Income Tax Appellate Tribunal - Hyderabad
Transport Corporation Of India Ltd.,, ... vs Assessee on 17 July, 2013
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH 'A', HYDERABAD
BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER and
SHRI SAKTIJIT DEY, JUDICIAL MEMBER
ITA No. 1069/Hyd/2012
Assessment year 2008-09
ITA No. 1202/Hyd/2012
Assessment year 2009-10
M/s. Transport Corporation of vs. The Addl. Commissioner of
India Ltd., Hyderabad Income-tax, Range-2
PAN: AAACT7966R Hyderabad
Appellant Respondent
ITA No. 1366/Hyd/2012
Assessment year 2008-09
ITA No. 1367/Hyd/2012
Assessment year 2009-10
The Asst. Commissioner of vs. M/s. Transport Corporation of
Income-tax, Range-2 India Ltd., Hyderabad
Hyderabad PAN: AAACT7966R
Appellant Respondent
Assessee by: Sri Y. Ratnakar
Revenue by: Sri P. Soma Sekhar Reddy
Date of hearing: 17.07.2013
Date of pronouncement: 16.09.2013
ORDER
PER CHANDRA POOJARI, AM:
These are cross appeals for assessment years 2008-09 and 2009-10 where the issues involved are common. Therefore, the above appeals are clubbed together, heard together and are being disposed of by this common order for the sake of convenience.
2. Brief facts of the case are that the assessee-company is engaged in the business of transport of goods, trading and 2 ITA No. 1069/Hyd/2012 & Ors. M/s. Transport Corporation of India Ltd.
============================== generation of energy, shipping, etc. For the A.Y. 2008-09 the assessee declared income at Rs. 33,60,23,382. For A.Y. 2009- 10 the assessee declared income at Rs. 32,52,35,900. The Assessing Officer disallowed the expenditure for these two assessment years while framing the respective assessments as follows:
Disallowance Disallowance Disallowance Assessment of Assessed of freight of enroute year commission income (Rs.) expenses (Rs.) expenses (Rs.) (Rs.) 2008-09 39,47,83,300 23,04,086 12,77,50,333 86,08,61,100 2009-10 41,82,67,330 5,48,520 5,66,37,750 88,61,11,530
3. On appeal, the CIT(A) given relief as follows:
Relief given by the CIT(A) (in Rs.) Enroute A.Y. Freight Commission expenses 2008-09 31,58,26,649 19,58,473 10,85,87,783 2009-10 33,46,13,866 4,66,242 2,83,18,875 Addition sustained by the CIT(A) (in Rs.) Enroute A.Y. Freight Commission expenses 2008-09 7,89,56,651 3,45,613 1,91,62,550 2009-10 8,36,53,464 82,278 2,83,18,875
4. The assessee is in appeal before us in respect of sustaining the addition in respect of the above expenses for the A.Ys. 2008-09 and 2009-10. The Revenue is in appeal before us for deleting the additions by the CIT(A) for the same assessment years.
5. On the disallowance of freight charges for AY 2008-09, the learned AR submitted that the AO made the disallowance on the reasons that the net income declared by the assessee as a percentage of gross receipts is low. The AO made enquiries by addressing notices u/s 133 (6) in 85 cases initially and later in 100 cases and that the replies received confirming payment of 3 ITA No. 1069/Hyd/2012 & Ors. M/s. Transport Corporation of India Ltd.
============================== freight charges were received only in a few cases out of the 185 cases.
5.1 The AR submitted that the entire freight expenses were paid to the owners/drivers whose trucks were taken on hire for transporting of goods. Payments made were spread over 1822 branches all over the country with 182 accounting centres. The payments were made for hiring of 1,47,784 trucks for 4,71,236 contracts on a trip to trip basis. The net income to gross receipts of the assessee is more than what other transporters have declared. The operating results of the company are much better in comparison to other transporters in the Transport business. The enquiry in respect of 185 cases which were done gave no reasonable time to the assessee to obtain confirmations of the persons from whom trucks were taken on hire.
5.2 The AR submitted that all payments made towards freight charge are genuine, full details are available in the lorry hire contracts for hired vehicles and that if adequate time was given, in most of the 185 cases picked by the AO, fresh confirmations could be obtained in addition to the material already on record. Therefore, no disallowance is called for. Even if any disallowance is warranted, it should be confined to only those items examined by the AO and where confirmation is not forthcoming.
5.3 The AR submitted that the statement of facts filed by the assessee along with the appeal before the CIT(A) give the factual position. These facts are once again reiterated. The total no of cases picked by the AO for the verification is 185 cases. Para 3.2 of the Assessment order relates to 85 cases and para 3.8 of the assessment order relates to 100 cases. Out of the above 85 cases 13 persons have directly sent confirmation to the 4 ITA No. 1069/Hyd/2012 & Ors. M/s. Transport Corporation of India Ltd.
============================== assessing officer before completion of the assessment. The time given to the assessee was very short to obtain these letters of confirmation before completion of assessment. The assessee corresponded with these persons obtained copies of their RC Books, Confirmations of payments and filed the same by way of additional evidence before the CIT(A). These persons have in fact sent copies of RC books of the trucks taken on hire and confirmations directly to the assessing officer also. The assessee took copies of the correspondence from the owners of the trucks, and filed these copies before the CIT(A) as additional evidence. Additional evidence filed before the CIT(A) are as under:
85 100 Particulars cases cases Additional evidence filed along with 56 69 petition dated 6.7.2011 under Rule 46A.
Additional evidence filed along with 4 2
petition dated 1.8.2011
Additional evidence filed along with - 4
petition dated 25.8.2011
Total 60 75
Confirmations directly received by AO 13 -
before completion of assessment
73 75
5.4 The AR submitted that in all 148 confirmations were received of lorry hire payments out of 185 cases selected by the AO. The reasons for filling additional evidence have been explained before the CIT(A) and the reasons given in the petition filed is extracted in para 4.1 of the CIT(A) order. The same are reiterated. The additional evidence was forwarded to the AO by the CIT(A). The AO submitted his remand report which is extracted at para 5 of the CIT(A)'s order. The assessee company furnished reply in response to the remand report. The following events would show that the time given was very short:5 ITA No. 1069/Hyd/2012 & Ors.
M/s. Transport Corporation of India Ltd. ==============================
a) For the first time show cause letter dated 17th December 2010 was sent to the assessee referring to 85 items and stating that confirmation was not received in many cases.
Disallowance was proposed in this letter at 5%.
b) Until this point of time the assessee was not aware of any enquiry at all being made.
c) The assessment was completed by order dated 31st December, 2010.
d) The owners of the Lorries stay out station and are spread all over the country and it is not easy to contact them.
e) This enquiry was made in the year December, 2010 for the financial year 2007-08 hence any response from the lorry owners is bound to take time.
f) There is always a possibility of change of address, sale of truck or connected reasons which could delay any reply to the AO's enquiry 5.5 The AR submitted that the CIT(A) admitted the additional evidence. In admitting the additional evidence the CIT(A) came to the conclusion that:
a) Adequate time was not given by the AO to obtain confirmations.
b) On these confirmations/copies of RC books, submitted to the AO, he has not disputed the genuineness of the information and
c) Lastly that these vouchers are important to be considered for the purpose deciding the issue of disallowances of freight expenses in the appeal to render justice.
5.6 The AR submitted that the Revenue is also in appeal against the relief ordered by the CIT(A). He invited our attention to the grounds taken in the Departmental appeal. On going through these grounds it is apparent that
a) the Assessing Officer does not dispute the admission of the additional evidence, or, 6 ITA No. 1069/Hyd/2012 & Ors. M/s. Transport Corporation of India Ltd.
==============================
b) the genuineness of the confirmations filed by the assessee and
c) his only ground is that sufficient time was made available to the assessee to file the evidence which it did not file.
5.7 The AR submitted that the CIT(A) is justified in admitting the additional evidence and considering the same for the disposal of the appeal. The CIT(A) also found that the profit before tax to turnover is higher than others who are in the same line of business. Further the CIT(A) also found that the operating expenses on freight charges is low in the case of the assessee, in comparison to others. The CIT(A) observed that there is no truth in the allegation against the assessee that the net income is low, or that the operating costs are high 5.8 The AR further submitted that the CIT(A) upheld the disallowances at 1% in the place of 5% and the reasons given by the CIT(A) are as under:
a) The total number of items picked up for verification are 185 100+85)
b) Out of the above the assessee could obtain confirmations in respect of 148 items
c) In other words the assessee obtained confirmations for 80% of 185 items picked for verification for (80% of 185 = 148).
d) Since the AO disallowed 5%, according to the CIT(A) 80% of 5% (=4%) should be treated as proved. Since the assessee could not obtain confirmations for the remaining 37 items, the CIT(A) upheld 1% disallowance.
5.9 The AR submitted that the hire of trucks is transparent and are verifiable. The assessee's records contain all details of trucks hired trips made and payees are all identifiable. Full details are available as stated at point 13 at page 5 of the 7 ITA No. 1069/Hyd/2012 & Ors. M/s. Transport Corporation of India Ltd.
============================== appellate order. The assessee could not obtain 100% confirmations of all lorry hire payments from the owners for the remaining 37 cases because of the following reasons:
(a) The time lag between the date of hiring and the date of enquiry,
(b) They could have changed their addresses or sold the truck, or stopped their business
(c) The owners of the lorries not having any interest in the matter to reply as it does not relate to them
(d) Most of the lorry owners/drivers are either uneducated or semi educated and do not understand the notices
(e) The lorry owners having furnished the details earlier at the time of engaging the vehicle will not have any interest thereafter.
(f) The assessee would have in many cases stopped engaging the same lorry and
(g) lastly they may not be interested in replying to the income-tax department for their own personal reasons.
5.10 The AR submitted that the CIT(A) should have considered these facts as adequate justification for its inability to produce the remaining confirmations. Even the 1% of disallowance made, is very highly arbitrary, uncalled for and should be deleted. Without prejudice to the submission that no disallowances are called for, the AR submitted that even if any disallowance is to be made, it should be limited only to the amount for which reconfirmation could not be obtained. The amount covered in respect of these 37 cases is Rs. 6,93,759. The addition could be restricted to this amount alone. In support of this plea, the AR relied on the assessment made for AY 1990-91 and appeal order for the said year. He pointed out that in assessment year 1990-91 similar additions were made by the assessing officer to the extent of Rs. 14,40,585 in respect 8 ITA No. 1069/Hyd/2012 & Ors. M/s. Transport Corporation of India Ltd.
============================== of all the freight charges paid at Bangalore Accounting Centre. Similarly, disallowance of Rs. 13,98,000 was made in respect of all the freight charges paid at Hyderabad accounting centre. Both these additions were made by the AO as according to him, this expenditure was not proved in these centres because in some vouchers discrepancies were noticed. On appeal the CIT(A) upheld the disallowance of Rs. 2,96,790 in respect of freight charges paid at Bangalore accounting centre for which verification was actually carried out and for which the assessee could not bring satisfactory evidence. Similarly the CIT(A) upheld the disallowance of Rs. 45,400 in respect of Hyderabad accounting centre which were held to be unproved. He held that the entire expenditure cannot be disallowed merely because some vouchers are not verified. On further appeal, both by the assessee as well as the Department, the Tribunal confirmed the disallowances sustained by the CIT(A). On the said analogy the amount of disallowance if any can only be restricted to 37 cases picked up and verified and not to the entire amount. The amount covered by the 37 cases is Rs. 6,93,759. The break-up of the total freight charges during the financial year ended 31st March, 2008 is given as follows:
Division Amount (Rs.)
Transport Division 548,10,11,052
XPS Division 198,95,82,073
Supply Chain Solutions Division 42,39,84,685
Seaways Division - Shipment Expenses 10,87,386
Total 789,56,65,196
5.11 The learned AR submitted that most of the payment of freight charges at Transport division are made in cash, as the payees in the Transport division are vehicles generally hired from the market and are not regular vendors. However at the XPS and Supply Chains Solutions divisions, most payments for freight charges are paid by cheques, as the payees are regular 9 ITA No. 1069/Hyd/2012 & Ors. M/s. Transport Corporation of India Ltd.
============================== vendors and carry the consignments of the assessee on regular basis. The assessee has their full addresses and also their PAN Nos., in its record. The AO had made enquiries in respect of payees of freight charges of Transport division only. The 185 cases picked up are relating to Transport division only. No enquiries, whatsoever, were made from the payees of XPS and Supply Solution divisions. There could, therefore, be no justification whatsoever for any disallowance out of freight charges paid to payees at the XPS and Supply Chain Solutions divisions.
5.12 The AR submitted that on the question of Freight payments in view of heavy disallowances made in past years, a detailed enquiry was made while making assessment for A.Y. 2010-11 by the Addl. CIT, Range-2, Hyderabad. In the order sheet for AY 2010-11 the Addl. CIT also endorsed that he will make a detailed verification of the payment of Freight charges by making personal inspection of Hyderabad branch. Accordingly he personally inspected the Hyderabad branch for a full day on 08/11/2012 and verified the vouchers and also the procedures and system employed for making the freight payments. The vouchers and other papers were further verified by the staff of the Addl. CIT. The Addl. CIT after having been satisfied that the freight payments are made in routine course of business, they are genuine, and could be correlated to trips made by trucks taken on hire, has not made any addition under this head in A.Y. 2010-11, despite heavy additions made in the past years. This amply demonstrates the correctness of the claim of the assessee that no disallowance is warranted under this head.
5.13 The learned DR submitted that the genuineness of the expenditure is not proved by the assessee. Certain letters sent 10 ITA No. 1069/Hyd/2012 & Ors. M/s. Transport Corporation of India Ltd.
============================== by the AO to the addresses furnished by the assessee were returned unserved. As such the assessee failed to discharge the onus cast upon it and as such the disallowance is warranted. The DR relied on the order of the AO. He also relied on the judgement of Bombay High Court in the case of Ramanad Sagar vs. DCIT (122 Taxman 152) and Nund & Samont Co. Pvt. Ltd. vs. CIT (78 Taxman 268). He also relied on the judgement in assessee's own case reported in 256 ITR 701 (AP) wherein it was held that the burden is on the assessee to prove the genuineness of the expenditure claimed and it is allowable.
6. On the disallowance of freight charges for AY 2009-10, the learned AR submitted that the AO made the disallowance on the following reasons:
a) That the net income declared by the appellant as a percentage of gross receipts is low
b) That enquiries were made by addressing 35 notices to the vehicle owners u/s 133 (6) and that above 50% of letters sent has been returned unserved.
c) Therefore the appellant did not discharge the burden of proof cast on it to prove the expenses.
d) That the similar addition was made in the last year's assessment for A.Y. 2008-09 and the issue was pending in appeal before the Commissioner (Appeals) 6.1 The AR submitted that the entire Freight expenses were paid to the Owners/ drivers who's trucks were taken on hire for transporting of goods. The payments were made spread over 1289 branches all over the country with 147 accounting centres. The payments were made for hiring of trucks for 5,60,309 contracts on a trip to trip basis. The net income to gross receipts of the assessee is more than what other transporters have declared. The operating results of the company are much better and comparison to other transporters 11 ITA No. 1069/Hyd/2012 & Ors. M/s. Transport Corporation of India Ltd.
============================== in the Transport business. That the enquiry in respect of 35 cases which were done gave no reasonable time to the appellant to obtain confirmations of the persons from whom trucks were taken on hire. That all payments made towards Freight charge are genuine .full details are available in the lorry hire contracts for hired vehicles and that if adequate time was given, in all the 35 cases picked by the AO, fresh confirmations could be obtained in addition to the material already on record. Therefore no disallowance is called for. Even if any disallowance is warranted, it should be confined to only those items examined by the AO and where confirmation is not forthcoming 6.2 The AR reiterated the same arguments as made before the CIT(A). The total no of cases picked by the AO for verification is
35. Out of the above 35 cases, 6 replies were received by the assessing officer before completion of the assessment. The assessee vide its letter dated 26th December furnished 19 copies of certificates of registration of the concerned vehicles taken on hire forming part of the 35 cases. The time given to the assessee was very short to obtain the letters of confirmations before completion of assessment. The assessee corresponded with these persons obtained copies of their RC Books, confirmations of payments and filed the same by way of additional evidence before the learned CIT(A), Hyderabad. These persons have in fact sent copies of RC books of the trucks taken on hire and confirmations directly to the assessing officer. The assessee took copies of the correspondence from the owners of the trucks, and filed these copies before the CIT(A) as additional evidence.
6.3 The AR submitted that the additional evidence was forwarded to the AO by the CIT(A). The AO submitted his remand report dated 29.05.2012. The assessee furnished reply to the Remand Report. According to the AR the following events 12 ITA No. 1069/Hyd/2012 & Ors. M/s. Transport Corporation of India Ltd.
============================== would show the time given was very short:
a) For the first time the Assessing officer informed vide order sheet endorsement dated 20th December 2011 that letters u/s 133(6) were issued for 35 items and stating that more than 50% of the letters were returned unserved. Hence he proposed disallowance at 5% of the freight receipts.
b) Until this point of time the assessee was not aware of any enquiry at all being made and nothing was discussed.
c) The assessment was completed by order dated 26th December, 2011. The time available was 6 days.
d) In fact, the Assessing Officer furnished the details of 19 cases only on 20-12-2011 for further information.
Immediately, the same was verified and copies of RC books for 19 cases were submitted on 26-12-2011.
e) As regards confirmation, letters were addressed to the owners requesting for confirmation which were not received before the completion of assessment.
f) The owners of the Lorries stay out station and are spread all over the country and it is not easy to contact them.
g) This enquiry was made in the year December, 2011 for the financial year 2008-09 hence any response from the lorry owners is bound to take time.
h) There is always a possibility of change of address, sale of truck or connected reasons which could delay any reply to the AO's enquiry.
6.4 The AR submitted that in the background of the above facts petition was filed to admit the confirmations were subsequently received as additional evidence. The CIT(A) admitted the additional evidence. In admitting the additional evidence the CIT(A) came to the conclusion that:
a) adequate time was not given by the AO to obtain confirmations;13 ITA No. 1069/Hyd/2012 & Ors.
M/s. Transport Corporation of India Ltd.
==============================
b) the assessee filed confirmations and proof in respect of all 35 cases;
c) the disallowance was made on the basis of additions made in the A.Y. 2008-09. For this assessment year, the CIT(A) accepted the additional evidence;
d) the AO did not dispute the genuineness of the information filed and
e) these vouchers are important to be considered for the purpose of deciding the issue of disallowance of freight expenses in the appeal to render justice.
6.5 The AR further submitted that in all the 35 cases, copies of RC books for the lorries taken on hire have been produced. Independent confirmations were obtained from 27 out of 35 parties confirming receipt of freight from the assessee. Out of the remaining 8 parties, 3 parties have left their businesses, 2 parties have chosen not to respond and the remaining 3 parties shifted their addresses. Therefore while the assessee produced copies of RC books in all the 35 cases, which were available with it, confirmations were also produced for 28 cases and in respect of 8 cases, it was beyond the control of the assessee to produce confirmation letters because of reasons mentioned above. The AR, therefore, submitted that there is justification in the assessee's inability to produce confirmations from 8 persons. However, if totality of the matter is considered, it can safely be concluded that the evidence was produced in all the 35 cases showing that the trucks were taken on hire and the freight was paid to them. The hire of trucks is also correlated to the trips made by the trucks.
6.6 The AR submitted that the Revenue is also in appeal against the relief ordered by the CIT(A). He invited our attention to the grounds taken in the Departmental appeal. On a survey of these grounds it is apparent that the AO did not 14 ITA No. 1069/Hyd/2012 & Ors. M/s. Transport Corporation of India Ltd.
============================== dispute the admission of the additional evidence, or, the genuineness of the confirmations filed by the assessee. His only ground is that sufficient time was made available to the assessee to file the evidence which it did not file and the assessee failed to bring on record all the confirmations in respect of 35 cases even at the stage of appellate proceedings. The AR contended that the objections taken by the AO was without merit and the CIT(A) rightly admitted the additional evidence for the purpose of appeal proceedings. The CIT(A) has also found that the profit before tax to turnover is higher than others who are in the same line of business. Further the CIT(A) has also found that the operating expenses on freight charges is low in the case of the assessee, in comparison to others. The CIT(A), therefore, found that there is no truth in the allegation against the assessee that the net income is low or that the operating costs are high.
6.7 The AR further submitted that the CIT(A) upheld the disallowance at 1% in the place of 5%. The learned CIT(A) referred to the assessment year 2008-09 and made similar calculations and held that since in 8 cases confirmations were not available, the freight expenses should be disallowed at 1% in the place of 5% as stated by the AO. The reasons for the assessee's inability to produce confirmations in 8 cases have already been explained. In fact, copies of RC books for the lorries taken on hire have been produced and all relevant details are available showing that the trucks were taken on hire, they were put to use and hire charges were paid to them. Hence, the omission to produce confirmation from 8 persons could not have been taken as basis for disallowing 1%. The AR contended that the hire of trucks is transparent and is verifiable. The assessee's record contain all details of trucks hired, trips made and payees are all identifiable. In the facts of the case, the AR 15 ITA No. 1069/Hyd/2012 & Ors. M/s. Transport Corporation of India Ltd.
============================== submitted that the entire expenditure should have been allowed as expenditure.
6.8 The break-up of the total freight charges during the financial year ended 31st March, 2009 is given below Division Amount (Rs.) Transport Division 572,71,12,473 XPS Division 211,00,43,778 Supply Chain Solutions Division 43,56,36,961 Seaways Division - Shipment expenses 74,05,529 Global Division 8,51,47,697 Total 836,53,46,438 6.9 The AR submitted that most of the payment of freight charges at Transport division are made in cash, as the payees in the Transport division are vehicles generally hired from the market and are not regular vendors. However, at the XPS and Supply Chains Solutions divisions, most payments for freight charges are paid by cheques, as the payees are regular vendors and carry the consignments of the assessee on regular basis. The assessee has their full enquires in respect of payees of freight charges of Transport division only. The 35 cases picked are relating to Transport Division only. No enquiries, whatsoever, were made from the payees of XPS and Supply Solution divisions. There could, therefore, be no justification whatsoever for any disallowance out of freight charges paid to payees at the XPS and Supply Chain Solutions divisions.
6.10 The DR submitted that disallowance of freight charges at 5% made by the AO is to be confirmed and the order of the CIT(A) be reversed.
Findings:
6.11 Regarding disallowance of freight charges for A.Y. 2008-
09, in this A.Y. the AO disallowed 5% of the freight charges on 16 ITA No. 1069/Hyd/2012 & Ors. M/s. Transport Corporation of India Ltd.
============================== the reason that the payments are not genuine. However, the CIT(A) restricted the disallowance to 1% of the total freight charges for the A.Y. 2008-09 on the reason that there was 148 confirmations out of 185 cases picked for verification in A.Y. 2008-09. Similarly, for A.Y. 2009-10, 35 cases were selected for verification and out of them the assessee produced confirmations from 28 parties and in respect of 8 cases the assessee failed to produce the confirmation letters. Accordingly, the CIT(A) restricted the disallowance to 1% for the A.Y. 2009- 10 also. The basis for this was the percentage of non- confirmations produced by the assessee in respect of the items picked for verification for A.Y. 2008-09 and 2009-10 i.e., 20% (37÷185 for A.Y. 2008-09 and 8 ÷35 for A.Y. 2009-10). As the AO made disallowance at 5% of freight charges, the CIT(A) has reduced it to 20% of 5% i.e., 1% which is in proportion to non- confirmation letters to total confirmation letters called for. Being so, the CIT(A) considered the disallowance at 20% of 5% = 1%. Admittedly, the Department not carried on detailed enquiry. There was enquiry on random basis. Considering the result of random enquiry, the CIT(A) sustained disallowance of 20% of the disallowance made by the AO.
6.12 In our opinion, this kind of approach to disallow an expenditure cannot be sustained in its entirety. The Department is not disputing incurring of expenditure and, on the other hand, only disputing the quantum of expenditure. The expenditure is duly supported by vouchers with full details of expenses and details of trucks and details of goods transported and other details like date of hiring, no. of days hired, rate of hiring, date of payment, number of trucks and the assessee furnished entire details of addresses. When these details are available with the department, it is left to the Department to examine the same. It is needless to mention 17 ITA No. 1069/Hyd/2012 & Ors. M/s. Transport Corporation of India Ltd.
============================== here that the assessee is a limited company subject to statutory audit and internal audit. There was no material to suggest that the assessee has practiced any irregularities. In the absence of no irregularities noticed by the auditors and minor discrepancies noticed by the AO during random verification by the AO, we are not inclined to sustain the disallowance in its entirety made by the AO. Further, it is also brought on record that for A.Y. 2010-11, the Addl. CIT, Range-2, Hyderabad, minutely checked the freight charges by personal inspection of Hyderabad Branch of the assessee and verified the vouchers and procedure employed by the assessee in booking the freight and payment of charges. He was satisfied about the system followed by the assessee and found that the payments are genuine and he opted not to make any addition on this count for A.Y. 2010-11. When the actual position is so for A.Y. 2010- 11, had the Department examined the issue in its entirety, it would have been most appropriate. Failing to do this, the assessee cannot be penalised.
6.13 In the present case, the disallowance was made by the lower authorities on the reason that the assessee not proved genuineness of the payments. The letters addressed to the parties in certain cases were not responded by the parties concerned back to the AO. The contention of the assessee's counsel is that the entire details were furnished to the AO regarding these payments. Being so, it cannot be disallowed. However, the assessee not fully discharged the burden cast upon it in its entirety. Considering the facts of the case, as the assessee failed to discharge the burden in respect of part of the expenditure though it was laid out and expended wholly and exclusively for the purpose of business. Mere incurring expenditure by itself would not entitle the assessee to deduction of such expenditure unless the same was proved to be paid for 18 ITA No. 1069/Hyd/2012 & Ors. M/s. Transport Corporation of India Ltd.
============================== commercial considerations. It is for the assessee to adduce necessary evidence in this regard.
6.14 In the present case, the assessee has incurred expenditure and claimed as deduction. The claim was not allowed by the Assessing Officer or by appellate authority on the reason that this payment is not fully verifiable and they doubted the genuineness of the payments.
6.15 With regard to the proposition that it is for the assessee to discharge whether any expenditure should be incurred in the course of his business or trade and such expenditure may be incurred voluntarily and without any necessity and such expenditure is incurred, even voluntarily for promoting the business interest and to earn profit, the assessee is entitled to claim deduction under sub section (1) of 37, though there is no compelling necessity to incur such expenditure. It is also observed that payment itself not established and, secondly it is not the case of the assessee before the assessing authority that the particulars of the persons to whom the amounts were paid could be furnished without detriment to the business of the assessee. According to the DR the payment is based on "insufficient evidence", and it is based on irrelevant considerations. Allowance or disallowance of a claim under section 37(1) should depend upon existence or otherwise of the four conditions as follows:
1. The expenditure in question should not be of the nature described under the specific provisions of ss. 30 to 36.
2. The expenditure should not be of nature of capital expenditure
3. It should not be a personal expenditure 19 ITA No. 1069/Hyd/2012 & Ors. M/s. Transport Corporation of India Ltd.
==============================
4. The expenditure have been laid out for expended wholly and exclusively for the purposes business or profession.
6.16 Now, we will examine, whether in this case the assessee has fulfilled the requirement as envisaged by the provisions of the Act. We have carefully gone through the provisions of sections 30 to 36.
6.17 The claim of payment of freight charges by the present assessee is not disqualified for deduction under the Act. Now, coming to next question as to whether the expenditure is capital expenditure or not, we are of the opinion the expenditure is not a capital expenditure since the assessee did not acquire any capital asset.
6.18 As for the third condition as to whether the payment is in the nature of personal expenditure or not, again, in our opinion, this is not the payment relating to personal benefit of any employees or directors of assessee-company. Being so, it is not personal expenditure.
6.19 Now, we have to see whether the expenditure is incurred wholly and exclusively for the purpose of business. In the case of Sassoon J. David & Co. Ltd. Vs. CIT (118 ITR 261 (SC) wherein held that the expression 'wholly and exclusively' used in s. 10(2)(xv) does not mean 'necessarily'. Ordinarily, it is for the assessee to decide whether any expenditure should be incurred in the course of his or its business. Such expenditure may be incurred voluntarily without any necessity and it is incurred for promoting the business and to earn profits, the assessee can claim deduction even though there was no compelling necessity to incur such expenditure. The fact that somebody other than the assessee is also benefited by the expenditure should not come in the way of an expenditure 20 ITA No. 1069/Hyd/2012 & Ors. M/s. Transport Corporation of India Ltd.
============================== being allowed by way of deduction under section 10(2)(xv), if it satisfies otherwise the tests laid down by the law.
6.20 Considering the above proposition, we find that the said entire payment of freight charges cannot be disallowed on the reason that there is no sufficient evidence for such payment. Now, the issue before us is whether the assessee has established the payment of freight charges by producing the necessary evidence. The reason for disallowance is that the letters addressed to the parties in certain cases by the Assessing Officer were not responded by the concerned parties. However, in the present case there was hiring of trucks. The Assessing Officer started enquiry in the last quarter of the year 2009. The assessee was unable to obtain confirmation letters on the following reasons:
(a) The time lag between the date of hiring and the date of enquiry,
(b) They could have changed their addresses or sold the truck, or stopped their business
(c) The owners of the lorries not having any interest in the matter to reply as it does not relate to them
(d) Most of the lorry owners/drivers are either uneducated or semi educated and do not understand the notices
(e) The lorry owners having furnished the details earlier at the time of engaging the vehicle will not have any interest thereafter.
(f) The assessee would have in many cases stopped engaging the same lorry and
(g) lastly they may not be interested in replying to the income-tax department for their own personal reasons.21 ITA No. 1069/Hyd/2012 & Ors.
M/s. Transport Corporation of India Ltd.
============================== 6.21 Being so, non-confirmation by them cannot be a reason to find fault with the assessee and to disallow the expenditure incurred by the assessee.
6.22 In CIT v. Sigma Paints Ltd. (1991) 188 ITR 06 (Bom), their Lordships of the Hon'ble Bombay High Court held and observed at pages 7 & 8 of the Reports as under:
" ..... Shri Patel, learned counsel for the respondent- assessee, has invited our attention to the fact that the assessee had appeared as an intervener before the Special Bench of the Tribunal when it was considering the appeals relating to French Dyes and Chemicals (I.) (P.) Ltd. He has further invited our attention to paragraphs 24 to 28 of the judgment in that case to show that the assessee had produced various details and the records maintained by the company relating to the secret commission payments. Vouchers for the amounts received by the sales officer or other responsible persons for the payment of secret commission were available. The details of sales transactions entered into with various mill- companies, in respect of which secret commission had to be paid, were available. There was a complete tally between the commission paid and the Extent of business done by the mill-company. Details were also available of the exact transactions in respect of which the assessee had to pay the secret commission The assessee had given a complete list showing the turnover and the amount of secret commission paid from year to year. The percentage of secret commission was minimal. The full details of payment on the above basis in respect of several parties were available. They were correlated to the transactions which the assessee had with those persons and the period during which the transactions were entered into. The only missing item was stated to be the names of the particular parties to whom the payments were made. This, the Tribunal held, could not be supplied without detriment to the business of the assessee in the very nature of things. Shri Patel then pointed out that, in paragraph 29 of the judgment, the Special Bench of the Tribunal noted that the position was the same in the case of Indochem Ltd. and that of the assessee.
On the above stated facts, our judgment in the case of CIT v. Goodlass Nerolac Paints Ltd. [1991] 188 ITR 1 (Income- tax Reference No. 606 of 1976) dated August 21, 1990, squarely applies. Accordingly, we agree with the Tribunal that its conclusion is based on a finding of fact arrived at on the basis of good and cogent material"22 ITA No. 1069/Hyd/2012 & Ors.
M/s. Transport Corporation of India Ltd.
============================== 6.23 In the instant case of the assessee-company too, the facts are identical with those considered by the Hon'ble Bombay High Court in the case of Sigma Paints (188 ITR 6). The payment vouchers giving the relevant details, including the names of the payees, and also bearing the signatures of the payees as recipients, had been produced by the assessee-company before the Assessing Officer. The payment vouchers contained full details of the nature of transaction. In other words, the details of all transactions in respect of which the freight payment had been paid by the assessee-company are duly recorded in the payment vouchers and other evidence.
6.24 The AR submitted that vouchers clearly mentioned the details of trips. In view of the above facts, we are unable to accept the contention of the learned Departmental Representative that the genuineness of the payment was not established by the assessee. In our opinion, genuineness of the payments was established by the assessee.
6.25 We may note at the cost of repetition that the decision of the Hon'ble Bombay High Court in CIT vs. Sigma Paints Ltd. (1991) 188 ITR 6 (Born), clearly supports the case of the Assessee Company. In that case there was payment of secret commission. The assessee company, in that case, had produced various details and records maintained by it relating to commission payments. The details of sales transactions entered into with various mill companies, in respect of which secret commission had been paid, were produced before the assessing officer along with payment vouchers. There was a complete reconciliation and tally between the commission paid and the extent of business done by the mill company. The payments were correlated to the transactions which the assessee had with those persons. The only missing link was stated to be the names 23 ITA No. 1069/Hyd/2012 & Ors. M/s. Transport Corporation of India Ltd.
============================== of the particular parties to whom the payments were made. This, the Tribunal held, could not be supplied without detriment to the business interests of that assessee, considering the very nature of things.
6.26 The initial onus and burden of proof was on the assessee. In the instant case, such initial onus and burden of proof has been duly discharged by the Assessee Company by producing its audited books of accounts, payment vouchers-and other documents giving full details as to the nature of transactions, which necessitated the payment of such freight charges and that this was an accepted norm and established in this line of business and that without such payment, it was not possible to survive in this line of business, as well as the prevalent trade practice in the line of business carried on by the Assessee Company all along. However, in this case the inflating of expenditure by the assessee cannot be ruled out. Considering the entire facts and circumstance of the case and chances of inflating the expenses by the assessee, to meet the ends of justice, we are inclined to sustain disallowance to the extent of non-confirmations from 37 parties in A.Y. 2008-09 and 8 parties in A.Y. 2009-10. Accordingly, we partly allow the ground taken by the assessee. Consequently, the ground raised by the Revenue on this issue is dismissed.
7. Regarding disallowance of commission for the A.Y. 2008-09 the AR submitted that the total amount debited towards commission is Rs. 90,40,558 for the A.Y. 2008-09. Out of the above amount the amount paid by crossed account payee cheques is Rs. 67,36,472. Full particulars of the cheque payments were furnished to the AO. These cheque payments were verified by the AO. The remaining sum of Rs. 23,04,086/- was paid in cash and these are all small payments ranging 24 ITA No. 1069/Hyd/2012 & Ors. M/s. Transport Corporation of India Ltd.
============================== between Rs. 1000 to Rs. 2000. The AO disallowed the entire cash payments.
7.1 The AR submitted that the CIT(A) relied upon the orders of the Tribunal in ITA No. 1214/Hyd/04 & batch, dt. 25/1/2012 for A.Ys. 2000-01 to 2005-06 which also considered the judgement of the A.P. High Court, and directed disallowance of commission at 15% of cash payments. Being so, out of the disallowance of Rs. 23,04,086 made by the AO the CIT(A) confirmed the disallowance at 15% amounting to Rs. 3,45,613 and ordered relief for the remaining sum of Rs. 19,58,473. The AR contended that the entire amount should have been allowed as a deduction and the disallowance should not have been made of 15% of the cash payments of commission.
8. Regarding the disallowance of commission for A.Y. 2009-10, the AR submitted that the total amount debited towards commission is Rs. 82,15,297. Out of the above amount the amount paid by crossed account payee cheques is Rs. 76,66,777. Full particulars of the cheque payments were furnished to the AO. These cheque payments were verified by the AO. The remaining sum of Rs. 5,48,520/- was paid in cash and these are all small payments ranging between Rs. 1000 to Rs. 2000. The AO disallowed the entire cash payments.
8.1 The AR submitted that the CIT(A) relied upon the orders of the Tribunal in ITA No. 1214/Hyd/04 & batch, dt. 25/1/2012 for A.Ys. 2000-01 to 2005-06 which also considered the judgement of the A.P. High Court, and directed disallowance of commission at 15%. Being so, out of the disallowance of Rs. 5,48,520 made by the AO the CIT(A) confirmed the disallowance at 15% of cash payments amounting to Rs. 82,278 and ordered relief for the remaining sum of Rs. 4,66,242. The AR contended 25 ITA No. 1069/Hyd/2012 & Ors. M/s. Transport Corporation of India Ltd.
============================== that the entire amount should have been allowed as a deduction and the disallowance should not have been made of 15% of the cash payments of commission.
8.2 The learned DR relied on the order of the Assessing Officer.
8.3 We have heard both the parties and perused the material on record. Admittedly, this issue came up for consideration before this Tribunal in assessee's own case for A.Ys. 2000-01 to 2005-06 in ITA No. 1214/Hyd/2004 & Ors dated 25.1.2012, wherein the Tribunal from paras 27 to 87 very elaborately discussed on this issue and sustained the disallowance of commission at 15% of the payment, the concluding para (para
87) is as under:
"87. By taking into consideration the circumstances in which the commission was paid, the commission paid for earlier assessment years and the commission paid by similar companies in similar circumstances and reasonableness of the payment, in our opinion, we can definitely quantify the excessive payment of commission at 15% of the total commission paid by the assessee for these assessments years under consideration before us. This disallowance at 15% of total commission paid by the assessee would meet the ends of justice. Accordingly, we direct the assessing officer to disallow only 15% commission paid the assessee as excessive in these assessment years as inadmissible."
8.4 Considering the earlier order of the Tribunal (cited supra), we are inclined to sustain the disallowance at 15% on cash payment of the commission and the payments by crossed cheque/DD shall not be considered for disallowance. This ground of the assessee is partly allowed for A.Y. 2008-09 and 2009-10 and the ground taken by the Revenue on the same issue is dismissed for both the years.
26 ITA No. 1069/Hyd/2012 & Ors.M/s. Transport Corporation of India Ltd.
==============================
9. Regarding disallowance of fixed en-route expenses for A.Y. 2008-09, the learned AR submitted that the total expenditure claimed is Rs. 12,77,15,333. The entire amount was disallowed by the assessing officer. On appeal the learned CIT(A) directed 85% of the expenditure to be allowed and confirmed remaining 15%. The CIT(A) ordered relief at Rs. 10,85,87,783 and upheld the disallowance at Rs. 1,91,62,550. For the next assessment year 2009-10, the assessing officer disallowed only 30% of this expenditure while for the year under appeal 100% was disallowed. Perhaps in the next year it must have occurred to the AO that disallowance at 100% would be unjust and unreasonable.
9.1 The AR submitted that the basis of the disallowance made is that no details are available is factually incorrect. It is also incorrect to state that they are without any supporting evidence. It is a fact that these expenses were incurred in cash en-route as no one can make payments in cheques en-route while in transit. No one will accept such cheque payment when the payer is unknown and travelling en-route. It is obvious that the AO has not seen on the reverse of the trip contract voucher which gives the brake up of the en-route expenses. Toll Tax payments are also included in this expenditure and not separately claimed as assumed by the AO. The order of the CIT(A) deals with this issue at pages 32 to 39 of the order. The following expenses falling under fixed en-route are fully supported by external vouchers.
Head of expenditure Amount (Rs.)
Toll tax payments 4,06,58,417
Payments to Regional Transport Authorities 1,29,71,432
Payments to local vehicle owners' associations 3,23,467
Spares & repair expenses 1,45,489
Total 5,50,98,805
27 ITA No. 1069/Hyd/2012 & Ors.
M/s. Transport Corporation of India Ltd.
==============================
9.2 The AR submitted that on the basis of the findings
of the CIT(A) in his order, disallowance is not warranted at all. In fact the CIT(A) should have deleted the entire addition instead of confirming 15% disallowance, as estimated disallowance for a portions of expenses which could be unvouched. In any event the AR contended that the disallowance at 15% is excessive and uncalled for. The inconsistency of disallowance made under this head is as follows:
a) Disallowance for A.Y. 2008-09 100% of expenditure
b) Disallowance for A.Y. 2009-10 30% of expenditure
c) Disallowance as per order of CIT(A) 15% of expenditure 9.3 The AR submitted that the expenditure was incurred for the purpose of business and the break-up of the expenditure was shown on the reverse of Trip Contract Vouchers. The disallowance was made because of an erroneous impression that the details of expenditure incurred are not available .Since the basic exemption for making the disallowance is erroneous and considering the nature of expenditure that entire expenditure deserves to be deleted.
10. Disallowance of fixed en-route expenses for A.Y. 2009-10, the learned AR submitted that the total expenditure claimed is Rs. 18,87,92,492. The AR disallowed 30% of the expenditure. On appeal, the CIT(A) directed 15% of the expenditure to be allowed and confirmed remaining 15%. The CIT(A) ordered relief at Rs. 2,83,18,875 and upheld the disallowance at Rs. 2,83,18,875. The basis of the disallowance made is that no details are available is factually incorrect. It is also incorrect to state that they are without any supporting evidence. It is a fact that these expenses were incurred in cash en-route as no one can make payments in cheques en-route 28 ITA No. 1069/Hyd/2012 & Ors. M/s. Transport Corporation of India Ltd.
============================== while in transit. No one will accept such cheque payment when the payer is unknown and travelling en-route. The AR submitted that the AO has not seen on the reverse of the trip contract voucher which gives the brake up of the en-route expenses. Toll Tax payments are also included in this expenditure and not separately claimed as assumed by the AO.
10.1 The AR submitted that the disallowance is not warranted at all. In fact the CIT(A) should have deleted the entire addition instead of confirming 15% disallowance, as estimated disallowance for a portion of expenses which could be unvouched. In any event the disallowance at 15% is excessive and uncalled for. The inconsistency of disallowance made under this head can be gauged from the following:
a) Disallowance for A.Y. 2008-09 100% of expenditure
b) Disallowance for A.Y. 2009-10 30% of expenditure
c) Disallowance as per order of CIT(A) 15% of expenditure 10.2 The AR submitted that the expenditure was incurred for the purpose of business and the break-up of the expenditure was shown on the reverse side of Trip Contract Vouchers. The disallowance was made because of an erroneous impression that the details of expenditure incurred are not available. Since the basic exemption for making a disallowance is erroneous and considering the nature of expenditure that entire expenditure deserves to be deleted.
11. For the above propositions, the learned AR relied on the judgement of the Gujarat High Court in the case of CIT vs. Swaminarayan Vijay Carry Trade (P) Ltd (33 Taxman.com 403).
With regard to freight expenses the factual position in this case is identical to the case of the assessee. Like in the above case, even in the case of assessee the Trip Contract Voucher gives full details. The hiring of the trucks is also correlated to the actual 29 ITA No. 1069/Hyd/2012 & Ors. M/s. Transport Corporation of India Ltd.
============================== trips made. These details are meticulously given in supporting vouchers. It would be appropriate to point out that disallowance of this expenditure was not made at least in the preceding 10 years prior to assessment year 2008-09 and also in the subsequent assessment years 2010-11 after full enquiry. Facts being identical, there cannot be any disallowance for assessment year 2008-09 and 2009-10. The AR submitted that the judgement of Gujarat High court supports the assessee's case that the disallowance of freight expenses is unwarranted.
12. Regarding disallowance of fixed en-route expenses, the AR submitted that this disallowance is identical to the expenses disallowed in the above judgement of Gujarat High Court discussed at para 9 (sub paras 9.1 to 9.4 ). Just as in the above decision here also there being no criticism of any such expenditure being not genuine or in the nature of non business purposes or such expenditure is excessive or unreasonable. Such ad hoc disallowance should not have been made. For some of the expenses it is impossible to expect the driver to maintain supporting evidence. The drivers and helpers are illiterate and many times they work in adverse conditions. The AR submitted that the above decision support the assessee's plea that the disallowance is unwarranted.
12.1 The learned DR submitted that the expenditure is not properly vouched and hence, there is every chance of inflating the expenditure and the assessee has not given supporting details. He submitted that even basic details are not furnished by the assessee. Therefore, the addition made by the AO is to be sustained.
12.2 We have heard both the parties and perused the material on record. For A.Y. 2008-09, this expenditure was incurred 30 ITA No. 1069/Hyd/2012 & Ors. M/s. Transport Corporation of India Ltd.
============================== while transporting the goods from one place to another place by the drivers. These expenses were incurred in cash. While transporting the goods by road, no one can make payment by cheques, as the same are enroute expenses while transporting the goods by road. These payments include toll tax, payments to different RTAs of the States, payments to local vehicle owners associations, spares and repairs expenses. In our opinion, toll tax payment and payments to RTAs cannot be doubted. The assessee has furnished break up of these expenses. The other expenses like payments to local vehicle owners associations/ local drivers, spares and repairs expenses, there cannot be 100% foolproof evidences to support these payments. It is impossible to expect from the drivers and conductors foolproof supporting evidences and vouchers. Considering these facts, it is appropriate to disallow 15% of these two expenses. Accordingly, this ground of the assessee is partly allowed and consequently, Revenue ground is dismissed for A.Ys. 2008-09. Same is the position for A.Y. 2009-10. Accordingly, similar ground raised by the assessee is allowed and Revenue ground is dismissed for A.Y. 2009-10.
13. In the result, assessee's appeals in ITA Nos. 1069 and 1202/Hyd/2012 are partly allowed and Revenue appeals in ITA Nos. 1366 and 1367/Hyd/2012 are dismissed.
Order pronounced in the open court on 16th September, 2013.
Sd/- Sd/-
(SAKTIJIT DEY) (CHANDRA POOJARI)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad, dated the 16th September, 2013 tprao 31 ITA No. 1069/Hyd/2012 & Ors. M/s. Transport Corporation of India Ltd.
============================== Copy forwarded to:
1. M/s. Transport Corporation of India Ltd., 306 & 307, 3rd Floor, Ashok Bhoopal Chambers, SP Road, Secunderabad-500 003, AP.
2. The Addl. Commissioner of Income-tax, Range-2, Hyderabad.
3. The Asst. Commissioner of Income-tax, Circle-2(3), 8th floor, 'B' Block, IT Towers, Masab Tank, Hyderabad-4.
4. The CIT(A)-III, Hyderabad
5. The CIT-II, Hyderabad
6. The DR - 'A' Bench, ITAT, Hyderabad