Income Tax Appellate Tribunal - Cuttack
Acit, Circle-1(1), Cuttack, Cuttack vs Maa Tarini Transport Pvt. Ltd., Jajpur on 16 January, 2020
आयकर अपीऱीय अधिकरण, कटक न्यायपीठ,कटक
IN THE INCOME TAX APPELLATE TRIBUNAL CUTTACK BENCH CUTTACK
BEFORE SHRI C.M. GARG, JM & SHRI L.P. SAHU, AM
आयकर अपीऱ सं./ITA No.324/CTK/2014
(नििाारण वषा / Assessment Year :2010-2011)
M/s Maa Tarini Transport Pvt Vs. ACIT, Circle-1(1), Cuttack
Ltd.,
At-Kanchipur, PO-Jajpur Road,
District-Jajpur-755019
स्थायी लेखा सं ./ PANNo. : AAFCM 0416 L
AND
आयकर अपीऱ सं./ITA No.326/CTK/2014
(नििाारण वषा / Assessment Year :2010-2011)
ACIT, Circle-1(1), Cuttack Vs. M/s Maa Tarini Transport
Pvt Ltd.,
At-Kanchipur, PO-Jajpur
Road,
District-Jajpur-755019
स्थायी लेखा सं ./ PANNo. : AAFCM 0416 L
(अऩीलाथी /Appellant) .. (प्रत्यथी / Respondent)
ननधाारिती की ओर से /Assessee by : Shri P.R.Mohanty, Advocate
िाजस्व की ओर से /Revenue by : Shri Saad Kidwai, CIT-DR
सुनवाई की तािीख / Date of Hearing : 09/01/2020
घोषणा की तािीख/Date of Pronouncement : 16/01/2020
आदे श / O R D E R
Per L.P.Sahu, AM:
ITA No.324/CTK/2014 has been filed by the assessee and ITA
No.326/CTK/2014 has been filed by the Revenue against the order of CIT(A), Cuttack, both dated 13.05.2014 for assessment year 2010- 2011.
2
ITA Nos.324&326/CTK/2014
2. The assessee in its appeal (ITA No.324/CTK/2014) has raised the following grounds :-
1. That, the order passed by the learned C1T(A), Cuttack is highly arbitrary, without any basis, without proper application of mind, contrary to weight of evidence, beyond jurisdiction and ought to be quashed at once.
2. That the learned CIT(A) has erred in law and facts in restricting the addition to Rs. 50 Lakhs without taking into consideration the nature and trend of business being quite contrary to weight of evidence, beyond jurisdiction and ought to be deleted.
3. That the learned CIT(A) has erred in law and facts in confirming the disallowance of directors salary of Rs.1 crore without considering her involvement and experience into consideration is highly illegal, arbitrary, excessive, contrary to weight of evidence and therefore is liable to be deleted.
4. That other grounds of appeal, if any, shall be pressed for having at the time of the appeal.
3. The Revenue in its appeal (ITA No.326/CTK/2014) has raised the following grounds :-
01. In the facts and circumstances of the case, whether the Ld. CIT (A) is justified in restricting the transportation charges of Rs 8,88,88,082/- to Rs 50,00,000/- without properly appreciating the facts of the case.
02. The appellant craves leave to add, alter, amend one or more grounds of appeal before the appeal is heard.
4. On perusal of the grounds of appeal in both the appeals of assessee and Revenue, we find that the ground Nos.1 & 4 in the appeal of the assessee and ground No.2 in the appeal of the Revenue are general in nature, therefore, do not require for adjudication. And ground No.2 in the appeal of the assessee and ground No.1 in the 3 ITA Nos.324&326/CTK/2014 appeal of the Revenue are linked with each other, therefore, we decide this issue in a consolidated manner.
5. Brief facts of the case are that the assessee company was deriving income from Transportation loading & unloading of iron ores under the name & style as M/s Maa Tarini Transport Pvt. Ltd. Return of income of the assessee was filed on 26.09.2010 declaring total income at Rs.1,37,28,500/- on total gross turnover of Rs.55,54,05,354/-. The case of the assessee was selected for scrutiny and statutory notices were issued to the assessee. During the course of assessment proceedings, it was noticed by the AO that the assessee has debited a sum of Rs.44,44,40,408/- under the head transportation payments in his profit and loss account. Accordingly, the AO issued questionnaire on 9.11.2012 asking the assessee to file details of transportation payments in the following formats :-
Sl.No Name & PAN of the Date of Amount Mode of Registration of Address of party, if any payment paid payment the trucks the party to against which whom payment made payment made 1 2 3 4 5 6 7 In response to the above query, the assessee did not file any details, therefore, the AO recorded his findings in this regard, are as under :-
The AR of the assessee has not been able to furnish the details as per the above table and has submitted the ledger copy of the details of transportation charges paid. However, the verification which was intended to be carried out by calling for the information as per the above table cannot be carried out on the basis of test check of the books of account. The assessee could not compile the information even after 4 ITA Nos.324&326/CTK/2014 being given almost a four month's time. In the absence of the required details, the genuineness of the transportation payments of a substantial amount as high as Rs.44,44,40,408/- cannot be subjected to scrutiny and examination.
Moreover in the ledger account of 'transportation charges' on each and every payments the following language has been used by the assessee company for each and every entry made in the total ledger.
"being the expenses incurred towards transportation payment of different truck owners"
For all these reasons, the claim of transportation expenses cannot be considered to be fully genuine. Keeping in view that the required details and particulars which could have enabled the Assessing Officer to verify the genuineness of the expenses under this head have not been filed, a disallowance @20% on total transportation charges paid at Rs.44,44,40,408/- which comes to Rs.8,88,88,082/-and the same is added back to the total income of the assessee.
Penalty u/s.271(1) ( c) is initiated.
Addition: Rs.8,88,88,082/-
Further, the AO noticed that the assessee had debited director's remuneration of Rs.3 crores in the profit and loss account. In this context the AO sought details from the assessee and the assessee submitted reply out of which the AO noticed that the there were two directors in the company, who are husband and wife, namely, (i) Srimanta Kumar Tripathy, (holding 93% of shares) and (ii) Anusuya Tripathy, (holding 7% shares of the company). Srimanta Kumar Tripathy was paid Rs.2 crores and Smt. Anusuya Tripathy was pad balance of Rs.1 crore as director remuneration and other details were also sought by the AO regarding their services rendered by Smt. Anusuya Tripathy. After considering the submissions of the assessee the AO noticed that the remuneration paid to Smt. Anusuya Tripathy was excessive due to non-substantiating by the ld.AR of the assessee 5 ITA Nos.324&326/CTK/2014 that any services has been rendered by the director Smt. Anusuya Tripathy to M/s Maa Tarini Pvt. Ltd. Thereafter the AO after referring the relevant provisions of the Income Tax Act, he disallowed the entire remuneration paid to the directors and made addition of Rs.1 crore in the hands of the assessee.
6. Feeling aggrieved from the assessment order, the assessee appealed before the ld. CIT(A). The CIT(A) after considering the submissions of the assessee and comparing to the previous years data and business carried on by the assessee from several years restricting to Rs.50 lakhs addition in respect of transactions charges disallowed by the AO. Further in respect of director's remuneration the CIT(A) after considering the submissions of the assessee and relying some case laws, he upheld the action of the AO.
7. In respect of ground No.1 of the assessee and ground No.2 of the Revenue, ld. AR of the assessee reiterated the submissions made before the lower authorities and submitted that the CIT(A) was not justified to restricting the addition to Rs.50 lakhs, he should have been allowed completely to the transportation charges in the hands of the assessee.
He also submitted that if the transportation charges has been disallowed then corresponding revenue should have also been disallowed by the revenue authorities and he further submitted that in the transportation business many judicial forum has rendered decision 6 ITA Nos.324&326/CTK/2014 that 1% profit is sufficient in the business of transportation. The facts of the case are remained same as compared to the previous years and no any new business has been undertaken by the assessee. The rate of profitability from the previous years are increasing which is evident from the table quoted by the CIT(A) at page 3. Further in respect of ground No.3 of assessee's appeal, he submitted that he produced the comparative charge regarding director's remuneration paid in previous two financial years, which is as under :-
Director Remuneration F.Y. Srimanta Ku. Anusaya Total Amount Tripathy Tripathy 2007-08 6000000.00 1200000.00 7200000.00 2008-09 14400000.00 4800000.00 19200000.00 2009-10 20000000.00 10000000.00 30000000.00 It was also submitted by the ld. AR of the assessee that both the husband and wife were engaged in the day-to-day business of the assessee and the business can be carried on from anywhere. He also submitted that business of the assessee has been closed down, therefore, it is difficult for submissions of documents. The ld. AR submitted that the assessee has paid due taxes on the remuneration received by her. In support of his arguments, ld. AR relied on some case laws, which read as under:-
i) Expo Mechanique P. Ltd., ITA Nos.243 & 3376/Del/2009, order dated 21.04.2011;7
ITA Nos.324&326/CTK/2014
ii) M/s Patel Alloy Steel Pvt. Ltd., ITA Nos.1961/Ahd/2012 & CO No.210/Ahd/2012, order dated 08.04.2016; and
ii) M/s Patel Alloy Steel (P) Ltd., ITA No.2817/Ahd/2016, order dated 19.04.2018
8. In respect of transportation charges, ld. DR submitted that the CIT(A) was not justified to restrict the addition made by the AO upto Rs.50 lakhs. He should have been upheld the action of AO. The assessee was unable to provide the details as desired by the AO in a specified form, which could be necessary to examine the genuineness of the transportation expenditures debited by the assessee. Even the assessee could not produce the complete vouchers so that the expenditure can be verified by the AO. Ld. DR further submitted that the contention of ld. AR that if expenditure has been disallowed therefore, the corresponding revenue should also be reduced from the turnover, this argument of the ld. AR is not suitable because the assessee has made payment in cash and/or through bank and looking to the huge quantum of expenses debited by the assessee. The assessee has also paid in cash to the transporters, therefore, the leakage of revenue cannot be denied. The CIT(A) without giving any reasonable findings, restricted the additions. The assessee company has formed on 29.03.2007 i.e. this is the third year of the business . Therefore, the order of the AO should be restored. Although many judicial forums have accepted 1% in many cases, however, the facts and circumstances 8 ITA Nos.324&326/CTK/2014 of every case is different, therefore, ld.AR's submission in this regard is not applicable. It is important to note that the ld. AR of the assessee has also not furnished any details. In respect of ground No.3 in the assessee's appeal, the ld. DR relied on the orders of lower authorities and submitted that before the AO the assessee could not substantiate the nature of services rendered by her to the company and the company has paid amount to the director Smt. Anusaya Tripathy towards director's remuneration. The remuneration has been paid in previous years was in the ratio of 5:1 & 3:1 in the previous two financial years whereas the impugned year's ratio is 2:1 between both the directors. Ld. AR of the assessee also could not prove that these previous years the case was under scrutiny or not. Therefore, he requested to remand the matter back to the file of AO for substantiating the reasonableness of the director's remuneration to Smt. Anusaya Tripathy in lieu of their services rendered. In the facts and circumstances of the case, the case laws relied on by the ld. AR is not applicable in the present facts of the case.
9. After hearing both the sides and perusing the entire material available on record and the orders of authorities below, in respect of ground No.2 of the assessee and the ground no.1 of the revenue's appeal, it is clear from the order of the AO that the assessee did not furnish the details required by the AO to examine the veracity of the 9 ITA Nos.324&326/CTK/2014 expenses debited into the profit and loss account and paid to the respective parties in lieu of their services rendered. On perusal of the order of CIT(A), the CIT(A) has decided the issue as under :-
Reasons for the Decision I have carefully perused the finding of the AO, his decision and the contention of the appellant. The turnover of the appellant from the transportation contract work is Rs.55,45,02,059/- for the impugned year whereas the same for the preceding year is Rs.75,46,18,063/-. As against the same the transportation and reck loading and handling charges shown by the appellant have been Rs.44,44,40,408/- and Rs.64,80,39,614/- respectively. The appellant had produced audit reports including schedules of all the expenditure. During the course of appeal the appellant submitted that the claim of transportation charges as percentage of gross turnover remains almost the same over years. It is a fact that the appellant could not produce the details as per the requirement of the AO. During appeal hearing it submitted that for huge transportation expenses as above for the appellant company it is highly time consuming to tabulate the data as per the requirement of the AO.
In absence of the details called for by the AO, the AO felt that he did not have any scope to verify the actual expenditure under the head transportation and handling charges etc. But since the appellant has been for several years into the transportation business with huge turnover and that it has to hire a number of vehicles from the open market, it would not be fair to disallow 20% of the transportation charges etc. claimed by the appellant. I therefore restrict this addition to Rs.50,00,000/-. The AO is directed accordingly.
10. From the above order, it is clear that the CIT(A) has decided the issue in casual manner without discussing in details. We observe from the order of the AO that the assessee has not supplied information to the AO in the desired formant which would enable the AO for completing the assessment after examination to the satisfaction of the AO. The AO has disallowed flat rate of 20% of the transport expenses debited into the profit and loss account.
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ITA Nos.324&326/CTK/2014
11. During the course of the arguments, ld. AR of the assessee fairly accepted that some payments might have been done by cash but he could not quantify of cash payments, therefore, the leakage of the Revenue cannot be denied. Further the AR of the assessee submitted that many judicial forum has considered the net profit rate @1% in transport business, however, this contention of the ld. AR is also not correct because the facts of the each case could not be applied in mutatis mutandis to other cases. In the impugned case, the AO has allowed the assessee to submit the information in desired format and in spite of that the assessee did not submit the same. He also did not comply the requirement of the AO before the CIT(A) as well as before us. As per the order of the authorities below there is no doubt that the assessee is engaged in the transport business. It is also not clear that the assessee has deployed some own vehicles, what was the terms and conditions for transportations of the goods, distance between the loading & unloading points, whether there was any labour was deployed for the loading & unloading works or loading and unloading were discharged with the help of the machinery. The assessee has also not submitted any copy of work orders received by him and issued to the truck owners for transporting of goods. PAN and address of the payees, Services Tax Returns were also not submitted. It was the duty of the assessee to substantiate his case with the cogent materials 11 ITA Nos.324&326/CTK/2014 before the authorities below but there is no any evidence that any of the above noted documents were submitted. The Ld. CIT (A) ought to have examined the issue with the help of above noted documents but he did not call for any such documents. The CIT (A) has stated that the assessee is engaged in this line of business from several years is also not correct because the Company has got registered on 29.03.2007 just two years back. We also gone through the assessment order. In the last para No.4, the AO has observed that M/s Maa Tarini Transport Pvt. Ltd. has accepted cash deposit from Shri Srimanta Kumar Tripathy, Managing Director of the Company, therefore, he has observed that the assessee has violated the provisions of Section 269SS of the Income Tax Act, 1961. The arguments advanced by the ld. AR is also not acceptable that the corresponding turnover should be reduced because the assessee has not supplied the information as required by the Assessing Officer, we further noted that the Assessing Officer has not disputed the Turnover shown by the assessee. Considering to the above facts and the circumstances and shortcomings as noted above by us and to cover all possible leakage of Revenue, we uphold 5% of Rs.44,44,40,408/- i.e. Rs.2,22,22,020/- of the total transport expenses debited by the assessee in his profit and loss account in lieu of 20% of the transportation expenses disallowed by the AO and restricted to 12 ITA Nos.324&326/CTK/2014 Rs.50,00,000/- by the CIT(A). In the result, the ground No.2 of the assessee is dismissed and ground No.1 of the revenue is partly allowed.
12. Further in respect of ground No.3 of the assessee regarding director's remuneration to Smt. Anusaya Tripathy, the observations of the AO as well as CIT(A) that the AR of the assessee could not substantiate any services rendered by her to the assessee company whereas the remuneration has been paid of Rs.1 crore. As per the comparative chart submitted by the ld. AR of the assessee during the course of hearing, the ratio in the previous two financial yeas is computed as under :-
F.Y. Srimanta Ku. Anusaya Total Amount Ratio
Tripathy Tripathy
2007-08 6000000.00 1200000.00 7200000.00 5:1
2008-09 14400000.00 4800000.00 19200000.00 3:1
2009-10 20000000.00 10000000.00 30000000.00 2:1
From the above table, it is clear that the ratio of the remuneration is not in chronological order. It is also not clear from the submissions of both the sides that the previous two financial years cases were assessed u/s.143(3) of the I.T.Act or not for accepting the above remunerations paid. Both the authorities below have not disputed the directorship of Shri Srimanta Tripathy and Smt. Anusuya Tripathy. In the assessee-company both the husband and wife are directors in living jointly together. Therefore, for want of poof of any services rendered is also not acceptable of the Revenue's arguments. The contention raised 13 ITA Nos.324&326/CTK/2014 by the ld. AR of the assessee that Smt. Anusuya Tripathy has paid tax on the entire remuneration received by her, is not acceptable. In the previous two financial years, the remunerations have been paid to Smt. Anusuya Tripathy as well as in the impugned year also. The res judicata does not apply in the Income Tax Proceedings but consistency may be followed as per the decision of Hon'ble Supreme Court in the case of Radhasoami Satsang (1992) 193 ITR 321 (SC). Therefore, as per our opinion, considering the facts of the case along with the case laws relied on by both the sides, we are taking the basis for calculation of current year's remuneration as per the remuneration paid in previous two financial years. Therefore, we after calculating the average of two previous financial years' remuneration paid to Smt. Anusuya Tripathy, found that the ratio of average remuneration is 4:1 (5:1+3:1/2). During the impugned financial year in 2009-2010 Shri Srimanta Kumar Tripathy has been paid Rs.2 crores which has not been disputed by the AO and Smt. Anusuya Tripathy has been paid Rs.1 crore which is in dispute only. Considering the average ratio calculated by us as noted above, which is 4:1, the remuneration paid to Anusuya Tripathy comes to Rs.50 lakhs. Accordingly, the assessee gets relief of Rs.50 lakhs for the director's remuneration. Thus, the ground No.3 in appeal of assessee is partly allowed.
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ITA Nos.324&326/CTK/2014
13. In the result, appeal of the assessee and revenue, both are partly allowed.
Order pronounced in the open court on 16/01/2020.
Sd/- Sd/-
(C.M.GARG) (L.P.SAHU)
न्यानयक सदस्य / JUDICIAL MEMBER ऱेखा सदस्य / ACCOUNTANT MEMBER
कटक Cuttack; ददनांक Dated 16/01/2020
Prakash Kumar Mishra, Sr.P.S.
आदे श की प्रनिलऱपप अग्रेपषि/Copy of the Order forwarded to :
1. अऩीलाथी / The Appellant-
2. प्रत्यथी / The Respondent-
3. आयकि आयुक्त(अऩील) / The CIT(A),
4. आयकि आयुक्त / CIT
5. ववभागीय प्रनतननधध, आयकि अऩीलीय अधधकिण, कटक / DR, ITAT, Cuttack
6. गार्ा पाईल / Guard file.
सत्यावऩत प्रनत //True Copy// आदे शािस ु ार / BY ORDER, (Senior Private Secretary) ITAT Cuttack Bench, Cuttack