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Income Tax Appellate Tribunal, DELHI BENCH: ‘D’, NEW DELHI
Before: SH. H.S. SIDHU & SH. O.P. KANT
ORDER PER O.P. KANT, A.M.: This appeal by the assessee is directed against order dated 26/09/2013 of the Ld. Commissioner of Income-tax (Appeals)-XXII, New Delhi [in short “the CIT-(A)”] for assessment year 2009-10, raising following grounds:
“1. The ld. CIT(Appeals) is not justified in law and facts and circumstances of the case in confirming addition of Transport Expenses by A.O. section 143(3) of the I.T. Act, 1961.
2. The ld. CIT(A) has erred in law & facts in confirming and addition of Rs.3,06,174/- to the income of the assessee disallowing transportation expenses debited in profit & loss account and rejecting the explanation of the assessee which is highly arbitrarily unjustified uncalled for & bad in law.
3. Assessee has every right to make, add, deleted, modify or alter any ground of appeal at the time of hearing.”
2. The facts in brief of the case are that the assessee was engaged in running a petrol pump in the name and style of “M/s Shiv Shankar Filling Station”, at Meerut Road, Karnal (Haryana), which is adjoining to the “Uttar Pradesh” border. For the year under consideration, the assessee filed return of income electronically on 08/09/2009 declaring total income of Rs.2,07,170/-. The case was selected for scrutiny under Computerized Assisted Selection of Scrutiny (CASS) and notice under section 143(2) of the Income-tax Act, 1961 (in short “the Act”) was issued and served within the stipulated period. The Assessing Officer observed transportation expenses of Rs.3,06,174/- debited in the profit and loss account. From the vouchers and other details furnished by the assessee, the Assessing Officer noticed that transportation charges were incurred towards selling the petrol/diesel outside the territory of petrol pump, in villages located in the state of Haryana and Uttar Pradesh. In view of the Assessing Officer, the assessee was authorized to sale patrol/diesel at the petrol pump only and therefore the transportation charges incurred for selling the petrol/diesel at places other than petrol pump station, was not justified, accordingly, he disallowed the said sum of Rs.3,06,174/-.
Before the Ld. CIT-A, the assessee contested that there are around 25 to 30 petrol pumps surrounding the area of the assessee’s petrol pump and due to a strong competition among them, the assessee sold petroleum products to various customers in Haryana and Uttar Pradesh by bearing the transportation expenses on cartage of product sold. The assessee submitted that the restriction imposed by the Hindustan Petroleum Corporation Limited (HPCL) was that the assessee should sell the petroleum products directly from the nozel of the petrol pump. The assessee submitted that drums were filled at the petrol pump and sent at the customer’s premises and the said transport expenses on cartage paid for the delivery of said drums to customer premises. The Ld.
CIT-A, examined the HPCL bulk POL road transport agreement of the assessee with HPCL and observed that in said contract for transportation of petrol/diesel from HPCL depot to the petrol pump of the assessee, only one tanker was agreed for transport, whereas the assessee in its books of accounts has shown the existence of two tankers. The assessee submitted that no log books for tankers were maintained. In view of the facts and circumstances, the Ld. CIT-A upheld the action of the Assessing Officer in disallowing the transport expenses of Rs. 3, 06, 174/-. Aggrieved with the finding of the Ld. CIT-A, the assessee is in appeal before the Tribunal raising the grounds as reproduced above.
Both ground No. 1 and 2 of the appeal, are connected with the issue of disallowance of transport expenses of Rs.3,06,174/- thus both are heard together.
Before us, the ld. counsel of the assessee, supported the grounds raised
and filed written submission alongwith paper book containing pages 1 to 60. A copy of the vouchers of transport expenses has been filed from page 49 to 60 of the paper book. The submissions of the Ld. Counsel of the assessee on the facts of the case are summarized as under: 1. that the said transportation expenses of Rs.3,06,174/- were incurred in respect of cartage paid by the assessee for sales made to customers in Haryana and Uttar Pradesh; 2. that the said transport expenses were very nominal negligible and did not impact the profit; 3. that there was only restriction imposed by the HPCL that the assessee should sell the petroleum products directly from the nozal of the petrol pump and therefore sale to the customers through drums which were filled at the petrol pump via nozzles and then transported to the customers, was not restricted by the HPCL and said sales have been also accepted by the VAT authorities as CST sales; 4. that the transportation expenses for carrying petrol/diesel from the HPCL Depot to the petrol pump was reimbursable and different from the transportation expenses claimed by the assessee for transporting drums from petrol pump to different customers. Since transportation of the small quantity was not feasible through the tankers, therefore drums were used for said purpose; 5. that the Ld. CIT-A confirmed the addition on misrepresentation of the nature of expenses and incorrectly disallowed the expenditure under section 37 of the Act.
6. The Ld. counsel further submitted that the Ld. CIT-A erred in not appreciating that all requirements of Section 37 of the Act were fulfilled. The submission of the Ld. counsel, on this proposition are reproduced as under:
“5. That the tankers are mentioned in the fixed assets in the books of the Assessee and are used only for purpose of transporting oil from H.P.C.L. Depot to the Petrol Pump. The tanker is having capacity of 12,000/- litres. It is part of the agreements between HPCL and the Assessee and the payment by HPCL to Shiv Shankar Filling Station is made on trip basis. On the other hand, for transportation of small quantities of petroleum products, tankers are not feasible and so drums are used for the said purpose. The transactions are not connected to each other and hence, have different treatments in the books of the Assessee. The ld. CIT(A) erred in not making a distinction between the two transportation expenses and delivered the order in that misunderstanding. The Ld. CIT(A) confirmed the addition on the said misinterpretation of the nature of expenses and incorrectly disallowed the expenditure u/s 37 of the Act. Hence, it ought to be set aside.
The Assessee submitted Balance Sheet, Audit report, ITR for A.Y. 2009-10 and details of transportation expenses along with ledger and vouchers to the Ld. AO to prove that the transportation expenses from Petrol Pump to different customers were not reimbursed and accounted as expenditure for the Assessee. Ld. AO, however, did not appreciate the submissions of the Assessee and made the addition to the income of the Assessee and made the addition to the income of the Assessee. When the Assessee went in appeal, Ld. CIT(A) confirmed the order of the Ld. AO.”
The Ld. counsel further submitted that the Ld. CIT-A failed to measure the present case, on commercial expediency test. The submission of the Ld. counsel on this proposition are reproduced as under:
“C : Ld.CIT(A) failed to measure the present case on commercial expediency test. It is humbly submitted that the Ld. CIT(A) did not measure the facts of the captioned case on commercial expediency test. The Ld. CIT(A) in his order has mentioned that two lorries were used by the Assessee to transport the petroleum products from Depot to petrol pump while the agreement between HPCL and Assessee specified that one lorry shall be used for the purpose. It is submitted that in the general course of business the Assessee uses its own tank lorries to transport the petroleum products from the depot to the petrol pump. It is for the ease of the parties and smooth running of business that the buyers of petroleum (in this case the Assessee) purchase their own tank lorries as they need to transport petroleum on frequent basis.
Reliance in this regard is placed on CIT vs. Panipat Wollen & General Mills Co. Ltd. (1976) 103 ITR 66 (SC) [Page 41 of Case Law Compilation]. The Apex court held:
“the test of commercial expediency cannot be reduced in the shape of a ritualistic formula, nor can it be put in a watertight compartment so as to be confined in a strait-jacket the test merely means that the Court will place itself in the position of a businessman and find out whether the expenses incurred could be said to have been laid out for the purpose of the business or the transaction was merely a subterfuge for the purpose of sharing or dividing the profits ascertained in a particular manner. It seems that in the ultimate analysis the matter would depend on the intention of the parties as spelt out from the terms of the agreement or the surrounding circumstances, the nature or character of the trade or venture, the purpose for which the expenses are incurred and the object which is sought to be achieved for incurring those expenses."
Also, contractual obligation is not necessary if the Assessee finds it commercially expedient to incur certain expenses. This view has been taken in CIT vs. Associated Electrical Agencies (2004) 135 Taxman 12 (Mad.)
"Payments made, having regard to the commercial expediency, need not necessarily have their origin in contractual obligations. If the assessee which carries on a business finds that it is commercially expedient to incur certain expenditure directly or indirectly, it would be open to such an assessee to do so notwithstanding the fact that a formal deed does not precede the incurring of such expenditure."
The Bombay High Court in CIT vs. Sales Magnesite (P.) Ltd., (1995) 81 Taxman 334 (Bom) [Page 53 of Case Law Compilation] has commented on the commercial expediency from businessman's point of view:
"Even expenditure incurred voluntarily on the ground of commercial expediency and in order indirectly to facilitate the carrying on of the business would be deductible under this section. The question whether it was necessary or commercially expedient or not is a question that has to be decided from the point of view of the businessman and not by the subjective standard of reasonableness of the revenue."
The Assessee incurred the transportation expenses for transporting drums to facilitate the carrying on of the business. As mentioned above, there is huge competition in that area and in order to survive in the market and to attract more customers to increase sales, the Assessee incurred the said expenditure. In view of the above cited decision, the Assessee has right to claim deduction and the order of the Ld. CIT(A) ought to be set aside.
The Apex Court has remarked on the same subject in line of current socio-economic thinking:
"Commercial expediency must be judged not in the light of the 19th century laissez faire doctrine which regarded man as an economic being concerned only to protect and advance his self interest but in the context of current socioeconomic thinking which places the general interest of the community above the personal interest of the individual and believes that a business or undertaking is the product of the combined efforts of the employer and the employees and where there is sufficiently large profit, after providing for the salary or remuneration of the employer and the employees and other prior changes such an interest on capital, depreciation, reserves, etc. a part of it should in all fairness go to the employees." [Shahzada Nand & Sons vs. CIT (1977) 108 ITR 358 (SC)] In view of the above cited decisions it is most humbly submitted that the Ld. CIT(A) erred in confirming the order of Ld. AO disallowing the deduction u/s 37 of the Act.”
The Ld. counsel further submitted that the Ld. CIT-A has erred in ignoring the assessment order passed by the Income Tax Officer, New Delhi.
The Ld. counsel further submitted that the Department must prove contrary to the assessee. The submission of the assessee in support of the above proposition is reproduced as under:
“E. Department must prove contrary to Assessee.
It is humbly submitted that the Department must prove that the submissions and evidences produced by the Assessee are wrong. Moreover, the Ld. CIT(A) and Ld. AO did not give any specific grounds on which the submissions of the Assessee were rejected. The Ld. CIT(A) arbitrarily confirmed the order of the Ld. AO and came to a conclusion that expenses were not allowable for deduction u/s 37 of the Act. However, none of the submissions ofthe Assessee were disproved by the Ld, CIT(A) by any substantial evidence against the Assessee.
Section 102 of the Indian Evidence Act, 1872 states as under: The burden of proof in a suit or proceeding lies on that person who would fail if no evidence at all were given on either side.
It is a settled principle of evidence law that the initial onus is on the plaintiff and once he discharges that onus and makes out a case which entitles him to a relief, the onus shifts to the defendant to prove those circumstances, if any, which would disentitle the plaintiff to the same (Anil Rishi vs. Gurbaksh Singh, AIR 2006 SC 1971) [Page 62, 63, 64 of Case Law Compilation]. Hence, the burden of proving that the income is liable to tax under the statute is on the Revenue Authorities as has also been held in Nizam’s Religious Endowment Trust, Hyderabad vs. Commissioner of I.T., Andhra Pradesh, AIR 1966 SC 1007.
The Ld. AO failed to provide any evidence to disprove the submissions of the Assessee and thus, the order of the Ld. CIT(A) is erroneous and liable to be quashed.”
On the other hand, Ld. Senior DR invited our attention to pages 49 to 60 of the assesses paper book, which are copy of the vouchers for claiming said transportation expenses. The Ld. Senior DR submitted that all these are internal vouchers of the assessee shown as paid in cash below the amount of Rs.20,000/- so as to avoid disallowance under section 40A(3) of the Act. He further said that there is no mention of any mode of transport in these vouchers. He further said in these vouchers payment has been alleged to make on two dates of every month, which is 15th and the last day of month. He said that payment has been shown to be made on August 15th 2008, which is a national holiday. He further said that address or any contact number of the parties to whom payment has been shown is not mentioned in the vouchers. He further said before the ld. CIT-A the assessee claimed to have sold petrol diesel through drums and submitted name of few buyer parties. The Ld. senior DR submitted that vouchers of transport expenses have also been made probably in their names. He said that not only the assessee failed to justify the expenses in terms of section 37 of the Act but also failed to establish genuineness of the expenses and therefore action of the Assessing Officer might be sustained.
We have heard the rival submissions and perused the relevant material on record including copy of the vouchers of the transport expenses available on pages 49 to 60 of the assessee’s paper book. These vouchers are claimed to have been paid in cash. A summary of the vouchers claimed by the assessee for transport expenses is made as under:
S. No. Date of voucher Name of party Amount in Rupees 1. 15/4/08 Jasbir Singh 9,900
30/04/08 Taseen 18,900 3. 15/05/08 Ramphal 18,810 4. 31/05/08 Ramphal 18,930 5. 15/06/08 JasbirSingh 12,300 6. 30/06/08 Ramesh Jhangra 10,950 7. 15/07/08 Jasbir singh 11,250 8. 31/07/08 Ramesh Jhangra 11,850 9. 15/08/08 Ameer 9,450 10. 31/08/08 Jasbir 7,350 11. 15/09/08 Ramphal 11,160 12. 30/09/08 Ramesh Jhangra 10,800 13. 15/11/08 Jasbir Singh 12,690 14 31/10/08 jasbir 12,810 15 15/03/09 Ramesh Jhangra 11,550 16 31/03/09 Naresh 14,214 17 15/12/08 Amir 12,750 18 30/11/08 Jasbir 11,550 19 31/12/08 Naresh 10,200 20 15/01/09 Taseen 16,110 21 31/01/09 Naresh 12,450 22 15/02/09 Naresh 14,100 23 28/02/09 Naresh 11,700 Total 2,91,774
On perusal of the above summary of vouchers, we find that transport expenses have been paid to 5 or 6 persons only. The frequency or interval at which these vouchers are shown to have been made, lead to us to believe that these are not made in the normal course of business. Further, neither mode of transport nor number of drums transported, are mentioned in these vouchers. The sales bill number corresponding to these transport expenses, are not mentioned in the vouchers. In the submission before the Ld. CIT-(A) the assessee submitted that transport cost per drum was fixed at Rs.30 per drum and each drum contained 200 litre of fuel, then cost per litre comes to Rs. 15 paisa. In this manner, against the cost of one rupee, the diesel transported would be 6.6 litre. If we compute the volume of diesel or petrol sold corresponding to the alleged transport charges of Rs.3,06,174/-, the volume would be around 20,41,160 Litres. The assessee before the Ld. CIT-(A) claimed that the diesel was sold to 6 parties. It becomes unbelievable that six persons would consume such huge quantity of diesel, as they are not authorized to resale in the market. In view of above facts and circumstances the vouchers of expense of Rs.3,06,174/- claimed by the assessee for transporting the diesel up to the door of customers does not appear to be genuine and not reliable.
We concur with the ratios of the judgments cited by the Ld. counsel of the assessee, however, the ld. counsel has submitted before us that the expenditure incurred on transport of fuel, fulfilled all the conditions of section 37 of the Act. We are not convinced second part of submission of the ld. counsel. For claiming deduction under section 37 of the Act, the assessee is required to establish that the expenditure was laid out or expended wholly and exclusively for the business or profession. In the instant case, the assessee has claimed that expenditure was incurred on transport of fuel sold to customers, but the assessee has failed to link the transport expenses with the corresponding sale bills. Even in the vouchers, the volume of fuel sold is not mentioned. The mode of transport like truck etc. is also not mentioned in the vouchers. The assessee has also failed to justify the commercial expediency with documentary evidences. As regard to submission of the Ld. counsel that the Assessing Officer has ignored the order passed by the VAT authorities is concerned, we find that the Assessing Officer has not looked into the aspect of genuineness of the sales and he has examined only allowability of the transport expenses claimed by the assessee. We also find that the assessee is allowed to make sales at nozel point of petrol pump station only. In such case, the sale would be local sales only. In our opinion, the order of the VAT authorities admitting CST sales if any, is not an evidence relevant to the allowability of transport expenses. The issue in question before us is whether the transport expenses were incurred by the assessee and same were laid wholly and exclusively for the purpose for the business. The assessee has failed in satisfying there requirements of law.
In view of the discussion above, we are of the opinion that the assessee has failed to establish that the expenditure of Rs. 3,06,174 /- was laid wholly and exclusively for the purpose of the business, thus it can’t be allowed under section 37 of the Act. The grounds No. 1 and 2 of the appeal are accordingly dismissed.
The ground No. 3 being general in nature we are not required to adjudicate upon and accordingly dismissed.
In the result, appeal of the assessee is dismissed. The decision is pronounced in the open court on 9th June, 2017.