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Income Tax Appellate Tribunal, BANGALORE BENCH-SMC “ C ”
Before: SHRI VIJAY PAL RAO
Per Shri Vijay Pal Rao, J.M. : This appeal by the assessee is directed against the order dt.29.9.2016 of Commissioner of Income Tax (Appeals)-7, Bangalore for the Assessment Year 2007-08.
The assessee has raised the following grounds :
“1. The order of the learned CIT (Appeals) is opposed to law and facts of the case. 2. Whether on the facts and circumstances of the case, the CIT (Appeals) was justified in law in restricting the disallowance to 10% of 2 the freight portion claimed by the assessee firm as against 20% of the total expenditure disallowed by the Assessing Officer ? 3. The CIT (Appeals) erred in appreciating the fact that the Assessing Officer could not conduct independent inquiries on account of the failure of the assessee firm to produce any details of the persons to whom payments were been made.
4. For these and other grounds that may be urged at the time of hearing, it is prayed that the order of the CIT (Appeals) in so far as it relates to the above grounds may be reversed and that of the Assessing Officer may be restored.
5. The appellant craves leave to add, alter, amend and/or delete any of the grounds mentioned above.”
The only issue raised in this appeal of the assessee is regarding disallowance of freight charges by the Assessing Officer and confirmed by the CIT (Appeals).
The assessee is a partnership firm engaged in transportation of mining material from the mine to nearest port. During the assessment proceedings the Assessing Officer noted that the assessee was doing transport work for various mines by providing lorry on hire to them. The assessee disclosed gross receipts from transport business of Rs.2.25 Crores against which transportation charges of Rs.2,17,26,298 were claimed. The Assessing Officer asked the assessee to furnish the details of transportation charges with name and address of the persons to whom it was paid, mode of payment, TDS and PANs. The assessee explained that out of the total payments the diesel cost was was freight portion. The assessee claimed that it is mandatory to pay the lorry driver Rs.2,000 per lorry trip. However no details have been furnished to substantiate this claim as to how the fixed way expenses are mandatory. Thus the Assessing Officer noted that the assessee has not furnished any proof by way of bills/vouchers etc. Accordingly, the Assessing Officer has disallowed 20% of the total transportation charges amounting to Rs.43,45,260.
On appeal, the CIT (Appeals) has restricted the disallowance to 10% of the total transportation charges from 20% made by the Assessing Officer.
Before the Tribunal, the learned Authorised Representative has reiterated its submissions as raised before the authorities below and submitted that the assessee has transported iron ore from mine to the port destination. He has further contended that this is the first time when the Assessing Officer has disallowed these expenses even on account of fixed charges per trip @ Rs.2,000
per lorry. Further the learned Authorised Representative has submitted that the diesel expenses cannot be considered as bogus without as the said expenditure the activity of transportation is not possible. Thus the learned Authorised Representative has submitted that the Assessing Officer has doubted these two expenses as diesel cost and fixed way expenses but these contended that it is a prevailing practice in this trade that fixed amount of Rs.2,000 per trip per lorry has to be paid for which the assessee cannot produce any evidence. Hence the learned Authorised Representative has submitted that the adhoc disallowance is not justified when the Assessing Officer has not found the expenses as excessive in comparison to the general gross profit rate in this trade.
On the other hand, the learned Departmental Representative has submitted that the assessee has not furnished any evidence in support of the claim and therefore the Assessing Officer was justified in disallowing the portion of the expenditure which has been restricted by the CIT (Appeals) to 10% of the total transportation charges.
Having considered the rival submissions as well as the relevant material on record, it is noted that the assessee has furnished the details of the expenses as transportation charges/freight charges as under :
Total Payment Rs.2,17,26,298 Diesel Cost Rs.1,07,93,959 Fixed WayExpenses Rs.33,74,000 Balance Freight Portion Rs.75,58,339 of these expenses. Even the assessee has not produced a single bill/voucher in respect of diesel cost. Though diesel is an essential for the transportation activity however expenses claimed by the assessee is always required to be established that the same has been incurred wholly and exclusively for the purpose of business of the assessee. The assessee has clearly defaulted in discharging its onus to prove that the expenses have been wholly and exclusively incurred for the purpose of business. The learned Authorised Representative has pleaded that since the assessee has not kept the bills in respect of the diesel cost, the genuineness of the expenses cannot be doubted.
It is also admitted that the diesel is not purchased on cash but it is purchased on credit and therefore the payment is made subsequently. Thus in view of the facts and circumstances of case, even if the assessee has not maintained the proper record of maintaining the bills and vouchers of the expenses, the books of accounts particularly the ledger account of the assessee in the books of the supplier of diesel can be verified for this purpose. As regards the expenses on account of fixed payment of Rs.2,000 to driver at least the assessee should have produced the drivers for verification. Therefore, the Assessing Officer is directed to verify the relevant record i.e. the ledger account of the assessee in fixed charges of Rs.2,000 per trip from the driver. Accordingly, this issue is set aside to the record of the Assessing Officer for verification and adjudication of disallowance of 10% of the transportation charges.
In the result, the assessee's appeal is allowed for statistical purpose.