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Income Tax Appellate Tribunal, DELHI BENCH ‘C’ : NEW DELHI
Before: SHRI A.T. VARKEY & SHRI O.P. KANT
O R D E R PER A.T. VARKEY, JUDICIAL MEMBER :
This appeal, at the instance of the assessee, is filed against the order of the CIT (Appeals), Muzaffarnagar dated 14.06.2013 for the assessment year 2008-09. 2. The solitary ground taken by the assessee is against the sustenance of disallowance of Rs.4 lakhs out of the freight and fuel expenses. 3. The assessee is Proprietor of M/s. Buland Gupta Goods Carrier and is engaged in transport business and supply of building material. The assessee had his own trucks and also engaged trucks of others for transporting the material and made payments to the truck owners. The assessee filed return of income on 30.09.2008 at Rs.5,93,612/-. The case was taken up for scrutiny after the approval of CCIT, Ghaziabad. Accordingly, the notices u/s 143(2) and 142(1) of the Income Tax Act, 1961 (hereinafter ‘the Act’) were issued.
In response, the AR for the assessee attended the assessment proceedings from time to time and filed written submissions along with necessary details. The AO, after considering the submissions of the AR for the assessee, made certain additions. The AO observed that the assessee had claimed freight/fuel/other charges amounting to Rs.39,51,550/- and the assessee also filed copy of this account which showed that most of these expenses were on purchase of fuel whereas a portion thereof was payment of freight to other parties, from whom the assessee hired trucks for transportation. The AO observed that in the absence of the bills, neither the amount claimed was verifiable nor the nature of the expenses or proportion of fuel expenses and freight expenses in the gross amount could be ascertained, so rejected the books of the assessee. He also observed that freight payments also attracted TDS deduction liability. Therefore, the AO made a lump sum disallowance of Rs.5 lakhs taking into account the unverifiable nature of these expenses.
3.1 Aggrieved, the assessee went in appeal before the first appellant authority and the ld. CIT (A) partly confirmed the addition by observing as under:-
“The facts of the case as well as submissions made by the appellant have been carefully considered. It is observed that the AO had made addition of Rs.5,00,000/- on the ground that the appellant had produced only computer generated cash book but bills/voucher in respect of expenses debited under the head 'freight & fuel expenses' were not furnished. Since the books of account were not complete in absence of bills/vouchers, therefore the AO was perfectly justified in rejecting the same by invoking provisions of section 145(3) of the Act. Further net profit declined to 12.98% as against Rs.16.83% shown in the immediately preceding year. Thus the basis of disallowance made by the AO is upheld in principle but is on the higher side. It would amply meet the ends of justice if the amount of disallowance is restricted to Rs.4,00,000/-. Thus the appellant is entitled for relief at Rs.1,00,000/- on this score. Ground of appeal No.3 is partly allowed.”
4. The assessee, being aggrieved, against the sustenance of addition of Rs.4 lakhs is in appeal before us.
5. Ld. AR for the assessee reiterated the submissions made before the ld. CIT (A) and submitted that during the year under consideration, the assessee had received the transportation. charges at Rs.61,44,530/- against which the assessee had claimed the freight and fuel charges etc. at Rs.39,51,550/ -. He further submitted that in the preceding year, the transportation receipts were of Rs.36,82,297/- against which the freight and fuel charges were claimed at Rs.21,56,080/- which worked out to 58.55% of the receipts, whereas during the year under consideration, such charges work out to 58.17% of the receipts. He submitted that the books of account had been rejected by the AO on account of non-availability of the relevant vouchers for such expenses and made the disallowance. But, he submitted that for making the disallowance, the AO had not given any basis. He submitted that that after rejection of the books of account, the AO had to make best judgment of assessment and such best judgment had to be made based on the material available on record and on the basis of some other comparable similar assessees. He submitted that the rejection of books did not mean that the disallowance had to be made. He further submitted that the AO has also failed to give any basis for such huge disallowance and also not brought any comparable cases for justification of such disallowance. He further submitted that however, in the year under consideration, the receipts from the transportation charges had increased tremendously in comparison to the preceding year and the fuel and freight charges etc. had been reduced in comparison to the preceding year. He also submitted a chart in this regard which is reproduced below :-
AY 2008-09 AY 2007-08 Total Receipts Rs.61,44,530/- Rs.59,31,687/- Freight/Fuel/Other Rs.21,92,980/- Rs.21,56,080/- Charges %age of Freight / Fuel 35.69% 36.34%
AO/CIT disallowed Rs.4 lakhs Nil The ld. AR further submitted that the net profit rate in the year under consideration was 20.13% whereas in the preceding year it was 16.80% and in this regard, he has submitted a comparative chart of trading results which is as under :-
Comparative Chart of Trading Results
Particulars 2008-09 2007-08 RECEIPTS 6,144,530.00 5,931,687.00 GROSS PROFIT 2,192,980.00 1,825,077.00 G.P. RATE 35.68% 30.70%
NET PROFIT 1,237,205.00 999,757.00 N.P. RATE 20.13% 16.80% AFTER DEPRECIATION 13.03% 7.44% He submitted that the assessment order for preceding year i.e. 2007-08 had also been made scrutiny assessment u/s 143(3) of the Act. The ld. AR pointed out that if income u/s 44AE is calculated from 4 trucks of the assessee, then it would be Rs.1,68,000/-, whereas the assessee has declared income of Rs.5,93,612/- which is far more than the income which is prescribed by said section for similar assessee’s ; and since the fuel expenses of 36.34% was accepted in scrutiny in the preceding assessment year, fuel expenses of only 35.69% should have been accepted. The ld. AR, relying on the decisions made before the ld. CIT (A), pleaded that the orders of the authorities below be set aside on this issue and the addition be deleted.
On the other hand, the ld. DR relied on the orders of the authorities below.
We have heard both the sides and perused the material. We find that books of the assessee has been rejected by the AO because the assessee could not produce bills and has made an ad hoc disallowance of Rs.5 lakhs, which has been reduced by the CIT (A) to Rs.4 lakhs, giving a relief of Rs.1 lakh to the assessee. We find that the assessee is into transport business and has 4 trucks. In the preceding assessment year (AY 2007-08), the assessment was carried out u/s 143(3) of the Act, wherein the fuel expenses of Rs.21,56,080/- was accepted by the department, which worked out to 36.34% of the total receipt of Rs.59,31,687/-. In the instant year, the assessee claimed freight/fuel/other charges of Rs.21,92,980/-, when the total receipt was Rs.61,44,530/- which works out to 35.69% only. When the department has accepted the expenditure of 36.34% in AY 2007-08, in that year, so when the expenses is less i.e. 35.69% in this year, the ad hoc disallowance without bringing in comparable cases is not justified. Moreover, as per section 44AE, the income from four trucks works out to Rs.1,64,000/- whereas the assessee has declared an income of Rs.5,93,612/- which puts the assessee’s case in a better position; and the assessee’s contention that taking into consideration the transport business carried out by the assessee, wherein expenses are incurred for which no bills can be obtained always, cannot be ruled out. So we find force in the argument of the ld. AR, that in the aforesaid facts and circumstances and considering the previous year results too, the ad hoc disallowance was not warranted. So we direct deletion of the addition. We order accordingly. 8. In the result, the appeal of the assessee is allowed.
Order pronounced in open court on this 27th day of January, 2016.