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Income Tax Appellate Tribunal, DELHI BENCH ‘E’, NEW DELHI
ORDER
Per N. K. Saini, AM:
This is an appeal by the assessee against the order dated 12.06.2014 of ld. CIT(A)-II, New Delhi.
Following grounds have been raised in this appeal: “1. On the facts and circumstances of the case, the order passed by the learned Commissioner of Income Tax (Appeals)[CIT(A)] is bad both in the eye of law and on facts.
2. On the facts and circumstances of the case, the learned CIT(A) has erred in passing the order without giving assessee a proper and adequate opportunity of being heard in violation of principle of natural justice.
2 Om Logistcis Ltd. 3(i) On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the adhoc disallowance of an amount of Rs.16,01,438/- made by the AO, out of expenses incurred on account of incentive paid to drivers. (ii) That the disallowance has been confirmed despite the same being made arbitrarily at the rate of 20% without there being any basis for the same. (iii) That the above disallowance is bad in law and unsustainable as the assessee is maintaining regular books of accounts and the same have been subjected to audit including audit under Section 44AB of the Act and there is no adverse observation in this regard in the audit report.
4. That the appellant craves leave to add, amend or alter any of the grounds of appeal
.”
3. From the aforesaid grounds, it is gathered that only grievance of the assessee relates to the confirmation of disallowance of Rs.16,01,438/- made by the AO out of the expenses incurred on account of incentive paid to drivers.
Facts of the case in brief are that the assessee filed the return of income on 29.09.2010 declaring an income of Rs.47,94,36,920/- which was processed on 09.04.2011. Later on, the case was selected for scrutiny. During the course of assessment proceedings, the AO noticed that the assessee had 3 Om Logistcis Ltd. debited a sum of Rs.80,07,191/- on account of incentive paid to drivers. He asked the assessee to explain the nature of those expenses, mode of payment and services rendered by the drivers. In response the assessee vide letter dated 18.02.2013 stated as under: “For providing the service of transportation of goods by Road, the company has to take the service from fleet owners / transporters at a re-decided rate. To get the best out of that (timely delivery of foods at destination) the company also agrees to pay some amount as incentive /prize to the driver of that particular vehicle in which the time sensitive goods is moving. Because of this incentive /prize, the driver takes extra pain for timely delivery at the destination. It is a normal trade practice to get the express service (to the extent required and possible) at the cost of normal and ordinary road movement by adopting these motivational initiatives. A sample copy of incentive/prize slip is also being attached for your kind reference and better understanding. Further a detail of the expenses incurred / booked branch wise is also being attached herewith for your kind perusal.”
The AO after considering the submissions of the assessee disallowed a sum of Rs.16,01,430/- by observing in para 5.1 of the assessment order dated 28.02.2013 which read as under: “5.1 I have considered above submission of the assessee and have found no force in them in view of the fact that all the payment were made in cash and no supporting vouchers have been produced 4 Om Logistcis Ltd. therefore these expenses are not fully verifiable. Since these expenses are inevitable in the business of assessee, a sum of Rs. 16,01,438/- being 20% of Rs. 80,07,191/- is disallowed and added to the income of the assessee.” (Addition Rs.16,01,438/-) 6. Being aggrieved the assessee carried the matter to the ld. CIT(A) and submitted that it had achieved a growth of 24% in the total revenue and that the expenses incurred as incentive to drivers, were fully allowable, therefore, the disallowance made by the AO on assumption only, deserves to be deleted. The ld. CIT(A), however, found the reply of the assessee as general in nature and sustained the disallowance by observing that the entire expenses on this account were in cash and not fully verifiable. Therefore, the disallowance @ 20% appears to be in order.
Now the assessee is in appeal. The ld. Counsel for the assessee reiterated the submissions made before the authorities below and further submitted that the expenses were incurred during the regular course of business and were related to the business of the assessee. It was further submitted that the assessee maintained proper books of account which were duly audited and no discrepancy was pointed out in the said books of account which were accepted by the department. Therefore, 5 Om Logistcis Ltd. the adhoc disallowance made by the AO was not justified. It was also pointed out that neither in the preceding year nor in the subsequent year, such type of disallowance was made by the AO, therefore, the disallowance made by the AO and sustained by the ld. CIT(A) was not justified. It was also contended that the assessee for providing the services on transportation of goods by road, has to take the services from fleet owners/transporters at pre decided rate and to take the best out of that (timely delivery of goods at the destination), the assessee company also agreed to pay some amount as incentive/prizes to the drivers of that particular vehicle in which the time incentive goods were moving and because of the incentive/prizes, the drivers took extra pain for timely delivery at the destination. It was further submitted that the sample copies of prizes/motivational incentive slips were furnished before the AO and the ld. CIT(A) for better understanding of the expenses and that the detail of the total expenses incurred branch wise, was also furnished before the authorities below. Therefore, the disallowance made by the AO and sustained by the ld. CIT(A) was not justified. Reliance was placed on the following case laws: � Friends Agency (P) Ltd. Vs CIT (2011) 237 CTR (Del.) 464 6 Om Logistcis Ltd. � CIT Vs S.S.P. (P) Ltd. (2011) 202 Taxman 386 (P&H) � Lake Palace Hotels & Motels Vs DCIT 81 TTJ 657 (Jodh.) 8. In her rival submissions the ld. CIT DR strongly supported the orders of the authorities below and further submitted that the assessee did not furnish any evidence in support of its claim for incurring the expenses which were mainly in cash. Therefore, the AO had no option except to make the estimated disallowance. The reliance was placed on the judgment of the Hon’ble Supreme Court in the case of Keshav Mills Co. Ltd. Vs CIT (1965) 56 ITR 365
We have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case, it is noticed that growth in the total turnover of the assessee was about 24% which incrased the total revenue of the assessee who was engaged in the business of transportation. The assessee for the purposes of transportation services had taken services from fleet owners/transporters and paid incentive to the drivers for timely delivery of goods at destination. The AO made adhoc disallowance for the reasons that the payments were made by the assessee in cash. However, he considered 80% of the 7 Om Logistcis Ltd. expenses as genuine and disallowed 20% of the expenses on adhoc basis but there was no basis for making the adhoc disallowance. The AO did not doubt the incurring of expenses, he only doubted the mode of payments. In the present case, the payments of incentives to the drivers were made for timely delivery of the goods at the destination. It was claimed that such type of expenses had been accepted in the preceding as well as the succeeding year, the said claim was not rebutted at the time of hearing. We, therefore, considering the totality of the facts are of the view that the adhoc disallowance without any basis made by the AO and sustained by the ld. CIT(A) was not justified. Accordingly, the same is deleted.
In the result, appeal of the assessee is allowed. (Order Pronounced in the Court on 27/04/2017)