Shri Pradeepshankar B. Jha, Baroda V. The ACIT, Circle-2(2), Baroda

CO 128/AHD/2015

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 4914 (ITAT-AHMEDABAD)
• Duration Of Justice: 6 year(s) 8 month(s) 21 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 29-03-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 08-07-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G.C. DAXINI
• Keywords: Depreciation; Search and seizure; Principle of natural justice; Initiation of penalty proceedings; TDS; Set aside
• Section: 234B; 40(a)(ia); 133(6); 37(1); 194C; 250; 208; 264; 43; 48; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “B” BENCH (Conducted Through Virtual Court) Before: Shri P.M. Jagtap, Vice President And Shri Siddhartha Nautiyal, Judicial Member Sl. No. Appeal ITA/CO A.Y. Appellant Respondent 1 ITA 1650/Ahd/2015 2008-09 ACIT, Cir-2(2), Baroda Pradeepkumar B. Jha (ABTPJ2556N) 2 CO 128/Ahd/2015 (In ITA No. 1650/Ahd/2015) 2008-09 Pradeepkumar B. Jha (ABTPJ2556N) ACIT, Cir-2(2), Baroda 3 ITA 1115/Ahd/2015 2009-10 ITO, Wd-1(2)(4), Baroda Pradeepkumar B. Jha (ABTPJ2556N) 4 CO 101/Ahd/2015 (In ITA No. 1115/Ahd/2015) 2009-10 Pradeepkumar B. Jha (ABTPJ2556N) ITO, Wd-1(2)(4), Baroda 5 ITA 3525/Ahd/2016 2012-13 ITO, Wd-1(2)(4), Vadodara Pradeepkumar B. Jha (ABTPJ2556N) Asses see by : Shri S. N. Soparkar, Sr. A. R. Revenue by : Shri Bhav na P. Ya shorai CIT D. R. & Shri G. C. Daxini, Sr. D. R. Date of hearing : 17-02 -2022 Date of pronouncement : 30-03 -2022 आदेश/ORDER PER BENCH :- This is an appeal against the order of CIT (Appeals)-5, Vadodara dated 10-03-2015 in Appeal No. CAB/II-346/10-11 (Set-aside) by the Revenue in which the assessee has also raised its cross objections. The grounds of appeal of the Revenue and the cross objections of the assessee are reproduced below. ITA 1650/Ahd/2015 A.Y. 2008-09 filed by Revenue I.T.A Nos. 1650 & 1115/Ahd/2015, 3525/Ahd/2016 & C.Os. 101& 128/Ahd/2015 Page No. ACIT vs. Pradeepkumar B. Jha 2 2. The Revenue has raised following grounds of appeal:- “1. (a) On the facts and in the circumstances of the case and in law, the Ld. CIT( Appeals) erred in law in deleting the addition of Rs. 8.25 crores made by Assessing Officer without appreciating that the assessee is following mercantile system of accounting and the income was taxable on accrual basis. (b) The Ld. CIT(A) has erred in not appreciating that reason given by the assessee for not offering the income to tax was suspicious and contrary to established principle of law. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT (Appeals) erred in law without providing any opportunity to the Assessing Officer of being heard or by way of submission to arrive at the figure of disallowance of expenses of Rs. 2.51 crores against the claim of Rs. 5.98 Crores. 3. The appellant craves leave to add to, amend or alter the above grounds as may be deemed necessary. Relief claimed in appeal It is prayed that the order of the CIT (Appeals) be set aside and that of the Assessing Officer be restored.” CO 128/Ahd/2015 (In ITA No. 1650/Ahd/2015) A.Y. 2008-09 filed by assessee 3. The assessee has raised following grounds of cross objection:- “1. Ld. CIT (A) erred in law and on facts in holding that amount actually expended carrying out work for FCI during the year of Rs. 2,51, 59, 561/- be I.T.A Nos. 1650 & 1115/Ahd/2015, 3525/Ahd/2016 & C.Os. 101& 128/Ahd/2015 Page No. ACIT vs. Pradeepkumar B. Jha 3 disallowed. Ld. CIT (A) ought to have granted deduction of expenses incurred for fulfilling contract with FCI. It be so held now. The appellant craves leave to add, amend, edit, delete, change or modify all or any of the ground before or at the time of hearing.” 4. The brief facts of the case are that the assessee is in the business of handling and transportation contractor of FCI and Central Warehousing Corporation. During the course of assessment proceedings, the AO noticed in the Notes forming part of Audit Report, that the assessee has raised claims amounting to Rs. 8.25 crores on FCI on account of various costs to be recovered, but since the claims were not acknowledged by FCI and recovery thereof was dependent upon FCI admitting the same, it shall be accounted as income only at the time of receipts, as the firm is not certain about its recoverability. The AO in the assessment order dated 27-12-2010 held that since assessee has already debited Rs. 5,98,66,942/- under the head current liabilities following mercantile system of accounting under FCI, the whole amount of Rs. 8,25,00,000/- deserves to be treated as income of the current year. 5. In appeal before CIT(Appeals), the CIT(A) asked the assessee to specify the expenses relating to supplementary claim of Rs. 8.25 crores, in response to which the assessee submitted that it was not practically possible to segregate cost pertaining to this claim of Rs. 8.25 crores from FCI. The CIT(A) held that in absence of assessee providing any fair estimate of expenditure, since the assessee has earned loss of Rs. 83.87 lakhs on turnover of Rs. 19.73 crores, it can be safely said that expenditure equals I.T.A Nos. 1650 & 1115/Ahd/2015, 3525/Ahd/2016 & C.Os. 101& 128/Ahd/2015 Page No. ACIT vs. Pradeepkumar B. Jha 4 receipt. So, the CIT(A) accepted assessee’s claim that income of Rs. 8.25 crores did not accrue in the year under consideration since the supplementary claim was not accepted by FCI during the year, but estimated the expenditure at Rs. 8.25 crores as having been incurred for earning the aforesaid income and directed the same to be disallowed in the current year i.e. AY 2008-09 and taken for claim in the year of accrual of income. 6. In appeal against the order of CIT(A), the ITAT vide order dated 25/02/2014 for AY 2008-09 noted that deletion of Rs. 8.25 crores as income of current year by CIT(A) has not been challenged by the Department in their cross appeal and therefore this issue has attained finality. Regarding, the disallowance of expenditure of Rs. 8.25 crores, the ITAT held that CIT(A) was justified in making the disallowance of the expenditure since the assessee has himself not offered the corresponding income for taxation. However, since the CIT(A) did not give a finding about the quantum of expenditure incurred by the assessee in respect of such supplementary claim raised on FCI, the ITAT restored back the matter to the file of CIT(A) for decision afresh in respect of disallowance of expenditure. 7. In proceeding before CIT(A) pursuant to directions of ITAT, the assessee furnished details of expenditure incurred for carrying out work in respect of aforesaid supplementary claim of Rs. 8.25 crores from FCI. The CIT(A) on going through the submissions and supporting documents held that the assessee had incurred a sum of Rs. 2,51,59,561/- in relation to claims lodged before FCI. The CIT(A) further held that per directions of ITAT these expenses be disallowed and added to the total income of the I.T.A Nos. 1650 & 1115/Ahd/2015, 3525/Ahd/2016 & C.Os. 101& 128/Ahd/2015 Page No. ACIT vs. Pradeepkumar B. Jha 5 assessee for AY 2008-09 and may be allowed in later year when the claim lodged with the FCI is received and offered as income by the appellant. We shall first take up the Department’s Grounds of Appeal: 8. Ground No. 1: “1. (a) On the facts and in the circumstances of the case and in law, the Ld. CIT( Appeals) erred in law in deleting the addition of Rs. 8.25 crores made by Assessing Officer without appreciating that the assessee is following mercantile system of accounting and the income was taxable on accrual basis. (b) The Ld. CIT(A) has erred in not appreciating that reason given by the assessee for not offering the income to tax was suspicious and contrary to established principle of law. 9. Before us the Department has submitted that it would not be pressing Ground number 1 relating to deletion of Rs. 8.25 crores by the CIT(A) in respect of estimated receipts from FCI. 10. In the result, Ground No.1 of the Departmental Appeal is being dismissed as not pressed. Ground No. 2: the Ld. CIT (Appeals) erred in law without providing any opportunity to the Assessing Officer of being heard or by way of submission I.T.A Nos. 1650 & 1115/Ahd/2015, 3525/Ahd/2016 & C.Os. 101& 128/Ahd/2015 Page No. ACIT vs. Pradeepkumar B. Jha 6 to arrive at the figure of disallowance of expenses of Rs. 2.51 crores against the claim of Rs. 5.98 Crores 11. Regarding Ground Number 2, the DR submitted that the CIT(A) while accepting the quantum of expenditure at Rs. 2,51,59,561/-, did not give any opportunity to the assessing officer to verify whether the expenses were in fact occurred. The DR pointed out that at the time of original proceedings before CIT(A), the assessee had submitted that it was not practically possible to bifurcate the expenses specifically incurred in respect of the supplementary claim of Rs. 8.25 crores with FCI and therefore, in the entire exercise of quantification of expenses before CIT(A) post direction of ITAT, the AO should have been afforded an opportunity to verify the genuineness of claim, when the matter was remanded by the Hon’ble ITAT for adjudication. 12. The AR of the assessee in response submitted that there is no law to the effect that if no income is generated, expenses are to be disallowed. In the instant case, expenditure incurred is duly supported by documentary evidences. The AR of the assessee submitted that details of all the expenses incurred were submitted before CIT(A) supported by evidences, which were duly analyzed and appreciated by Ld. CIT(A). The AR further submitted that from the CIT(A) order, it may be seen a sum of Rs. 5,41,02,853/- was claimed from FCI in FY 2006-07, for which the corresponding expenses incurred were to the tune of Rs. 1,20,67,912/- and a sum of Rs. 2,83,64,018/- was claimed from FCI in FY 2007-08 (i.e. AY 2008-09), for which the corresponding expenses incurred were to the tune of Rs. 1,30,91,649/- and I.T.A Nos. 1650 & 1115/Ahd/2015, 3525/Ahd/2016 & C.Os. 101& 128/Ahd/2015 Page No. ACIT vs. Pradeepkumar B. Jha 7 therefore expense amounting to Rs. 1,20,67,912/- could not be disallowed in this year since they did not pertain to this year and if at all, only expenses to the tune of Rs. 1,30,91,649/- could be disallowed in this year. The Ld AR of the assessee submitted that expenses to the tune of Rs. 1,30,91,649/- may be disallowed this year and allowed in the year in which the claim before FCI has been finally rejected vide letter dated 04/08/2011 i.e. FY 2011-12. 13. We have heard the rival contentions and perused the material on record. On going through the history of the case, it is noticed that during the course of original assessment proceedings before the AO, there was no discussion on quantum of expenses having being incurred in respect of this additional claim of Rs. 8.25 crores before FCI. Also, there was no discussion as to the aspect that the claim of approximately 5.41 crores out of Rs. 8.25 crores did not pertain to assessment year 2008-09 at all, and pertained to assessment year 2007-08 and hence could not be added back to the income of this year. In fact, the AO in the assessment order observed that Notes forming part of the Audit Report read “the firm has raised claims amounting to Rs. 8.25 crores (approximately) during the year against FCI on account of various costs to be recovered and other claims” There is apparently no year-wise bifurcation of claims asserted before the AO for his consideration. During the course of appellate proceedings before first appellate authority, the assessee submitted that it was not possible for it to practically segregate the expenses related to this supplementary claim of Rs. 8.25 crores. Accordingly, the CIT(A), estimated the expenses incurred in respect of the supplementary claim at Rs. 8.25 crores. Before, ITAT, again the aspect that a portion of the claim before FCI amounting to Rs. 5.41 I.T.A Nos. 1650 & 1115/Ahd/2015, 3525/Ahd/2016 & C.Os. 101& 128/Ahd/2015 Page No. ACIT vs. Pradeepkumar B. Jha 8 crores out of Rs. 8.25 crores (and also the corresponding expenses) did not pertain to assessment year 2008-09 at all was not discussed. In the light of arguments put forth before it, the ITAT restored the file back to CIT(A) to decide afresh in respect of the disallowance of expenditure for AY 2008-09. In the remand proceedings before CIT(A), the assessee for the first time gave a detailed year-wise break-up of claim of supplementary income before FCI and corresponding year-wise expenses incurred to earn the same. The CIT(A) accepted the genuineness of claim of expenses (Rs. 2,51,59.561/-) and per directions of ITAT disallowed the same for assessment year 2008-09 and gave a direction to allow deduction thereof, in the year when the supplementary income is received from FCI and is offered as income. Now, the Counsel for the assessee has submitted that part of this disallowance of Rs. 2,51,59,561/- does not pertain to AY 2008-09 and CIT(A) erred in disallowing the same. 13.1 Another aspect for our consideration is that whether the AO should have been afforded an opportunity of examination. We would like to refer to the decision in the case of CIT vs. Pradyuman M. Patel passed by the High Court of Gujarat in Tax Appeal No. 264 of 2013 wherein search and seizure action was carried out at the premises of the assessee and assessment was completed u/s. 158BE of the Act determining total income at Rs. 1,93,94,403/-. The assessee preferred an appeal before ld. CIT(A) and ld. CIT(A) thought it fit to hold an inquiry u/s. 250(4) of the Act in order to check the genuineness of certain investments made by some investors. The ld. CIT(A) asked the assessee to produce the investors (24 in number) and ld. CIT(A) personally took the statements of all 24 investors. Relying upon I.T.A Nos. 1650 & 1115/Ahd/2015, 3525/Ahd/2016 & C.Os. 101& 128/Ahd/2015 Page No. ACIT vs. Pradeepkumar B. Jha 9 the statements of investors and without giving an opportunity to cross examine those investors to the Assessing Officer, the ld. CIT(A) deleted addition made by the Assessing Officer of Rs. 1,93,94,403/- by holding that in the statements of the investors, they have confirmed the fact of making investment in the construction project through the assessee. Consequently, the ld. CIT(A) allowed the said appeal of the assessee and deleted addition of Rs. 1,93,94,403/- made by the Assessing Officer while passing order. The Revenue preferred appeal before Ahmedabad ITAT and before ITAT the Revenue argued that the ld. CIT(A) had erred in deleting the additions made by the Assessing Officer on the basis of statements recorded without giving the Assessing Officer an opportunity to examine the statements thereby violating Rule 46A of the Income Tax Rules. The ITAT rejected the Department’s submission and held that as per Sub-Rule (2) of Rule 46A, the ld. CIT(A) is within his powers to examine any witness and there is no infringement of Rule 46A. The Hon’ble Tribunal did not admit the additional ground and on merits dismissed the appeal preferred by the Revenue confirming the order passed by ld. CIT(A), deleting the additions of Rs. 1,93,94,403/- made by the Assessing Officer. The Department filed appeal before Hon’ble Gujarat High Court. The Hon’ble Gujarat High Court quashed the order of the ITAT and remanded the matter to the ld. CIT(A) to dispose of the appeal afresh in accordance with law and on merits after giving an opportunity to the Assessing Officer to cross examine those investors. The relevant extracts of the ruling are reproduced for ready reference. I.T.A Nos. 1650 & 1115/Ahd/2015, 3525/Ahd/2016 & C.Os. 101& 128/Ahd/2015 Page No. ACIT vs. Pradeepkumar B. Jha 10 “6. It is required to be noted that power of the Commissioner (Appeals) to hold inquiry during the pendency of the appeal under section 250(4) of the Act cannot be disputed and is not disputed. The learned counsel appearing on behalf of the revenue is also not disputing the power of the CIT(A) to hold inquiry in a proper case pending the appeal, under section 250(4) of the Act. However, grievance which is voiced is with respect to violation of Rule 46A of the Income Tax Rules, 1964 i.e. not giving opportunity to the AO to cross-examine those investors whose statements came to be recorded by the Inspectors during the course of inquiry held in exercise of powers under section 250(4) of the Act and whose statements are relied upon by the learned CIT(A) while deleting addition of Rs.1,93,94,403/- made by the AO. Sub-section (4) of Section 250 permits the Commissioner (Appeals) to make such further inquiry as he thinks fit or may direct AO to make further inquiry and report the result of the same to him before disposing of any appeal before him. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx As per Sub-Rule (4) of Rule 46A not withstanding anything contained in Rule 46A, Commissioner (Appeals) may direct production of any document or examination of any witness, to enable him to dispose of the appeal. Therefore, considering Sub- Rule (4) of Rule 46A, it is always open for the Commissioner (Appeals) to direct production of any document or examination of any witness to enable him to dispose of the appeal. However, while I.T.A Nos. 1650 & 1115/Ahd/2015, 3525/Ahd/2016 & C.Os. 101& 128/Ahd/2015 Page No. ACIT vs. Pradeepkumar B. Jha 11 exercising such powers and examining any witness, who are permitted to be examined in exercise of the powers under Sub-Rule (4) of Rule 46A, AO is required to be given an opportunity to cross- examine such witness. Unless and until the AO is given an opportunity to cross-examine such witnesses who are examined during the pendency of the appeal in exercise of the powers under Sub-Rule (4) of Rule 46A, Commissioner (Appeals) cannot rely upon the statements / depositions of such witnesses, as it would be in violation of the principles of natural justice. ...... 7.00. In view of the above and for the reasons stated above and without further entering into the merits of the case and solely on the ground that the order passed by the CIT(A) is in breach of violation of Rule 46A of the Income Tax Rules, 1962, the order passed by the CIT(A) as well as the impugned judgement and order passed by the ITAT deserve to be quashed and set aside and are accordingly quashed and set aside on the aforesaid ground alone and the matter is remanded to the CIT(A) to decide and dispose of the appeal afresh in accordance with law and on merits and after giving an opportunity to the AO to cross-examine those investors / witnesses whose statements were recorded on 27/9/2002 in presence of the CIT(A) at the Income Tax Office at Bhavnagar and relied upon by the learned CIT(A) while deleting addition of Rs.1,93,94,403/- made by the AO. The aforesaid exercise shall be completed by the CIT(A) at the earliest but not later than six months from the date of the present order. However, it is made clear that this Court has not expressed any opinion in favour of I.T.A Nos. 1650 & 1115/Ahd/2015, 3525/Ahd/2016 & C.Os. 101& 128/Ahd/2015 Page No. ACIT vs. Pradeepkumar B. Jha 12 either of the parties and the impugned orders are set aside solely on the ground of violation of Rule 46A of the Income Tax Rules, 1962. Present appeal is allowed to the aforesaid extent. In the facts and circumstances of the case, there shall be no order as to costs.” 14. Now, in the instant set of facts, certain decisive facts were not adjudicated upon by CIT(A) in the remand proceedings viz. the correct proportionate amount of expenditure relatable to the impugned assessment year i.e. AY 2008-09, and the corresponding amount which needs to be allowed for this year in subsequent year and the quantum which is relatable to preceding financial year 2007-08. Neither has the issue of bifurcation of income between AY 2007-08 and AY 2008-09 been discussed with CIT(A) in his order. The assessee placed additional evidences and supporting documents in support of its claim of expenditure before the CIT(Appeals) for the first time, in respect of which no opportunity was given to Ld. AO for verification. The Ld CITA(A) disallowed the entire expenditure though the AR of the assessee has averred before us that part of the expenses could not been disallowed since they did not pertain to the instant year. Therefore, in our view, since certain important aspects have not been dealt with by Ld. CIT(A) in his order and respectfully following the decision of the Hon’ble Gujarat High Court in the case of Pradyuman Patel supra, in the interests of justice, we are restoring the matter to the file of CIT(A) on the limited point to verify the correct quantum of expenditure relatable to AY 2008-09 after affording opportunity to the Assessing Officer for carrying out necessary verification. I.T.A Nos. 1650 & 1115/Ahd/2015, 3525/Ahd/2016 & C.Os. 101& 128/Ahd/2015 Page No. ACIT vs. Pradeepkumar B. Jha 13 15. Accordingly, Ground No.2 of Department appeal is being allowed and matter restored to file of CIT(A) with specific directions as cited in preceding paragraph. We shall now take up Assessee’s Cross Objections: 16. The assessee has raised the following cross objection: Ld. CIT (A) erred in law and on facts in holding that amount actually expended carrying out work for FCI during the year of Rs. 2,51, 59, 561/- be disallowed. Ld. CIT (A) ought to have granted deduction of expenses incurred for fulfilling contract with FCI. It be so held now. 17. Before us, the counsel of the assessee argued that there is no law to the effect that if no income is earned then the corresponding expenses have to be disallowed. He submitted that all expenses are supported by supported by documentary proof, which have been duly verified by ld. CIT(A) and therefore, all expenses are allowable even if no income has been earned. We are in agreement with the proposition that once the expenses are held to be genuine and have been incurred for the purpose of business of the assessee and have been correctly quantified, the same are allowable, irrespective of whether any income has been earned by the assessee. The Courts on numerous occasions have reiterated the above proposition and in fact Courts have consistently taken a position that expenditure incurred even on an ‘abandoned project’ is allowable, if such project is an extension of the existing business. In the case of Chemplast Sanmar Ltd. v. ACIT [2018] I.T.A Nos. 1650 & 1115/Ahd/2015, 3525/Ahd/2016 & C.Os. 101& 128/Ahd/2015 Page No. ACIT vs. Pradeepkumar B. Jha 14 97 taxmann.com 347 (Madras), the Madras High Court held that where assessee company set up a new project which was subsequently abandoned, since new project was managed from common funds, control over all business units was in hands of assessee and there was unity of control, it could not be said that expenditure incurred by assessee was on a new line of business, thus, same was to be allowed as revenue expenditure. However, the counsel for assessee has himself submitted before us that part of the expenses disallowed by ld. CIT(A) do not pertain to the year under consideration. Further, the AO in following year (AY 2009-10) which was heard together with the present appeal has contended that claim of assessee has not been rejected by AGM(PO) FCI, but has forwarded the bills to the Competent Authority for consideration. In view of the above, respectfully following the decision of Hon’ble ITAT Ahmedabad dated 25/02/2014 we hold that that expenditure proportionate to impugned AY 2008-09 i.e. the year for consideration before us be allowed in the year FCI has finally rejected the claim of the assessee. For this purpose, the CIT(A) may carry out necessary verification as to ascertain the precise year when the claim has been finally rejected by FCI and allow deduction of proportionate expenses pertaining to AY 2008-09 in the year, when the claim has been finally rejected by FCI. On the connected issue regarding the quantum of expenditure which would be deductible in the year in which claim is finally rejected by FCI, the Ld. AR of the assessee himself has submitted that only part of the expenses of Rs. 2,51,59,561/- pertain to AY 2008-09. Therefore, in our view, once the CIT(A) after giving due opportunity to Ld. AO has arrived at the correct amount of expenditure relatable to this year, respectfully following the directions of Hon’ble ITAT in the assessee’s case I.T.A Nos. 1650 & 1115/Ahd/2015, 3525/Ahd/2016 & C.Os. 101& 128/Ahd/2015 Page No. ACIT vs. Pradeepkumar B. Jha 15 vide order dated 25/02/2014 for AY 2008-09, the proportionate expenditure incurred in AY 2008-09 be allowed in the year when the claim has been finally rejected by FCI. 18. The Cross objection No. 1 of the assessee is allowed as per directions in the preceding paragraphs. 19. In the result, appeal of the Revenue is partly allowed and the Cross objection of the assessee is allowed as per directions given above. ITA No. 1115/Ahd/2015 AY 2009-10 20. This is an appeal against the order of CIT(Appeals) dated 30.12.2014 in appeal number No. CAB/II-276/11-12 by the Revenue in which the assessee has also raised cross its objections. The grounds of appeal of the Revenue and the cross objections of the assessee are reproduced below. 21. The Revenue has raised following grounds of appeal:- “1. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in: (i) deleting disallowance to the tune of Rs.40,41,034/- by not appreciating the fact that assessee miserably failed to discharge his onus with material evidence to prove the genuineness of the sundry creditors and also erred in law in ignoring the evidence brought on record by the AO after making enquiries. I.T.A Nos. 1650 & 1115/Ahd/2015, 3525/Ahd/2016 & C.Os. 101& 128/Ahd/2015 Page No. ACIT vs. Pradeepkumar B. Jha 16 (ii) (a) in deleting the addition of Rs.3.00 crores made, being supplementary claim as income accrued during the year under consideration, in spite of the fact that assessee followed mercantile system of accounting. (b) in adjudicating the issue based on additional evidences produced during the appellate proceedings, without giving opportunity to the AO, which is in contravention with the Rule 46A of the IT Rule, 1962. (c) in not providing any opportunity to the AO before arriving at the figure of Rs.31,64,676/-, in spite of the same being arbitrary in nature 2. The appellant craves to add to, amend or alter the above grounds as may be deemed necessary. Relief claimed in appeal. The order of the CIT(A) on the above issue be set aside and that of the Assessing Officer be restored.” CO 101/Ahd/2015 (In ITA No. 1115/Ahd/2015) A.Y. 2009-10 filed by assessee: 22. The assessee has raised following grounds of cross objection:- “1. Ld. CIT (A) erred in law and on facts in confirming part disallowance with respect to sundry creditors treated as bogus creditors of Rs. 6, 35, 864/- out of total disallowance of Rs. 46, 76, 969/- made by AO. Ld. CIT (A) ought to have deleted total I.T.A Nos. 1650 & 1115/Ahd/2015, 3525/Ahd/2016 & C.Os. 101& 128/Ahd/2015 Page No. ACIT vs. Pradeepkumar B. Jha 17 disallowance appreciating that the liability is pending & shown as outstanding in the books of the appellant. It be so held now. 2. Ld. CIT (A) erred in law and on facts in confirming disallowance made by AO Rs. 1, 11, 523/- depreciation claimed on fixed assets. Ld. CIT (A) ought to have deleted disallowance of depreciation. It be so held now. 3. Ld. CIT (A) gravely erred in law and on facts in holding that Rs. 31, 64, 676/-expenses incurred for claims lodged against FCI and income not offered to tax during the year be disallowed. Ld. CIT (A) ought not to have disallowed deduction of genuine expenses incurred for the purpose of the business of the appellant. It be so held now. 4. Levy of interest u/s 234A, 234B & 234C of the Act is not justified. 5. Initiation of penalty proceedings u/s 271 (1)(c) of the Act is not justified. The appellant craves leave to add, amend, edit, delete, change or modify all or any of the ground before or at the time of hearing.” We shall first take up Department’s Grounds of Appeal. Ground No. 1(ii)(a) Deleting the addition of Rs.3.00 crores by CIT(A) being supplementary claim as income accrued during the year under consideration: 23. It is noted that since on similar facts, the Department has not pressed this ground for the immediately preceding year, this ground is hereby dismissed as not pressed. I.T.A Nos. 1650 & 1115/Ahd/2015, 3525/Ahd/2016 & C.Os. 101& 128/Ahd/2015 Page No. ACIT vs. Pradeepkumar B. Jha 18 24. In the result, Ground No. 1(ii)(a) of the Department’s appeal is being dismissed Grounds Numbers 1(ii) (b) and 1(ii) (c) of the Revenue and the Cross Objection No. 3 filed by the assessee: 25. The brief facts in relation to these grounds and cross objection are that during the course of assessment proceedings, the AO noticed in the Notes forming part of Audit Report, that the assessee has raised claims amounting to Rs. 11.71 crores against FCI for FY 2006-07, 2007-08 and 2008-09 on account of various costs to be recovered, but since the claims were not acknowledged by FCI and recovery thereof was dependent upon FCI admitting the same, it shall be accounted as income only at the time of receipts, as the firm is not certain about its recoverability. The AO issued show cause notice as to why claim of Rs. 3 crores (Rs. 11.25 crores – 8.25 crores) pertaining to AY 2009-10 lodged with the FCI during this year not be added to the total income as expenditure relatable to these claims has duly been booked in the accounts. The assessee submitted that claims of the assessee have never been admitted by FCI but in fact have been rejected vide letter dated 4 th August 2011. The AO however referred to letter dated 13/14.05.2009 of the assessee to General Manager, FCI and held that on a reading of letter, the claims of assessee have not been rejected by FCI but AGM (PO) FCI forwarded bills to Competent Authority for approval. The AO in the assessment order held that similar claim put forth in AY 2008-09 has been rejected by the then AO in order dated 27/12/2010, and therefore I.T.A Nos. 1650 & 1115/Ahd/2015, 3525/Ahd/2016 & C.Os. 101& 128/Ahd/2015 Page No. ACIT vs. Pradeepkumar B. Jha 19 the whole amount of Rs. 3 crores deserves to be treated as income of the current year. 25.1 In appeal against order of AO, the CIT(Appeals) noted that the facts of the case in the instant year are similar to AY 2008-09, and as per directions of Hon’ble ITAT for AY 2008-09 dated 25/02/2014 the notional income of Rs. 3 crores is not justified and can be bought to tax when the claims are accepted by FCI. Accordingly, CIT(A) deleted the notional income of Rs. 3 crores, since it was dependent upon claims being accepted by FCI. Further, the CIT(A) as per directions of ITAT order sought details of expenses incurred for raising the supplementary claim of Rs. 3 crores, which are to be added to this year’s income and will be allowable when the income in respect of supplementary claim before FCI is offered for tax. The assessee submitted that it incurred total expenditure amount to Rs. 31,64,676/- in respect of this supplementary claim of Rs. 3 crores, which was accepted by CIT(A). The CIT(A) added the above sum of Rs. 31,64,676/- to the income of the assessee with a direction to the AO to allow deduction thereof in the year the supplementary claim is received by the assessee from FCI and offered as income. 26. In the immediately preceding year AY 2008-09, we have remanded the case back to the file of Ld. CIT(A) to verify the veracity of expenses after giving due opportunity, to the AO, to work out the correct proportionate quantum of expenses pertaining to year under consideration which is to be to be disallowed and to allow the same when the claim of the assessee has been finally rejected by FCI. Further, since details of expenses I.T.A Nos. 1650 & 1115/Ahd/2015, 3525/Ahd/2016 & C.Os. 101& 128/Ahd/2015 Page No. ACIT vs. Pradeepkumar B. Jha 20 were filed for the first time before CIT(A), an opportunity may be provided to Ld. AO to analyze the details of expenditure. For this year as well, the file is being remanded to Ld. CIT(A) with same directions as for immediately preceding year i.e. to verify the claim of the assessee after giving due opportunity to Ld. AO. 27. In the result, Grounds Numbers 1(ii) (b) and 1(ii) (c) of the Department are allowed. 28. On the cross objection no. 3 filed by the assessee, which is to the effect that Ld. CIT (A) gravely erred in disallowing expenses amounting to Rs. 31, 64, 676/- incurred for claims lodged against FCI, we are in agreement with the proposition that once the expenses are held to be genuine and have been incurred for the purpose of business of the assessee and have been correctly quantified, the same are allowable, irrespective of whether any income has been earned by the assessee. However, on similar facts we have remanded the matter back to file of CIT(A) with certain directions in the immediately preceding year, with a direction to verify the expenses after affording the AO an opportunity of cross examination, and to allow the expenses when the supplementary claim of assessee has been finally rejected by FCI. Similar directions are given for AY 2009-10 as well. 29. In the result, Cross Objection 3 of the assessee is allowed as per directions in preceding paragraphs. I.T.A Nos. 1650 & 1115/Ahd/2015, 3525/Ahd/2016 & C.Os. 101& 128/Ahd/2015 Page No. ACIT vs. Pradeepkumar B. Jha 21 Ground No. 1(i) of the Department’s appeal and Cross Objection No. 1 of the assessee: Bogus Sundry Creditors: 30. The brief facts in relation to Department’s ground and assessee’s cross objection are that the assessee had shown sundry creditors for expenses of Rs. 18,13,109/- and other creditors of Rs. 75,94,977/-. To verify genuineness of the creditors, the Assessing Officer issued notice u/s. 133(6) of the Act to 17 parties but the notice to five parties were returned with the remarks “not known” and in respect of 4 creditors, no replies were filed and in the case of 5 parties there was difference in balances as compared to assessee’s books. No confirmations were furnished by assessee in response to opportunity granted by Assessing Officer and it was held that such creditors are bogus and the amount shown in their names aggregating to Rs. 46,76,898/- was brought to tax in the hands of the assessee. 31. In appeal before ld. CIT(A), the assessee submitted details in respect of two parties. Ld. CIT(A) observed that on going through supporting evidences it is noticed that assessee had carried out business with both the parties in the earlier years. On verification of the ledger accounts, it is noticed that there were transactions through bank for payment of outstanding amounts. Further, the outstanding balances of both the parties are reflected in the balance sheet as on 31-03-2009. The ld. CIT(A) deleted the additions in respect of these two creditors amounting to Rs. 40,41,034/- by relying upon the decisions of Gujarat High Court in the case of CIT vs. Hitin S. Garg (2012) 208 taxman 16 Gujarat, CIT vs. Purdevi (2014) 221 taxman 375 (Gujarat) and CIT vs. Bhogilal (2014) 222 taxman 313 (Gujarat) I.T.A Nos. 1650 & 1115/Ahd/2015, 3525/Ahd/2016 & C.Os. 101& 128/Ahd/2015 Page No. ACIT vs. Pradeepkumar B. Jha 22 which are to the effect that no addition can be made where assessee shows the liability of the creditors is payable in the financial statements u/s. 41(1) of the Act. 32. Before us, the ld. Departmental Representative placed reliance on the observations of the ld. Assessing Officer in the assessment order that the assessee has not been able to establish the genuineness of these parties. The ld. counsel for the assessee placed reliance on the case of Gujarat High Court in the case of CIT vs. Bhogilal 43 taxman.com 55 and Dattratray Poultry Breeding Farm (P) Ltd. 415 ITR 407 (Gujarat High Court). The ld. counsel for the assessee drew our attention to pages 45 to 48 of the paper book to the effect that one of the parties M/s. Ramkrupa Handling Company is having continuous transactions with the assessee for several years. He also drew our attention to pages 53 to 54 of the paper books which is a ledger account of the other creditor M/s. Shiv Handling Agency and the assessee submitted that the assessee is having continuous stream of transactions with this party. The ld. counsel for the assessee submitted that all these details were filed before the ld. CIT(A) and ld. CIT(A) has given relief after considering all these facts. 33. We have heard the rival contentions and perused the material on record. We find that the assessee submitted that details in respect of two parties M/s. Ramkrupa Handling Company and M/s. Shiv Handling Agency before the ld. CIT(A). On going through the details furnished before ld. CIT(A) and also before us it is seen that the assessee is having transactions with these parties in the earlier years as well. The ld. CIT(A) after I.T.A Nos. 1650 & 1115/Ahd/2015, 3525/Ahd/2016 & C.Os. 101& 128/Ahd/2015 Page No. ACIT vs. Pradeepkumar B. Jha 23 considering the details furnished before him deleted the addition on account of bogus creditors in respect of these two parties. We find no infirmity in the order of ld. CIT(A). It is held that the ld. CIT(A) has not erred in deleting addition to the tune of Rs. 40,41,034/- in respect of these two parties whose details were furnished before ld. CIT(A). 34. In the result, ground no. 1(i) of Department’s appeal is dismissed. 35. Further, since the assessee did not furnish any details in respect of balance creditors before the ld. CIT(A), in our view, the ld. CIT(A) has not erred in confirming the addition in respect of balance sundry creditors with respect to whom details have not been furnished by the assessee. In the result, the cross objection of the assessee is dismissed. 36. In the result, both Ground No. 1(i) of the Department and Cross Objection No. 1 of the assessee are dismissed. Cross Objection No. 2 of assessee: 2. Ld. CIT (A) erred in law and on facts in confirming disallowance made by AO Rs. 1, 11, 523/- depreciation claimed on fixed assets. Ld. CIT (A) ought to have deleted disallowance of depreciation. It be so held now. I.T.A Nos. 1650 & 1115/Ahd/2015, 3525/Ahd/2016 & C.Os. 101& 128/Ahd/2015 Page No. ACIT vs. Pradeepkumar B. Jha 24 37. Before us the Ld. Counsel for the assessee submitted that he would not be pressing Cross Objection No. 2. Accordingly, the same is being dismissed as not pressed. 38. In the result, Cross Objection No. 2 of the assessee is dismissed. Cross Objection No. 4 and 5 of the assessee: 39. Cross Objection No. 4 and 5 of the assessee relating to levy of interest u/s 234A, 234B & 234C of the Act and initiation of penalty proceedings u/s 271 (1)(c) of the Act are general in nature and do not require any specific adjudication. ITA No. 3525/Ahd/2016 AY 2012-03 40. This is an appeal by the Department against the order of the commissioner of Income Tax (Appeal)-V Baroda, Appeal No. CAB/05- 158/2015-16 dated 22-09-2016. 41. The Department has raised the following ground of appeal:- “1. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in holding that the demurrages are distinguishable from the penalty which is levied for violation of law or on account of illegal act whereas in case of assessee the demurrage has been paid on account of commercial failure on the part of assessee-contractor, i.e. demurrage/wharfage charges of Rs. 58,11,850/- and demurrage/whafage on rail transit loss of Rs. 16,06,089/-. I.T.A Nos. 1650 & 1115/Ahd/2015, 3525/Ahd/2016 & C.Os. 101& 128/Ahd/2015 Page No. ACIT vs. Pradeepkumar B. Jha 25 2. On the facts and circumstances of the case and in law, the Ld.CIT(A) has erred in restricting disallowance in respect of labour charges @ 10% of total expenses instead of @ 20% determined by the AO for which the Ld.CIT(A) has not given any specific reasons nor basis of evidence. 3. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in directing the AO to delete the disallowance u/s 40(a)(ia) of the I.T. Act, without appreciating the fact that the AO has rightly justified in disallowance made u/s. 40(a)(ia) of the I.T. Act. 4. On the facts and circumstances of the case and in law, the Ld.CIT(A) has erred in restricting disallowance in respect of transportation payments @ 10% of total expenses instead of @ 20% determined by the AO for which the Ld.CIT(A) has not given any specific reasons nor basis of evidence. 5. The appellant craves leave to add to, amend or alter the above grounds as may be deemed necessary. Relief claimed in appeal It is prayed that the order of the CIT (Appeals) be set aside and that of the Assessing Officer be restored.” Ground No. 1 Disallowance of Demurrage Charges of Rs. 58,11,850/- & Disallowance of Rs. 16,06,089/- on account of Rail Transit Loss 42. The brief facts in relation to this ground of appeal are that the assessee is engaged in the business of providing transportation, cargo handling and port services to various companies like CWC, FCI etc. The assessee’s job is to off load goods from trains and transport the same to the godown of its principals. During the course of assessment proceedings, the ld. A.O. noted that the assessee had debited a sum of Rs. 58,11,850/- as I.T.A Nos. 1650 & 1115/Ahd/2015, 3525/Ahd/2016 & C.Os. 101& 128/Ahd/2015 Page No. ACIT vs. Pradeepkumar B. Jha 26 demurrage/wharfage charges. The assessee explained that these charges are paid to rail and port authorities for delayed discharge from rail head and port areas and as per the terms of the contract these charges are recovered from the contractors by raising a debit note. The assessee submitted that these charges are not in the nature of penalty for any violation of law but a compensation for inefficient handling of work resulting in loss to the principal. The ld. A.O. also observed in respect of aforesaid demurrage/wharfage charges that railway authority had waived a certain percentage of demurrage/wharfage charges but the assessee had not reduced the same from the amount of his claim and the assessee had claimed full amounts of demurrage/wharfage charges. The ld. A.O. did not agree with the assessee’s contention that demurrage/wharfage charges were not in the nature of penalty and disallowed whole of the expenditure of Rs. 58,11,850/- Similar to the above expense, during the course of assessment proceedings, the ld. A.O. noted that assessee had debited a sum of Rs. 16,06,089/- on account of rail transit loss. When asked to explain, the assessee submitted that it was similar to demurrage /wharfage expenses and is in nature of compensation for loss or shortage of goods in transit. The Ld. AO, treated the same as being penal in nature and disallowed the same on the ground that in similar circumstances, demurrage/ wharfage charges have also been disallowed, being of a penal character. 43. In appeal before the ld. CIT(A), the ld. CIT(A) held that from the facts, it is observed that the assessee has charged demurrage/wharfage charges on net basis and not on gross basis as stated by the AO, after adjusting for waiver by the relevant rail/port authority. Therefore, the I.T.A Nos. 1650 & 1115/Ahd/2015, 3525/Ahd/2016 & C.Os. 101& 128/Ahd/2015 Page No. ACIT vs. Pradeepkumar B. Jha 27 allegations of the Assessing Officer in this regard are not well founded and are not correct. On the issue of whether demurrage/wharfage are of penal nature, the ld. CIT(A) observed that this issue has been decided in favour of the assessee by CIT-V, Vadodara in assessee’s own case in A.Y. 2010-11, vide his order dated 10-06-2015. In the above order, ld. CIT(A) had held that demurrage charges by nature are in the nature of compensation for failure on part of the assessee on account of non-performance of contract in a timely manner. Accordingly, the ld. CIT(A), following the decision of CIT(A)-V, Vadodara in assessee’s own case in A.Y. 2010-11 in CAB/05- 255/14-15, deleted the addition of Rs. 58,11,580/- on account of demurrage/wharfage . In respect of disallowance of Rs. 16,06,089/-, on account of transit loss, the ld. CIT(A) allowed relief to the assessee by holding that it is a contractual obligation on the assessee to compensate for loss or shortage of goods in transit. It is not penal in nature and certainly in it has not been imposed for transgression of any law. For reasons cited while allowing relief for demurrage/wharfage charges, since the payment is of a similar nature, ld. CIT(A) deleted the disallowance made by ld. A.O. 44. Before us the Ld. DR placed reliance on the observations made in the assessment order and argued that these charges are penal charges and hence not allowable under the Act. He further argued that the percentage of charges waived by the Railways has not been reduced from the claim made by the assessee. The Ld. AO gave opportunity to the assessee in this regard and he did not file any details to prove that only net charges were claimed as expense. Further, Ld. CIT(A) granted relief to the assessee without asking for any remand report and without affording any opportunity to the assessee I.T.A Nos. 1650 & 1115/Ahd/2015, 3525/Ahd/2016 & C.Os. 101& 128/Ahd/2015 Page No. ACIT vs. Pradeepkumar B. Jha 28 for cross verification. The Ld. Counsel for the assessee submitted that all details had been placed before Ld. CIT(A) and on the basis of ledgers produced before him, he allowed relief to the assessee. 45. We have heard the rival contentions and perused the material on record. The issue for consideration in this case are twofold. First, whether demurrage/wharfage charges are penal in nature and hence not allowable under the Act or they are in the nature of compensation paid to the other parties for violation of the terms of the contract and Secondly, whether the assessee has claimed the net amount of demurrage/ wharfage charges after reducing the charges waived by the Principals. On the first issue, the Mumbai ITAT in the case of Imcola Exports Ltd. in ITA No. 974/Mum/2009, following the Delhi High Court decision in the case of Mahalaxmi Sugar Mills Company Ltd. 157 ITR 683 (Del) have held that demurrage is a charge by way of compensation and includes amount chargeable for failure to storage and transport goods by contractor for its delayed clearance. It is not a fine paid to the port authorities for any criminal act but is a compensation for the use of port facilities beyond the free period allowed under the rules. Demurrage charges are charged not for any infraction or violation of law but on account of commercial failure of the contractor. The Kolkata Tribunal in the case of Ripley & Co.Ltd. [2017] 88 taxmann.com 747 (Kolkata - Trib.) held that demurrage paid by assessee for its failure to complete work within prescribed time allotted by principal was allowable deduction under section 37(1) of the Act. In view of the above rulings, we are of the considered view that ld. CIT(A) has not erred in law and in facts in deleting the addition of Rs. 58,11,850/- on account of I.T.A Nos. 1650 & 1115/Ahd/2015, 3525/Ahd/2016 & C.Os. 101& 128/Ahd/2015 Page No. ACIT vs. Pradeepkumar B. Jha 29 demurrage/wharfage charges and deletion of Rs. 16,06,089/- on account of rail transit loss since the same are not penal in nature. Regarding the second issue in relation to whether the assessee has correctly netted off the charges waived by the relevant rail/ port authorities, we observe that the assessee produced relevant copies of ledger accounts and supporting supporting before Ld. CIT(A) for his perusal, who after analyzing the same concluded that on perusal of materials on record it is observed that assessee has charged demurrage/ wharfage on net basis after adjusting for waiver by relevant port authorities. In the result, we find no infirmity in the order of Ld. CIT(A) while adjudicating on this issue in favour of the assessee. 36. In the result, ground no. 1 of the Revenue’s appeal is dismissed. Ground No.2 (Disallowance of Rs. 14,19,106/- out of labour charges) 47. The brief facts of this ground of appeal are that during the course of assessment, the ld. A.O. noted that the assessee had debited a sum of Rs. 70,97,031/- on account of labour charges, a majority of which was paid in cash. The assessee submitted ledger account and wages register and stated that labour had been paid based on number of days they had worked, along with overtime paid to them. The ld. A.O. however held that no material evidences were submitted by the assessee regarding statutory deduction of PF and ESI in case of the workers. The ld. A.O. held that assessee had inflated his claim of expenses and payments to workers are not completely verifiable. He therefore disallowed a sum of Rs. 14,19,406/- being 20% of total labour charges of Rs. 70,97,031/- and added the same to the total I.T.A Nos. 1650 & 1115/Ahd/2015, 3525/Ahd/2016 & C.Os. 101& 128/Ahd/2015 Page No. ACIT vs. Pradeepkumar B. Jha 30 income of the assessee. In appeal before ld. CIT(A), he restricted the disallowance to 10% of the expenses (which comes to Rs. 7,09,703/-) by observing that no specific defect have been pointed out by the assessing officer in the books maintained by the assessee and considering that the expenses are only a fraction of the total turnover of the assessee, it would be reasonable to restrict disallowance to 10% of the expenditure in the instant set of facts. 48. Before us, the ld. DR submitted the observations made by the ld. A.O. to the effect that majority of the payment were made in cash and the claim of labour expenses are not verifiable. Accordingly, he submitted that ld. CIT(A) erred in restricting the disallowance to 10% of expenditure. In response, Counsel for the assessee reiterated the arguments placed before ld. CIT(A) to the effect that all wages registers were submitted before A.O. and he has not found any material error or irregularity. Further, no PF /ESI was deducted since the above labour charges were outside the purview of PF/ESI laws. 49. We have heard the rival contentions and perused the material on record. Looking to the facts and circumstances of the case, we are of the view that ld. CIT(A) has not erred in law or in fact in restricting the disallowance to 10% of the labour charges, especially looking into the facts that assessee employs labour for work at Railway Head, PF and ESI laws are not applicable to daily wage labour and further the ld. A.O. has also not found any material error of irregularity in the copies of ledger accounts and wages register maintained by the assessee. I.T.A Nos. 1650 & 1115/Ahd/2015, 3525/Ahd/2016 & C.Os. 101& 128/Ahd/2015 Page No. ACIT vs. Pradeepkumar B. Jha 31 50. In the result, ground no. 2 of the appeal of the Revenue is dismissed. Ground No. 3 ( Deletion of disallowance of Rs. 99,42,970/- u/s. 40(a)(ia) of the Act): 51. The brief fact of this ground are that during the course of assessment proceedings, the assessee was requested to give party-wise particulars in respect of disallowance u/s. 40(a)(ia) of the Act. The ld. A.O. noted that the assessee did not give names of various parties viz. transporters and their PAN Nos. and also did not furnish details of payments made to them. In absence of details of payment/credit of transportation charges, the ld. A.O. disallowed a sum of Rs. 99,42,970/- u/s. 40(a)(ia) of the Act on account of non-deduction of TDS. 52. In appeal before ld. CIT(A), he observed that the issue has been decided in favour of the assessee by CIT(A) in assessee’s own appeal against order u/s. 271C of the Act for A.Y. 2012-13. In the aforesaid order, the ld. CIT(A) held as under:- “5.5 In view of the above discussion and the fact that there is nothing on record to suggest that there was any long term contract between the assessee and the truck owners, every GR is be treated as separate contract. Further, since the payments to a single truck operator do not exceed specified limits u/s. 194C of the Act i.e. Rs. 30,000/- per transaction and Rs. 75,000/- in aggregate during a year, I.T.A Nos. 1650 & 1115/Ahd/2015, 3525/Ahd/2016 & C.Os. 101& 128/Ahd/2015 Page No. ACIT vs. Pradeepkumar B. Jha 32 it is held that the assessee was not liable to deduct tax at source u/s. 194C of the Act. Consequently, the penalty of Rs. 19,88,594/- u/s. 271C of the Act on account of assessee’s alleged failure to comply with the provisions of section 194C of the Act is not sustainable in law and the same is directed to be deleted.” Placing reliance on the aforesaid order, the ld. CIT(A) deleted the disallowance u/s. 40(a)(ia) of the Act. 53. Before us, the ld. DR took us through the observation made by the A.O. at page no. 6 of the assessment order and submitted that no details were furnished by the assessee before ld. CIT(A) and ld. CIT(A) while granting relief to the assessee simply relied on the 271C order of CIT(A) for A.Y. 2012-13. The ld. CIT(A) while granting relief did not call for details of expenditure and did not allow opportunity to A.O. to verify the details. In response, the ld. counsel for the assessee drew our attention to page 65 of the paper book and pointed out that ld.CIT(A)-V, Vadodara gave complete relief to the assessee in order u/s. 271C of the Act and the detailed facts of the assessee’s case have been analyzed and discussed in the 271C order, while passing the order. Further, ld. counsel for the assessee drew our attention to appellate order u/s. 201(1)/201(1A) of the Act for A.Y. 2012-13 at pages 74 to 79 of the paper book wherein the CIT(A) on the same set of facts deleted interest u/s. 201(1)/201(1A) of the Act. 54. We have heard the rival contentions and perused the material on record. On the facts of the case, it is observed that the ld. CIT(A) in orders I.T.A Nos. 1650 & 1115/Ahd/2015, 3525/Ahd/2016 & C.Os. 101& 128/Ahd/2015 Page No. ACIT vs. Pradeepkumar B. Jha 33 passed u/s. 271C of the Act and u/s. 201(1)/201(1A) of the Act for A.Y. 2012-13 has granted complete relief on the same set of facts. The facts of the case for the instant year have been analyzed in detail while allowing relief to the assessee for this year. Accordingly, in our view, there is no infirmity in the order of ld. CIT(A) while granting relief for disallowance u/s. 40(a)(ia) of the Act. 55. In the result, ground no. 3 of appeal of the Department is dismissed. Ground No. 4 ( Restricting disallowance in respect of transportation payment @ 10% of total expenses) 56. The brief facts in relation to this ground of appeal is that during the course of assessment proceedings, the ld. A.O. noted that the assessee had debited a sum of Rs. 99,53,170/- on account of transportation charges, a majority of which was paid in cash through self made vouchers. The ld. A.O. held that since most of the expenses were paid in cash, PAN of the payees were not mentioned, most of the vouchers were self made and the expenses were not verifiable, the ld. A.O. disallowed 20% of the expenses on adhoc basis, making addition of Rs. 19,90,634/- to assessee’s total income. In appeal against the assessment order, the ld. CIT(A) on the above facts held that considering that the expenses are only a fraction of the turnover of the assessee and considering that it was necessary in assessee’s line of business to incur cash expenses, it would be reasonable to restrict the disallowance to 10% of the expenses which comes to Rs. 9,95,317/-. I.T.A Nos. 1650 & 1115/Ahd/2015, 3525/Ahd/2016 & C.Os. 101& 128/Ahd/2015 Page No. ACIT vs. Pradeepkumar B. Jha 34 57. Before us, ld. D.R. placed reliance on the observations made by the ld. A.O. in the assessment order and argued that there was no rationale in restricting the disallowance to 10% by ld. CIT(A). The counsel for the assessee submitted that this ground has been dealt while dealing with ground no. 3 above in respect of payment made to contractors towards transportation charges. We have heard the rival contentions and perused the material on record. The Mumbai Tribunal in the case of Parsoli Corporation Ltd. v ACIT [2019] 101 taxmann.com 121 (Mumbai - Trib.), restricted the disallowance to 10% in respect of self-made vouchers as being fair and reasonable. Again, the ITAT Ahmedabad in the case of DCIT v. M /s. Unique M etropolis in ITA No. 3 140 /Ahd/20 13 held that in view of the facts of the instant case, in the absence of supporting evidences, genuineness of payment made in cash is not established and therefore disallowance upheld by the ld. CIT(A) at 10% of total cash expenses is found to be quite reasonable and justified. In our view the ld. CIT(A) has not erred in disallowing a sum of 10% of total cash expenses amounting to Rs. 2,62,053/-. In our view, looking into the nature of business of the assessee where expenses constitutes a vital part of expenses in this line, the necessity of payment in cash purpose of carrying out the business, the ld. CIT(A) has not erred in law or in fact in restricting the disallowance to 10% of the expenditure. 58. In the result, ground no. 4 of Revenue ‘s appeal is dismissed. 59. In the result, the appeal of the Revenue is dismissed. I.T.A Nos. 1650 & 1115/Ahd/2015, 3525/Ahd/2016 & C.Os. 101& 128/Ahd/2015 Page No. ACIT vs. Pradeepkumar B. Jha 35 In the combined result, in ITA 1650/Ahd/2015 A.Y. 2008-09 appeal of the Revenue is partly allowed and the Cross objection of the assessee is allowed. In ITA No. 1115/Ahd/2015 AY 2009-10 appeal of the Revenue is partly allowed and the Cross objection of the assessee is partly allowed. In ITA No. 3525/Ahd/2016 AY 2012-03, appeal of the Revenue is dismissed. Order pronounced in the open court on 30 -03-2022 Sd/- Sd/- (P.M. JAGTAP) (SIDDHARTHA NAUTIYAL) VICE PRESIDENT JUDICIAL MEMBER Ahmedabad : Dated 30/03/2022 आदेश क त ल प अ े षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/ आदेश से, उप/सहायक पंजीकार आयकर अपील य अ धकरण, अहमदाबाद