense under this head that may be said to be unverifiable. Thus I find force in the contention of the appellant and find no basis for the disallowance and hence the addition is deleted.”