Income Tax Appellate Tribunal - Ahmedabad
Sandeep R Kapoor, Vapi vs Department Of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH "A" AHMEDABAD
Before Shri D.K. Tyagi, Judicial Member and
Shri R.C. Sharma, Accountant Member
IT A No.989 & 1164/ Ahd/2009
Assessment Year:2005-06
Date of hearing:4.8.11 Drafted:4.8.11
Asstt. Commissioner of V/s. Shri Sandeep R Kapoor,
Incom e-tax, Vapi Circle, 8/91, Panchavati
Vapi Apartment, Vrindavan
Society, Thokharkhada,
Silvassa
Sandeep R Kapoor, V/s. Asstt. Commissioner of
Flat No.8/91, Panchvati Incom e-tax, Vapi Circle-
Apartment, b/h Dan Hotel, 1, Shivam Comm ercial
Vrindavan Societ y, Complex, National
Thokharkhada, Silvassa, Highwa y No.8, Vapi
P AN No. ADQPK9012K
(Appellant) .. (Respondent)
IT A No.990 & 1163/ Ahd/2009
Assessment Year: 2005-06
Asstt. Commissioner of V/s. Shri Sandeep R Kapoor,
Incom e-tax, Vapi Circle, HUF 8/91, Panchavati
Vapi Apartment, Vrindavan
Society, Thokharkhada,
Silvassa
Sandeep R Kapoor, (HUF) V/s. Asstt. Commissioner of
Flat No.8/91, Panchvati Incom e-tax, Vapi Circle-
Apartment, b/h Dan Hotel, 1, Shivam Comm ercial
Vrindavan Societ y, Complex, National
Thokharkhada, Silvassa, Highway No.8, Vapi
PAN No. AAFHK8140L
(Appellant) .. (Respondent)
ITA No.989-990 & 1163-1164/Ahd/2009 A.Y.2005-06
ACIT Vapi Cir v. Sh Sandeep R Kapoor & HUF Page 2
Assessee by :- Shri M.J. Shah, AR
Revenue by:- Shri S.K. Meena, SR-DR
Date of hearing : 4-8-2011
Date of pronouncement :26-8-2011
ORDER
PER R.C. Sharma, Accountant Member:-
These are cross-appeals filed by assessee and Revenue against the order of Commissioner of Income-tax(Appeals)-Vapi for the assessment year 2005-06, in the matter of order passed u/s.143(3) of the Income-tax Act, 1961 (hereinafter referred to as "the Act').
ITA No.899 & 1164/Ahd/2009.
2. Facts in brief are that assessee is engaged in the business of transportation as a proprietor of Sandeep Transport Services. While framing assessment u/s. 143(3) of the Act following additions/disallowances were made by the Assessing Officer:-
i) Diesel expenses Rs.13,95,072/-
ii) Unsecured Loans Rs.11,50,000/-
iii) Out of hire charges Rs.16,31,275/-
iv) Out of loading and unloading Rs. 86,340/-
v) Disallowance u/s.40(a)(ia) Rs.46,01,943/-
3. In an appeal filed before Ld. CIT (Appeals) additions made on account of unsecured loans and disallowance u/s.40(a)(ia) was confirmed by Ld. CIT(Appeals). In respect of additions made on account of diesel expenses, Ld. CIT (Appeals) has confirmed the addition to the extent of Rs.2 lakh and deleted the entire addition in respect of addition made on account of hire ITA No.989-990 & 1163-1164/Ahd/2009 A.Y.2005-06 ACIT Vapi Cir v. Sh Sandeep R Kapoor & HUF Page 3 charges. Against this order of Ld. CIT (Appeals) both assessee and Revenue are in further appeal before us.
4. We have considered the rival contentions and carefully gone through the orders of authorities below and find from record that assessee was in the business of transportation. During the year assessee had gross receipts of hire charges amounting to Rs.1.58 crores against which net profit of which Rs.8.11 lakh was shown. The entire hire charges was received from M/s JBF Industries. For providing transport services, the assessee was having his own three trucks, assessee also used to hire trucks from outside parties for deploying them to the said company M/s JBF Industries. The freight charges was received by the assessee as per the rate fixed per kg., destination-wise, whereas hire charges was paid to the transporters at the fixed rate truck-wise. In respect of payment made to the transporters, the Assessing Officer observed that assessee has provided diesel to the 12 transporters and also paid transport charges to them at the same rate as that of other transporters to whom no diesel was provided. To substantiate its claim of making payment of diesel provided to the transporters, the assessee has furnished confirmation of payment from these 12 parties. The AO observed that assessee could not furnish the details regarding number of trips made by 12 parties and the transport charges received against those trips from M/s JBF Industries. Out of total diesel expenditure of Rs.16.34 lakh, the AO disallowed diesel expenditure of Rs.13.95 lakh. By the impugned order Ld. CIT (Appeals) restricted disallowance to the extent of Rs.2 lakh by observing that AO has wrongly presumed that fixed rate of transportation charges is being paid by the assessee to various transporters without appreciating the fact that exigency of the situation and the time of hiring of trucks would be different in different situation. Ld. CIT (Appeals) also observed that transporters referred by the AO in his assessment order have already confirmed having received the payment as claimed by the assessee and if the AO had any doubt regarding payment to such transporters or that such payment was excessive, ITA No.989-990 & 1163-1164/Ahd/2009 A.Y.2005-06 ACIT Vapi Cir v. Sh Sandeep R Kapoor & HUF Page 4 the AO could have examined some of the transporters to verify the assessee's claim. It was also observed by Ld. CIT (Appeals) that addition was made by the AO without bringing any concrete material on record and therefore same is not sustainable. The finding recorded by Ld. CIT (Appeals) has not been controverted by Revenue by bringing any cogent material on record. Even with respect to addition of Rs.2 lakh sustained by Ld. CIT(Appeals), the contention of Ld. AR was that there is no justification nor any valid reason much less a cogent reason to sustain a lump sum disallowance of Rs.2 lakh, out of total diesel expenses. As per Ld. AR full details of expenditure incurred was filed before AO wherein no defect was pointed by AO nor it was the case of revenue that the transporters to whom payment was made were any how related to the Assessee. We also found that the written submission filed before Ld. CIT(Appeals) were also sent by him to the AO for his remand report vide letter dated 13-08-2008, however, uptill passing order by CIT (A) dated 12-01-2009, nothing came from the AO against the said submission. Ld. A.R. therefore contended that even ad hoc disallowance of Rs.2 lakh was not warranted. From the record we find that assessee had received transportation charges from M/s JBF Industries as per the rate fixed per kg, however payment was made at the fixed rate to the transporters, in some cases the assessee was also reimbursing the diesel consumed by the transporters and the payment was only made to them after deducting the amount of diesel supplied by them. It is not the case of AO that in addition to agreed price of transportation the assessee was also supplying diesel to the transporter. The value of diesel so supplied was deducted out of the total bills and the assessee was accordingly making the net payment only to the transporters. For transportation of goods at different destinations the assessee is required to take prudent business decision regarding price to be paid for the same and the manner in which payment is to be made. If part of payment is made by incurring cost of diesel and balance in cash/cheque, no fault can be found by revenue, unless the payment is to the concerns falling u/s. 40A(2) (b) and excessive payment is made. We therefore do not find any merit in the action ITA No.989-990 & 1163-1164/Ahd/2009 A.Y.2005-06 ACIT Vapi Cir v. Sh Sandeep R Kapoor & HUF Page 5 of AO for disallowing the expenses incurred in providing diesel as a part of payment to the transporter. We found that payment was wholly and exclusively for the purpose of assessee's business of transportation. It is not the case of AO that the transporters were related to the assessee or that excessive payment was made to the persons filing u/s.40A (2) (b). When the genuineness of expenditure is not in dispute and the same is found to have been incurred in course of carrying on business by an assessee in its capacity as a trader, no disallowance can be made unless such expenditure is either capital or of personal nature.
5. In the result, ground taken by Revenue is dismissed, whereas ground taken by assessee in this regard is allowed.
6. Next grievance of the assessee relates to disallowance of Rs.46,01,943/-by invoking provision of u/s.40(a) (ia) of the Act.
7. In this regard the Assessing Officer has observed that assessee has made payment of hire charges and also deducted tax at source on all such payments. However, TDS was not deposited in the government account within prescribed time. Accordingly entire amount was disallowed by the Assessing Officer and CIT (A) confirmed the action of Assessing Officer by observing that assessee was in fault in not depositing the TDS within the stipulated period.
8. At the outset Ld AR placed on record the order of the Tribunal in case of Aavkar Developers v. ITO in ITA No.3165 & 3085/Ahd/2009, order dated 17- 06-2011, wherein exactly similar issue was dealt with and it was held that amendment in Section 40(a)(ia) by the Finance Act, 2001 is remedial in nature and it was designed to eliminate unintended consequences which may cause undue hardship to the taxpayers and therefore this amendment would be ITA No.989-990 & 1163-1164/Ahd/2009 A.Y.2005-06 ACIT Vapi Cir v. Sh Sandeep R Kapoor & HUF Page 6 retrospective in nature and accordingly applicable to the assessment order under appeal, which was assessment order 2006-07.
9. We have considered rival contentions and also gone through the order of the Tribunal referred by Ld. A.R. We found that in the instant case disallowance has been made by Assessing Officer only on the plea that payment of TDS was not made to the credit to the government account within the prescribed time i.e. on or before 07-04-2005. The contention of Ld. AR was that payment was made before last date of filing return, therefore amendment made u/s.40(a)(ia) to the effect that if the payment of TDS made before last date of filing return, no disallowance can be made u/s.40(a)(ia) of the Act. Amendment brought in Section 40(a)(ia) by the Finance Act, 2010 has been elaborately discussed by Tribunal in the case of Shri KanubhaiRamjibhai v. ITO in ITA No.3983/Ahd/2008, order dated 03-12-2010, it was held that amendment brought out in u/s.40(a)(ia) by Finance Act, 2010 was declaratory and clarificatory in nature. Thus it is designed to eliminate unintended consequences which may cause undue hardship to the taxpayer and which made the provision un-workable or unjust in a specific situation, therefore has to be treated as retrospective with effect from 01-04-2005 that on the date on which Section 40(a)(ia) has been inserted by the Finance Act No.2 in 2004. Following was the precise observation of the Bench:-
"9. Now the question arises is, whether the amendment brought out by the Finance Act, 2010 w.e.f 1-4-2010 in Section 40(a)(ia) of the Act is clarificatory in nature or not. To decide this issue, now we have to go to the history of the provisions of Section 40(a)(ia), which was substituted for sub-clause-i by Finance (No. 2) Act, 2004 w.e.f. 1-4-2005 as under:
"Amount not deductible.
40. Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head "Profits and gains of business or professions', -
(a) ......
ITA No.989-990 & 1163-1164/Ahd/2009 A.Y.2005-06 ACIT Vapi Cir v. Sh Sandeep R Kapoor & HUF Page 7 (ia) any interest, commission or brokerage, fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid during the previous year, or in the subsequent year before the expiry of the time prescribed under subsection (1) of section 200:
Provided that where in respect of any such sum, tax has been deducted in any subsequent year or, has been deducted in the previous year but paid in any subsequent year after the expiry of the time prescribed under sub-section (1) of section 200, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid.
Explanation:- For the purposes of this sub-clause:
(i) "commission or brokerage" shall have the same meaning as in clause ) of the explanation to section 194H;
(ii) "fees for technical services" shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (11) of section 9;
(iii) "professional services" shall have the same meaning as in clause (a) of the explanation to section 194J;
(iv) "work" shall have the same meaning as in explanation-Ill to section 194C;"
Subsequently, in sub-clause (ia) the words, (rent and royalty) has been inserted by the Taxation Laws (Amendment) Act, 2006 w.r.e.f. 1-4-2006 and similarly in Explanation sub-clause (v) & (vi) were inserted as under:
"(v) "rent" shall have the same meaning as in clause ) to the explanation to section 194-1;
ITA No.989-990 & 1163-1164/Ahd/2009 A.Y.2005-06 ACIT Vapi Cir v. Sh Sandeep R Kapoor & HUF Page 8
(vi) "royalty" shall have the same meaning as in explanation 2 to clause (vi) of sub-section (1) of section 9;"
Further, by the Finance Act, 2008, the quoted words were substituted in sub-clause (ia) w.r.e.f. 1-4-2005 as under:
"has not been paid --
(A) in a case where the tax was deductible and was so deducted during the last month of the previous year, on or before the due date specified in sub-section (1) of section 139: or (B) in any other case, on or before the lat day of the previous year"
And finally by the Finance Act, 2010 w.e.f. 1-4-2010 sub-clause (ia) is as under
:
(ia) any interest, commission or brokerage, rent royalty, fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid on or before the due date specified in sub-section (1) of Section 139:
10. We find from the above provision of Section 40(a)(ia) of the Act, amended by Finance Act, 2010, that the payment of expenses as specified in this provision, on which tax is deductible at source under Chapter XVII-B of the Act and the assessee has not deducted the tax or after deduction has not been paid on or before the due date specified in Section 139(1) of the Act, will be disallowed while computing the income chargeable under the Head 'profits and gains of business or profession'. It means that the tax so deductible at source has been deducted and paid on or before the due date specified in Section 139(1) of the Act, the expenses related to the same will be allowed while computing the income chargeable under the Head 'profits and gains of business ITA No.989-990 & 1163-1164/Ahd/2009 A.Y.2005-06 ACIT Vapi Cir v. Sh Sandeep R Kapoor & HUF Page 9 or profession'. Prior to its amendment, this Section was amended by the Finance Act, 2008, w.r.e.f. 1-4-2005 where the provision was made to disallow the payments on which tax is deductible at source and such tax has not been deducted or after deduction has not been paid:
(A) in a case where the tax was deductible and was so deducted during the last month of the previous year, on or before the due date specified in sub-section (1) of section 139; or (B) in any other case, on or before the last day of the previous years.
From the above amendments in this provision of Section 40(a)(ia) of the Act it is clear that the intention of the Legislature is to operates retrospectively to serve its object of removing hardship faced by the taxpayers. While bringing this amendment by Finance Bill, 2010, the object was explained in Notes On Clauses and the relevant Clause-12 was explained as under:
"Clause 12 of the Bill seeks to amend section 40 of the Income-tax Act relating to amounts not deductible. Under the existing provisions contained in sub-clause (ia) of clause (a) of the aforesaid section, non-deduction of tax or non-payment of tax after deduction on payment of any sum by way of interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services payable to a resident or amounts payable to a contractor or sub-contractor, being resident, results in the disallowance of the said sum, in the computation of income of the payer, on which tax is required to be deducted under Chapter XVII-B. The proviso to the said sub-clause provides that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the last month of the previous year but paid after the due date of filing of return or deducted during any other month of the previous year but paid after the end of the said previous year, such sum shall be allowed as a deduction in computing ITA No.989-990 & 1163-1164/Ahd/2009 A.Y.2005-06 ACIT Vapi Cir v. Sh Sandeep R Kapoor & HUF Page 10 the income of the previous year in which such tax has been paid."
Further the Amendment was explained in Memorandum Explaining the provision in Finance Bill, 2010 as under:
Disallowance expenditure on account of non-compliance with TDS provisions, "The existing provisions of section 40(a)(ia) of the Income-tax Act provide for the disallowance of expenditure like interest, commission,, brokerage, professional fees, etc. if tax on such expenditure was not deducted, or after deduction was not paid during the previous year. However, in case the deduction of tax is made during the last month of the previous year, no disallowance is made if the tax is deposited on or before the due date of filing of return.
It is proposed to amend the said section to provide that no disallowance will be made if after deduction of tax during the previous year, the same has been paid on or before the due date of filing of return of income specified in subsection(1) of section 139.
This amendment is proposed to take effect retrospectively from 1st April, 2010 and will, accordingly, apply in relation to the assessment year 2010-11 and subsequent years."
11. In view of the above amendments brought out in Section 40(a)(ia) on different times to remove the difficulties of taxpayers a remedial steps were taken by the Legislature. We are of the view that for modern purposes a declaratory amendment in Section of the Act may be defined as an amendment to remove doubts existing as to the meaning or effect of any statute and such amendments are usually held to be retrospective. An explanatory Act is generally passed to supply an obvious omission or to clear up doubts as to the meaning of the previous Act and this view has been held in Keshavlal Jethalal Shah v. Mohanalal Bhagwandas, AIR 1968 SC 1336, 1339]. Further Hon'ble apex court in the case of CIT v. Podar Cement Pvt. Ltd., (1997) 226 ITR 625, 652 (SC) ITA No.989-990 & 1163-1164/Ahd/2009 A.Y.2005-06 ACIT Vapi Cir v. Sh Sandeep R Kapoor & HUF Page 11 settled that if a statute is curative or merely declaratory of the previous law retrospective operation is generally intended. Further more in similar circumstances, Hon'ble apex court in the case of Allied Motors (P). Ltd. v CIT (1977) 224 ITR 677,687 (SC) held that the amendment will not serve its object in such a situation unless it is construed as retrospective. The Hon'ble apex court held as under:
"The departmental understanding also appears to be that section 43B, the proviso and Explanation 2 have to be read together as expressing the true intention of section 43B. Explanation 2 has been expressly made retrospective. The first proviso, however, cannot be isolated from Explanation 2 and the main body of section 43B. Without the first proviso, Explanation 2 would not obviate the hardship or the unintended consequences of section 43B. The proviso supplies n obvious, omission. But for this proviso the ambit of section 43B becomes unduly wide bringing within its scope those payments, which were not intended to be prohibited from the category of permissible deductions.
In the case of Goodyear India Ltd. v. State of Haryana (1991) 188 ITR 402, this court said that the rule of reasonable construction must be applied while construing a statute. A Literal construction should be avoided if it defeats the manifest object and purpose of the Act.
Therefore, in the well known words of Judge Learned Hand, one cannot make a fortress out of the dictionary; and should remember that statutes have some purpose and object to accomplish whose sympathetic and imaginative discovery is the surest guide to their meaning. In the case of R.B. Jodha Mal Kuthiala v. CIT (1971) 82 ITR 570, this court said that one should apply the rule of reasonable interpretation. A proviso which is inserted to remedy unintended consequences and to make the provision workable, a proviso which supplies an obvious omission in the section and is required to be read into the section to give the section a reasonable interpretation, requires to be treated as retrospective in operation, so that a reasonable interpretation can be given to the section as a whole.
ITA No.989-990 & 1163-1164/Ahd/2009 A.Y.2005-06 ACIT Vapi Cir v. Sh Sandeep R Kapoor & HUF Page 12
This view has been accepted by a number of High Courts. In the case of CIT v. Chandulal Venichand (1984) 209 ITR 7, the Gujarat High Court has held that the first proviso to section 43B is retrospective and sales tax for the last quarter paid before the filing of the return for the assessment year is deductible. This decision deals with assessment year 1984-
85. The Calcutta High Court in the case of CIT v. Sri Jagannath Steel Corporation (1991) 191 ITR 676, has taken a similar view holding that the statutory liability for sales tax actually discharged after the expiry of the accounting year in compliance with the relevant statute is entitled to deduction under section 43B. The High Court has held the amendment to be clarificatory and, therefore, retrospective. The Gujarat High Court in the above case held the amendment to be curative and explanatory and hence retrospective. The Patna High Court has also held the amendment inserting the first provisos to be explanatory in the case of Jamshedpur Motor Accessories Stores v.
Union of India (1991) 189 ITR 70. It has held the amendment inserting first proviso to be retrospective. The special leave petition from this decision of the Patna High Court was dismissed (see [1991] 191 ITR (St.) 8). The view of the Delhi High Court, therefore, that the first proviso to section 43B will be available only prospectively does not appear to be correct. As observed by G. P. Singh in his Principles of Statutory Interpretation, 43B will be available only prospectively does not appear to be correct. As observed by G. P. Singh in his Principles of Statutory Interpretation, 4th Edn., page 291. "It is well settled that if a statute is curative or merely declaratory of the previous law, retrospective operation is generally intended." In act the amendment would not serve its subject in such a situation, unless it is construed as retrospective. The view, therefore, taken by the Delhi High Court cannot be sustained."
12. Accordingly, we are of the view that the Amendments brought out in Section 40(a)(ia) of the Act from time-to-time was clarificatory and when an amendment is declaratory and clarificatory in nature, the presumption against its retrospectivity is not applicable and amendments of this kind only declare. It is no doubt true that, ordinarily, a statute, and particularly when the same has been made applicable with effect from a particular date ITA No.989-990 & 1163-1164/Ahd/2009 A.Y.2005-06 ACIT Vapi Cir v. Sh Sandeep R Kapoor & HUF Page 13 should be construed prospectively and not retrospectively. But this principle will not be applicable in a case where the provision construed is merely explanatory, clarificatory or declaratory it cannot be disputed that the object of the Explanation is to explain the meaning and intendment of the Act itself and this view has been hold by Ho'ble Calcutta High Court in the case of CIT v. India Steamship Co. Ltd. (1992) 196 ITR 917, 936 (Cal)]. In that case, Explanation 8, which has newly been inserted by the Finance Act, 1986, with retrospective effect from 1st April, 1974, to section 43(1), has been held to be clarificatory in nature and the same has been held to be deemed to be always in existence even before 1-4-1974. Similarly, in the case of Allied Motors (P) Ltd (supra), it has been held that the provisions of the first proviso, which has newly been inserted by the Finance Act, 1987, with effect from 1st April, 1988 to section 43B is remedial in nature, designed to eliminate unintended consequences which may cause undue hardship to the assessee and which made the provision unworkable or unjust in a specific situation, and is of clarificatory nature and, therefore, has to be treated as retrospective with effect from 1st April, 1984, the date on which section 43B has newly been inserted by the Finance Act, 1983. In taking this view, the Supreme Court has approved Jamshedpur Motor Accessories Stores v. Union of India [(1991) 189 ITR 70 (Pat), special leave petition dismissed by the Supreme Court : (1991) 191 ITR (St.) 8 (SC)], CIT v. Sri Jagannath Steel Corporation [(1991) 191 ITR 676 (Cal)], and CIT v. Chandulal Venichand [(1992) 197 ITR 718, 720 (Cal)] and CIT v. Pyarilal Kasam Manji & Co. [(1992) 198 IGTR 110 (On)].
13. In view of the above discussion, following the case laws of Hon'ble apex court and of Hon'ble High Courts cited above, we are of the view that the provisions of Section 40(a)(ia) as amended by the Finance Act, 2010 w.e.f 1-4-2010, which has newly been inserted by the Finance (No.2) Act, 2004, with effect from 1st April, 2005 to section 40 of the Act is remedial in nature, designed to eliminate unintended consequences which may cause undue hardship to the taxpayers and which made the provision unworkable or unjust in a specific situation, and is of clarificatory nature and, therefore, has to be treated as retrospective with effect from 1st April, 2005, the date on which section 40(a)(ia) has been inserted by the Finance (No.2) Act, 2004. Accordingly, this issue of the assessee's appeal is allowed."
ITA No.989-990 & 1163-1164/Ahd/2009 A.Y.2005-06 ACIT Vapi Cir v. Sh Sandeep R Kapoor & HUF Page 14
10. In view of above decision, we direct the Assessing Officer to verify the actual date of payment of TDS and where the amount of TDS is found to be deposited before due date of filing of return, no disallowance is warranted u/s.40(a)(ia). However, in respect of items, where no TDS was deducted or after deduction the same is not deposited before the due date of filing of return of income, the disallowance would be sustained. We direct accordingly. Needless to say that Assessing Officer will adjudicate the issue after giving adequate opportunity of being heard to the assessee, in the light of our above direction.
11. Next grievance of the revenue relates addition of Rs.16,31,275/- out of hire charges. In this regard the Assessing Officer observed that assessee has received hire charges from M/s JBF Industries on the basis of rates so fixed whereas assessee in turn was paying same rate to all transporters except in a few cases. The Assessing Officer further observed that assessee was not paying more than 60% of the hire charges received from M/s JBF Industries to the transporters in respect of particular trip and therefore the claim of hire charges debited to the profit & loss account of the assessee was not accepted. The AO estimated the billing amount of Rs.10 lakh on account of assessee's own trucks, he concluded that the receipt on account of transportation charges on the hired trucks would be Rs.1,48,89,953/- 60% of which was calculated by the AO as assessee's expenditure on hire charges which worked out at Rs.89,33,972/-. Thus against the amount expenditure of Rs.1,05,65,247/- claimed by the assessee, the AO disallowed a sum of Rs.16,31,275/- ( Rs.1,05,65,244 - Rs.89,39,972/-).
12. By the impugned order the Ld. CIT(Appeals) deleted the addition after having the addition the following observation:-
"I have considered the submissions and find that the AO has presumed that in all cases of hiring of the trucks by the appellant, conditions would be the same and there would be no difference between a truck being hired at different points of time or different days or weather conditions or ITA No.989-990 & 1163-1164/Ahd/2009 A.Y.2005-06 ACIT Vapi Cir v. Sh Sandeep R Kapoor & HUF Page 15 emergencies. The estimation of 60% of the total hire charges being passed on to the transporters is without appreciating the appellant's submission that in quite a few cases, the appellant was incurring expenditure by supplying diesel to these parties also which has been admitted by the AO also in the earlier part of his order. It is also a fact that the payment have been made by the appellant to the transporters through banking channels and no defects have been found in the books of accounts to warrant any such disallowance. Further as already decided in earlier part of this order, there is no justification of estimating appellant's receipt in respect of his own trucks at Rs.10 lacs. The entire disallowance has been made on the basis of conjectures and surmises and is directed to be deleted."
13. The Revenue is in further appeal before us against the above order of Ld. CIT (Appeals).
14. We have considered rival contentions and deliberated on the case laws cited by the Ld. A.R., in the context of factual matrix of the case. From the record we found that AO has without indicating any basis estimated receipt in respect of assessee's own trucks. The Assessing Officer without referring any material also estimated 60% expenditure against the transportation charges received by assessee. However, nowhere the AO has doubted the genuineness of actual expenditure of Rs.1,05,65,247/- incurred on hiring of trucks. The payment of hire charges was as per the market conditions and for providing timely services to the customers. It is for the assessee to decide as to price which is to be paid to the transporters while hiring the trucks. If the supply of the trucks in the market is in scarcity, the assessee may be required to pay more price for the same trip for which he has hired the truck on lower price on some different occasions. In this regard, the proposition of law as laid down by the Hon'ble Supreme Court in case CIT v. Walchand And Co. Pvt. Ltd. (1967) 65 ITR 381 (SC) is very relevant, wherein it was held that while applying the test of commercial expediency for determining whether an expenditure was wholly and exclusively laid out for the purpose of business, reasonableness of the expenditure has to be adjudged from the point of view of the businessman and not of the revenue. In the instant case, it is not the ITA No.989-990 & 1163-1164/Ahd/2009 A.Y.2005-06 ACIT Vapi Cir v. Sh Sandeep R Kapoor & HUF Page 16 case of AO that trucks hired from the market were related to the concerns falling u/s. 40A (2)(b) nor it was the case of the A.O. that excessive or unreasonable payment was made by assessee Addition was made by AO purely on the basis of probabilities and without considering the commercial exigencies of business where the requirement to meet commitment of service results in different purpose. Genuineness of expenditure actually incurred on transportation is not in doubt and the same have been incurred in course of assessee's business of transportation. As the expenditure was incurred wholly and exclusively for the purpose of assessee's business no disallowance was warranted. The finding recorded by CIT (A) while deleting the disallowance was as per material on record therefore do not warrant any interference.
15. In view of the above discussion we do not find any infirmity in the order of Ld. CIT (Appeals) for deleting the disallowance made on account of hire charges paid to the transporters and are inclined to agree with Ld. A.R. that estimation of expenditure by AO was devoid of any merits.
16. Next grievance of the assessee relates to addition of Rs.11.50 lakh on account of unsecured loans. In this regard the Assessing Officer has observed that assessee has not filed any loan confirmation in respect of loan taken from Dipak Polytex and S.S. Transport for the amount of Rs.10 lakh and Rs.1.05 lakh respectively.
17. Before Ld. CIT(Appeals) the assessee has furnished confirmation letter from the said parties, however, the Ld. CIT(Appeals) did not admit the same and confirmed the addition made by Assessing Officer. During the course of hearing before us Ld. AR drawn our attention to the bank statement placed on record indicating clearing cheque of Rs.10 lakh, copy of confirmation letter from Dipak Polytex along with reconciliation statement supporting the unsecured loans taken by the assessee. Since all these evidences goes to the ITA No.989-990 & 1163-1164/Ahd/2009 A.Y.2005-06 ACIT Vapi Cir v. Sh Sandeep R Kapoor & HUF Page 17 root of the issue require detailed examination at the part of AO. As the AO has not examined all these evidences, in the interest of natural justice we restore this matter back to the file of Assessing Officer for deciding afresh after verifying the confirmation and other documents placed on record. We direct accordingly. In respect of loan of S.S. Transports, it was submitted by Ld. AR that this amount was offered for taxation in the A.Y. 2007-08 under the head "other income". Therefore no addition is warranted otherwise it would result in double taxation of the same amount. In the interest of justice, issue with regard to addition of Rs.1.05 lakh alleged to have been received from S.S. Transport and which has been offered for taxation in the A.Y 2007-08 is also restored back to the file of Assessing Officer for deciding afresh after verifying all the facts and documents as placed on record by the assessee. We direct accordingly.
18. The assessee is also aggrieved for disallowance of Rs.86,340/- being 10% of loading and unloading charges for want of proper vouchers. The observation of the lower authorities to the effect that expenditure on account of loading charges were not properly vouchered has not been controverted by Ld. AR. We are therefore inclined to sustain the addition of Rs.86,340/- made by Assessing Officer and confirmed by CIT (A)..
19. In the result appeal of Revenue is dismissed, whereas appeal of the assessee is allowed in part in terms indicated hear-in-above.
I.T.A. No. 990 & 1163/AHD/2009.
20. In the appeal filed by the Revenue vide ITA No.990/Ahd/2009, the grounds have been taken with regard to deleting addition of Rs. 2,48,840/- on account of excess diesel expenses and deleting addition of Rs. 14,35,919/- being the disallowance on account of excess hire charges paid to the ITA No.989-990 & 1163-1164/Ahd/2009 A.Y.2005-06 ACIT Vapi Cir v. Sh Sandeep R Kapoor & HUF Page 18 transporters. As the facts and circumstances are similar, following the reasoning discussed by us hereinabove in ITA No.989 & ITA.1164/AHD/2009, in the case of Shri Sandeep R. Kapoor, we dismiss both the grounds raised by the Revenue.
21. In the result, appeal of the Revenue is dismissed.
22. In the appeal filed by the assessee ground has been taken for not disposing the ground by the CIT (A) with regard to addition of Rs.4,20,000/- made by way of unrecorded transportation income. From the record we find that specific ground was taken before the CIT (A) but he has not adjudicated the same. In the interest of justice we restore this ground back to the file of the CIT (A) for deciding afresh as per law, after giving due opportunity to the assessee to substantiate its claim. We direct accordingly.
23. The assessee is also aggrieved for confirming the addition of Rs.1 lac out of unsecured loans. We have gone through the orders of the authorities below and find that addition was made in respect of loan from Dipak Polytex on the ground that confirmation was not filed. The appellant furnished confirmation letter from the said party before the CIT (A).. However, CIT(A) has declined to accept the confirmation and confirmed AO's action. As the confirmation filed by the assessee goes to the root of the issue for determining the genuineness of the transaction, accordingly this ground is also restored back to the file of the CIT (A) for deciding afresh as per law.
24. Last grievance of the assessee relates to the disallowing loading and unloading expenses of Rs. 38,588/-. The issue has already been considered in the case of ITAA No.989/AHD/2009, hereinabove, respectfully following the same, we confirm the addition of Rs.38,588/-..
ITA No.989-990 & 1163-1164/Ahd/2009 A.Y.2005-06 ACIT Vapi Cir v. Sh Sandeep R Kapoor & HUF Page 19
25. In the result, appeals of the revenue are dismissed, whereas appeal of assessee is allowed in part, in terms indicated hereinabove.
Order pronounced in Open Court on 26 - 08 - 2011
Sd/- Sd/-
(D.K. Tyagi) (R.C. Sharma)
(Judicial Member) (Accountant Member)
Ahmedabad,
Dated : 26 /08/2011
*Dkp
Copy of the Order forwarded to:-
1. The Appellant.
2. The Respondent.
3. The CIT(Appeals)- Valsad
4. The CIT concerns.
5. The DR, ITAT, Ahmedabad
6. Guard File.
BY ORDER,
Deputy/Asstt.Registrar
ITAT, Ahmedabad