What did the Tribunal hold?

The Tribunal held that disallowing 1% of freight charges was excessive. It was decided that a disallowance of 0.5% of total freight charges would be reasonable, ensuring a net profit of 3% of gross receipts, which is considered acceptable in the transport business.

The assessee claimed freight expenses of Rs. 5,58,61,380/- but could not provide details of vehicle numbers and payee. The Assessing Officer disallowed 1% of these charges, amounting to Rs. 5,58,614/-, considering the net profit too low and freight expenses excessive.

What were the issues?

Whether the disallowance of 1% of freight charges by the Assessing Officer and confirmed by the CIT(A) was justified, and if not, what would be a reasonable disallowance.

Smt. Ashalata Pani, Angul vs ITO | ITAT Cuttack 2017

Income Tax Appellate Tribunal, CUTTACK ‘SMC’ BENCH,

Before: SHRI N.S SAINI

For Appellant: Shri P.K.Mishra, AR

For Respondent: Shri D.K.Pradhan, DR

Pronounced: 05/01

This is an appeal filed by the assessee against the order of CIT(A)-2,

Bhubaneswar dated 23.8.2016 for the assessment year 2010-2011.

The only grievance of the assessee is that the ld CIT(A) erred in

confirming the order of the Assessing Officer in making addition of

Rs.5,58,614/- being 1% of freight charges of Rs.5,58,61,380/-.

2 IT A No. 393 /CT K/20 16 Asse ss ment Y ear :20 10- 201 1

I have heard the rival submissions and perused the orders of lower

authorities and materials available on record. In the instant case, the

Assessing Officer observed that the assessee has claimed freight expenses of

Rs.5,58,61,380/-. The assessee could not furnish the list of vehicle numbers

and freight charges. The ledger account produced shows only the total

amount paid towards freight charges on a particular date but does not have

the details of payee of freight charges. The net profit disclosed by the

assessee is around 2.69% of gross receipts which is too low in the line of

trade. Also, the expenditure claimed towards freight charges is considered

excessive. He, therefore, disallowed 1% of gross freight charges claimed

and debited to the profit and loss account and, thereby made an addition of

Rs.5,58,614/-.

On appeal before the ld CIT(A), the assessee argued that the

disallowance of one percentage is excessive and should be restricted to 0.5%.

Ld CIT(A) did not accept the contention of the assessee and confirmed the

action of the Assessing Officer.

Before me, ld A.R. reiterated the submission made before the ld CIT(A).

Ld D.R. relied on the order of the ld CIT(A).

In the above facts and circumstances of the case, I am of the considered

view that the Tribunal in many cases of many assesses in transport business

3 IT A No. 393 /CT K/20 16 Asse ss ment Y ear :20 10- 201 1

has held net profit @ 3% of gross receipts as reasonable. If transport

expenses claimed by the assessee is disallowed @ 0.5% of gross transport

expenses claimed by the assessee, then the net profit of the assessee from

transport business will work out at 3% will be quite reasonable. Therefore, the

disallowance made by the Assessing Officer out of freight charges is excessive

and it would meet the ends of justice if the same is restricted to 0.5% of the

total freight charges claimed by the assessee. I, therefore, modify the order

of ld CIT(A) to this extent and partly allow the ground of the appeal.

In the result, the appeal filed by the assessee is partly allowed. Order pronounced in the open court on 05/01/2017 in the presence of parties.

Sd/- (N.S Saini) ACCOUNTANT MEMBER Cuttack; Dated 05/01 /2017 B.K.Parida, SPS Copy of the Order forwarded to : 1. The Appellant : Smt. Ashalata Pani, Prop. Sairam Transport, At: Remuan, Po/Town: Talcher, Angul. 2. The Respondent. ITO, Ward-2, Dhenkanal 3. The CIT(A)-2, Bhubaneswar. 4. CIT, Bhubaneswar. 5. DR, ITAT, Cuttack 6. Guard file. //True Copy//

BY ORDER,

ASST.REGISTRAR, ITAT, Cuttack

SMT. ASHALATA PANI,ANGUL vs. ITO, WARD-2, DHENKANAL

What did the Tribunal hold?

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