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Judgment
Sonia Gokani, J.—Challenging the judgment of the income tax Appellate Tribunal (hereinafter referred to as ''the Tribunal'') dated August
30, 2012 by preferring present Tax Appeal u/s 260(A) of the income tax Act, 1961 (hereinafter referred to ''the Act''), the Revenue has proposed
the following substantial questions of law:
A. Whether Ld. CIT(A) & Hon''ble ITAT were correct in deleting the disallowance of only 2% out of freight & transportation expenses, despite
the fact 5 out 17 sample vouchers given by assessee were not bearing any signature of recipient & most of payments were in cash ?
B. Whether Ld. CIT(A) & Hon''ble ITAT were correct in accepting the assessee''s explanation that sample vouchers which were considered
unsigned by AO, were actually signed, despite the fact that copies given to AO were not having any signature, and original were in possession of
assessee, and thus the evidence has to be taken as copies given to AO not were in possession of assessee ?
C. Whether Ld. CIT(A) & Hon''ble ITAT were correct in deleting the disallowance of only 2% out of freight & transportation expenses, despite
the fact that most of payment was in cash & most of vouchers were not supported by evidences, & copies of RC & addresses of payees were not
provided to AO ?
D. Whether Ld. CIT(A) & Hon''ble ITAT were correct in deleting the disallowance to drivers, despite the fact that there was no uniform rate for
same, and part advance claimed as expenses was not supported by proper bills/vouchers ?
Since questions B and C are more argumentative in nature to question A, all of them are being decided simultaneously.
Heard learned counsel Mr. P.G. Desai for the Revenue and with his assistance examined the entire material on record.
Assessee is engaged in the business of transport and during the course of assessment proceedings, the Assessing Officer noted that the
assessee-respondent debited a huge sum towards freight and transportation expenses. He was asked to furnish requisite evidence in support of
such claim. A show cause notice was also issued to inquire as to why certain percentage out of freight and transport expenses should not be
disallowed as some of the expenditures were non-verifiable in nature. After considering the reply and the supporting evidences, the Assessing
Officer found many of the expenses as not authentic and also not supported by the evidences adduced during the course of such assessment
procedure and, therefore, 2% of the total such expenses were added back to the total income of the assessee, adding the sum of Rs. 22,45,933/-
to his income.
Aggrieved by such addition, the assessee challenged the same before the CIT (Appeals). The CIT (Appeals) noted that the company is engaged
in the business of transportation of lignite, cement, chemicals, LPG, Bauxite, linker, coal, etc. and it owns 84 trucks and also hiring some other
trucks. As some of the vouchers were found unsigned and many of them did not have supporting evidence, 2% of the expenses were added back
to the total sum. It discussed at length the evidences adduced by the assessee. It concluded that on verification of the books of account and other
material, the quantity of the goods transported was ascertainable and some had also been recorded in the books of accounts. It also further held
that the expenses incurred were proved by duly supported vouchers with complete details of the expenses as also with the name of the payee,
registration number of the truck, etc. The daily truck-wise details such as names of owners, date of hire, number of days for which hired, rate of
hire, date of payment, number of trips made, etc. were meticulously maintained. Resultantly, the CIT (Appeals) concluded thus:
6.9 As already discussed above, there is not even an iota of evidence at all to make any disallowance out of transport expenses since all the
infirmities pointed by the AO have been proved to be incorrect and unsubstantiated. Therefore, I have no hesitation in holding that AO had no
evidence whatsoever in making any disallowance out of transport expenses. The disallowance made by the AO is not found to be justified.
Such deletion of expenses by the CIT (Appeals) became a matter of concern for the Revenue and, therefore, it challenged the said ground
before the Tribunal, which extensively quoted paragraphs 9 to 9.4 of the judgment of the CIT (Appeals) and concurred with the findings of the
CIT (Appeals) in favour of the assessee by holding thus:
From the above paras of the order of the Learned CIT (Appeals), we find that the Learned CIT (Appeals) has discussed all the objections of
the Assessing Officer and given a clear finding that on the plea of these objections, no addition is called for. He has also given this finding that the
disallowance made is based on the incorrect understanding of the financial transactions as is evident from the books of the assessee-company.
These findings of the Learned CIT (Appeals) could not be controverted by the Ld. DR and, therefore, we do not find any good reason to interface
in the order of the Learned CIT (Appeals) on this issue also. Ground No. 2 is also rejected in all the six years and, in the result, all the seven
appeals of the Revenue are dismissed.
As can be noted from the detailed discussion reflected in the order of the CIT (Appeals) and reproduced by the Tribunal, both the authorities
have thoroughly considered the entire evidence presented before them. On being satisfied that there was cogent material available on the record to
sustain the say of the assessee and in absence of any reason to disallow such claim when both of them concurrently held such an issue in favour of
the assessee, we see no reason to interfere. The entire issue is based on factual matrix with no perversity in the findings of these authorities. No
question of law much less any substantial question of law arises. This issue, therefore, deserves no consideration any further.
Insofar as question D is concerned, it pertains to deletion of disallowance of 10% daily allowance given to the drivers. Such question arises in
the following factual background:
7.1 The assessee has stated that since he is in transport business, some of the payments were made by way of cash and the issue before the
Assessing Officer was whether such payment made was genuine or not and whether the same was for the purpose of business or not.
7.2 The disallowance of expenses at the rate of 1096 was made by the Assessing Officer. When challenged before CIT (A) it was also noted that
the trucks, which were hired, were owned by different truck owners and on verification of the books of account and related vouchers, it was
ascertained that the rate of payment by way of cash/cheque was the same when the same was checked in different months in respect of different
trucks hired by the assessee. On the basis of these details, the CIT (Appeals) found nothing wrong in the payment and it was held not to be in
excess of prevailing market rate. It did not find anything on record that such expenditure was not for the purpose of business. During the course of
search proceedings also, nothing adverse was indicated. Therefore, it held thus:
7.2 In view of the above, I am of the considered opinion that there is no adverse inference that can be taken since no infirmity has been proved by
the AO in relation to the transport expenses. No part of the transportation expenses can be disallowed without any evidence. The AO has failed to
bring on record any evidence suggesting that any portion of transport expenses is not for the purpose of business. In view of this, there is not basis
for any disallowance out of transport expenses. Therefore, the question of enhancement of such disallowance in absence of any credible evidence
does not arise, Under the circumstances, I am of the considered opinion that disallowance made by AO is not justified. Accordingly, the
disallowance made in each year @ 2% of transportation expenses is deleted.
7.3 This very issue when traveled to the Tribunal, it concurred with the findings of the CIT (Appeals). It also noted that in most of the cases such
drivers and helpers are either illiterate or semi-literate and work in adverse condition and it is impossible for them to maintain proper supporting
evidences and vouchers in respect of various small expenditure incurred by them. The Tribunal concluded thus:
We have considered the rival submissions and perused the material available on record and also gone through the order of Learned CIT
(Appeals). We find that the only basis of making these adhoc disallowance by the Learned CIT (Appeals) is this that certain portion of such daily
disallowances paid by way of cash to drivers can always be for non-business purpose because such daily allowances paid to drivers and helpers
are not subject to verification in its entirely. We find that this is not the objection of Learned CIT (Appeals) that such daily allowances paid by the
assessee to drivers and helpers are excessive or unreasonable. This is also true that in most of the cases, such drivers and helpers are either
illiterate or semi-literate and this is also true that they work in adverse condition and, therefore, it is not always expected from them to maintain
proper supporting evidences and vouchers in respect of various small expenditure incurred by them on their fooding and other miscellaneous
expenses. Considering these facts, we are of the opinion that in the absence of any specific instance of any such expenditure being of non-genuine
nature or in the nature of non-business purpose and also in the absence of any allegation that such expenditure is excessive or unreasonable, such
adhoc disallowance made by the Learned CIT (Appeals) for want of proper verification only is not justified in the facts of the present case because
in the present case, daily allowances have been paid by the assessee to its drivers and helpers who are generally illiterate or semi-literate and while
on tour, they work in adverse conditions. Therefore, we delete this adhoc disallowance in all the years.
7.4 On careful examination of the findings of both the authorities, we notice that both of them have dealt with the issue of disallowance of 10%
daily allowance given to the drivers appropriately on the basis of substantive material available in support thereof. It can also further be noted that
the Tribunal was right in holding that it is next to impossible to expect these drivers and helpers to maintain supporting evidences and vouchers in
respect of their food and miscellaneous expenses. Again with nothing on record to hold such expenses as non-genuine or not for the business, both
the authorities have is also rightly concluded. Predominantly, the issue is decided on facts, no question of law arises.
Insofar as the issue regarding disallowance of clearing and forwarding expenses is concerned, the assessee-respondent claimed expenditure
relating to clearing and forwarding expenses for different years. The same had been disallowed by the Assessing Officer and added the said
amount to the income of the assessee-respondent.
8.1 When challenged before the CIT (Appeals), it extensively dealt with this issue with facts and figures and held that the clearing and forwarding
work is not the main business line of the assessee-respondent. However, at times since the assessee-respondent is in the business of transportation,
he was required to work for his client for clearing and forwarding of cargo done at the port which was done through other Clearing and
Forwarding Agents. It makes the payments to such agents as per the bills raised by them and recover the charges for carrying out the work from
the customers for composite bills. The CIT (Appeals) noted that the Assessing Officer only on the basis of verification of Clearing and Forwarding
accounts has noted that in respect of bills raised by the various shipping forwarding agents, no payments have been made. It also held that in the
previous year also, no such payments were made and the opening balance in the subsequent year is shown as ''Nil''. On giving cogent reasons for
pointing out the fallacy in such reasonings, it held that the Assessing Officer''s disallowance was based on incorrect understanding of financial
transactions and, therefore, it allowed such claim.
8.2 This was when challenged before the Tribunal by the Revenue, it reiterated the findings of the CIT (Appeals) and confirmed the findings of the
CIT (Appeals) by holding that none of the findings could be controverted by the Department and the entire disallowance was based on incorrect
understanding of financial transactions. All the details given by both the authorities are self-explanatory. There is a clear demarcation made out in
the evidences adduced in respect of clearing and forwarding charges and also in respect of clearing and forwarding expenses. With regard to the
clearing and forwarding expenses and general labour charges, the truck association fees, etc. were not required to be recovered from the end-
users. However, those which were paid towards clearing and forwarding charges, were necessarily recovered from the end-users. Eloquently, the
facts vindicated the stand taken by both the CIT (Appeals) and the Tribunal in setting aside the conclusion of the Assessing Officer. We see
absolutely no reason to interfere with as both the authorities have given cogent reasonings while concluding the said issue. Resultantly, this issue
merits no consideration any further.
In view of above discussion, this Tax Appeal since raises no question of law much less any substantial question of law, deserves to be dismissed.