SOUTH EASTERN CARRIERS PVT. LTD,KOLKATA vs. DCIT, CIRCLE-8(2), KOLKATA, KOLKATA

- This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals)-11, Kolkata dated 30.09.2016. Assessment was framed by JCIT(OSD), Circle-10, Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 08.12.2011 for assessment year 2008-09. The grounds raised by the assessee per its appeal are as under:- “1) That the Learned CIT(Appeal) has erred both in law and under the circumstances in sustaining the disallowance of Rs.16,55,829/- made by AO. 2) That the Appellant craves leave to add, to amend or withdraw all or any of the ground or grounds of appeal at the time or before the hearing of the appeal.”

In this appeal two grounds have been raised out of which ground No.2 is of general in nature and does not require any adjudication.

Sole issue raised by assessee in this appeal is that the Ld. CIT(A) erred in sustaining the disallowance of Rs. 16,55,829/- made by the Assessing Officer.

Briefly stated facts of the issue are that the assessee is a Private Limited Company and engaged in business of transportation of goods services. During the year, the assessee has claimed the lorry hire charges of Rs.165,58,29425/- only. During the assessment proceedings, the AO found that most of the expenses of lorry hire charges are paid in cash which were supported on the basis of self-made vouchers. Therefore the AO concluded that assessee has not proved the genuineness and nexus of the expenditure with the business operation. Accordingly the AO disallowed 0.1% of the lorry hire charges amounting to Rs.16,55,829/- and added to the total income of the assessee.

Aggrieved, assessee preferred an appeal before CIT(A) against the disallowance made by the AO. During the appeal proceedings, the assessee submitted that similar expenses were claimed in the earlier years i.e. AYs 2005-06 to 2008-09 but no disallowance was made except in the AY 2008-09 for Rs.2.50 lakh on ad hoc basis. However, the same addition of the expenditure made in the A.Y. 2008-09 of Rs. 2.50 lakh approx. 0.67% of the total expenditure by the A.O was deleted by the ld. CIT(A). However, the Ld. CIT(A) disregarded the contention of the assessee and upheld the disallowance made by the AO by observing as under:- “4.3 The submission made by the assessee in the present proceedings need to be carefully analysed. The fact that the assessee during the year under consideration has shown 8.95% margin in freight received over the expenses made for transportation which is significantly lower that the same ratio in the previous year at 10.15% and also lower than the same ratio in year proceeding to that. The addition made by the Assessing Officer though on estimated figure is based upon uncontrovered fact of the declining ratio of friend received a compared to freight and other transportation charges paid by the assessee. 4.4 The addition made here, by the Assessing Officer, though I on the basis of certain estimates, it emanates from uncontroverted facts apparent from the submission of the assessee himself. Though the Assessing Officer has agreed that payment in cash is South Eastern Carriers Pvt. Ltd. vs. DCIT, Cir-8(2) Kol. Page 3 business exigency, the averment on which the assessee as relied in his defence. The assessee does not have liberty to selectively ignore the other averment made by the Assessing Officer that in respect of such expenditure the assessee could not prove the genuineness and the nexus with its business operations. It is settled law that assessee cannot probate and reprobate at the same time. 4.5 The other argument taken by the assessee and cited at paragraph no 4.2.2 is general nature these arguments if they are applicable to business of the assessee in the present year has also not been established by the assessee. The theoretical arguments made by the assessee without substantiating the same with facts of the working of the present year is not being analysed here. 4.6 Careful appreciation of the submissions made by the assessee as cited in para 4.2 above clearly indicates that in order to explain the low operating margin in the present year the assessee has given his main argument in para 4.2.3 wherein the assessee has attributed the fall in the margin to the bad economic condition prevailing in 2009-2010. However a bad economic condition of falling manufacturing and falling export should first impact the turnover of the assessee. A perusal of chart prepared by the assessee and cite in para 4.2.1 above clearly indicates that the turnover of the assessee has rather gone up during the year. Similarly the bad economic condition if at all had impacted the business of the assessee it must have impacted both the business activities which results into receipts and the business activities which results into expenditure, particularly in the case of the assessee, where the procured business as well as expenditure are identical i.e. transportation. 4.7 In view of the arguments in para 4.3 to 4.6 I am of the opinion that the argument of the assessee are general, a flimsy, theoretical and unsubstantiated by the facts of the case. It is trite law that revenue authority cannot act on pure conjectures surmises and notions the converse of the same is also true that once the Assessing Officer has acted on the basis of certain ration and figures from the financial account of the assessee it cannot be controverted by pure surmise conjectures and theoretical arguments. Accordingly the arguments of the assessee as quoted in para 4.2.1 to 4.2.3 is rejected. 4.8 The only remaining argument cited in paragraph no 4.2.4 does not hold good, as it is trite law that the principle of res judicata is not applicable on the proceedings of Income Tax Act.”

The ld. AR before us reiterated the submission made before the ld. CIT(A) and also filed a chart showing the expenses claim in the earlier years and subsequent year. The relevant extract of the chart is reproduced below:- Financial Asst. year Turnover Freight Lorry hire % on lorry % on lorry year hire on hire on freight turnover 2004-05 2005-06 813609244 812803457 758482464 93.32% 93.22% 2005-06 2006-07 1008018433 1001401684 928821760 92.75% 92.14% 2006-07 2007-08 1270016538 1267798251 1147615983 90.52% 90.36% 2007-08 2008-09 1653149372 1650754966 1483135576 89.85% 89.72% South Eastern Carriers Pvt. Ltd. vs. DCIT, Cir-8(2) Kol. Page 4 2008-09 2009-10 1828070661 1825218260 1661806133 91.05% 90.90% 2009-10 2010-11 2216026001 2214456883 2032930909 91.80% 91.74% TOTAL 8788890249 8772433501 8012792825 91.34% 91.17% The ld. AR also submitted that the expenses cannot be disallowed on estimated basis. He in support of assessee’s claim relied on the order of the co-ordinate Bench of this Tribunal in the case of Logisys India Ltd. Vs. DCIT in order dated 11.1.2017. On the other hand the ld. DR vehemently supported the order of lower authorities.

We have heard and perused the submissions made by the Ld.AR and ld. DR as well as the materials available on records. In the instant case, the assessee has claimed the expenses under the head “lorry hire charges” which were based on self made vouchers. The payments of these expenses were made in cash. Thus, the AO doubted on the genuineness of the expenses and held that the business nexuses cannot be established. The view of the AO was subsequently confirmed by the ld. CIT(A). The undisputed fact is that the lorry hire charges was disallowed by the AO on estimated basis and without finding out any defect in the books of accounts of the assessee. All the supporting documents and books of accounts were produced before the AO during assessment proceedings. In our view the ad hoc disallowance of the expenses is not permitted under the provisions of law. The AO should have made the disallowance after making specific reference to the vouchers/documents which was not connected with the business of the assessee. In this connection, we also rely on the order of Co-ordinate Bench of ITAT Kolkata in the case of Animesh Sadhu Vs. ACIT in ITA 11/Kol/2013 Dated 12.11.2014. The relevant extract is reproduced below :- “8. We have considered the rival submissions. A perusal of the assessment order shows that the Assessing Officer has disallowed 20% of the expenses on estimate basis on the ground that no independent verification to be made to find out the authenticity of the expenses. Ld. CIT(Appeals) has reduced the same on the same ground. However, we are of the view that no estimated disallowance scan be made for inability to make independent verification. If any specific expenditure is unverifiable or is un-vouched, then such specific expenditure is disallowable. Here no such specific identification has been done. In these circumstances, we are of the view that the estimated disallowance as confirmed by the ld. CIT(Appeals) is unsustainable. Consequently the same stands deleted. In the result, Grounds No. 2 & 3 of the assessee’s appeal stand allowed.”