Transport Corporation of India Ltd., Secunderabad V. Addl. CIT, Range-2, Hyderabad

ITA 1069/HYD/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 69828 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 2 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-09-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 11-07-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P SOMASEKHAR REDDY
• Keywords: Capital asset; Additional evidence; Corroborative evidences; Onus to prove; Capital expenditure
• Section: 133(6); 37(1)

Judgement Text

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 INDIA LTD., HYDERABAD PAN: AAACT7966R VS. THE ADDL. COMMISSIONER OF INCOME-TAX, RANGE-2 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 INCOME-TAX, RANGE-2 HYDERABAD VS. M/S. TRANSPORT CORPORATION OF INDIA LTD., HYDERABAD PAN: AAACT7966R APPELLANT RESPONDENT ASSESSEE BY: SRI Y. RATNAKAR REVENUE BY: SRI P. SOMA SEKHAR REDDY DATE OF HEARING: 17 .0 7 .2013 DATE OF PRONOUNCEMENT: 16.09.2013 O R D E R 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 TOGET HER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE-COMPA NY IS ENGAGED IN THE BUSINESS OF TRANSPORT OF GOODS, TRAD ING AND ITA NO. 1069/HYD/2012 & ORS. M/S. TRANSPORT CORPORATION OF INDIA LTD. ============================== 2 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 TH ESE TWO ASSESSMENT YEARS WHILE FRAMING THE RESPECTIVE ASSES SMENTS AS FOLLOWS: ASSESSMENT YEAR DISALLOWANCE OF FREIGHT EXPENSES (RS.) DISALLOWANCE OF COMMISSION (RS.) DISALLOWANCE OF ENROUTE EXPENSES (RS.) ASSESSED INCOME (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.) A.Y. FREIGHT COMMISSION ENROUTE 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.) A.Y. FREIGHT COMMISSION ENROUTE 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 EXP ENSES FOR THE A.YS. 2008-09 AND 2009-10. THE REVENUE IS IN APPEA L BEFORE US FOR DELETING THE ADDITIONS BY THE CIT(A) FOR THE SA ME ASSESSMENT YEARS. 5. ON THE DISALLOWANCE OF FREIGHT CHARGES FOR AY 2008-09 , THE LEARNED AR SUBMITTED THAT THE AO MADE THE DISAL LOWANCE ON THE REASONS THAT THE NET INCOME DECLARED BY THE ASS ESSEE AS A PERCENTAGE OF GROSS RECEIPTS IS LOW. THE AO MADE E NQUIRIES BY ADDRESSING NOTICES U/S 133 (6) IN 85 CASES INITIALL Y AND LATER IN 100 CASES AND THAT THE REPLIES RECEIVED CONFIRMING PAYMENT OF ITA NO. 1069/HYD/2012 & ORS. M/S. TRANSPORT CORPORATION OF INDIA LTD. ============================== 3 FREIGHT CHARGES WERE RECEIVED ONLY IN A FEW CASES O UT OF THE 185 CASES. 5.1 THE AR SUBMITTED THAT THE ENTIRE FREIGHT EXPENSES W ERE PAID TO THE OWNERS/DRIVERS WHOSE TRUCKS WERE TAKEN ON HIRE FOR TRANSPORTING OF GOODS. PAYMENTS MADE WERE SPREAD OV ER 1822 BRANCHES ALL OVER THE COUNTRY WITH 182 ACCOUNTING C ENTRES. THE PAYMENTS WERE MADE FOR HIRING OF 1,47,784 TRUCKS FO R 4,71,236 CONTRACTS ON A TRIP TO TRIP BASIS. THE NET INCOME TO GROSS RECEIPTS OF THE ASSESSEE IS MORE THAN WHAT OTHER TR ANSPORTERS HAVE DECLARED. THE OPERATING RESULTS OF THE COMPANY ARE MUCH BETTER IN COMPARISON TO OTHER TRANSPORTERS IN THE T RANSPORT BUSINESS. THE ENQUIRY IN RESPECT OF 185 CASES WHICH WERE DONE GAVE NO REASONABLE TIME TO THE ASSESSEE TO OBTAIN C ONFIRMATIONS OF THE PERSONS FROM WHOM TRUCKS WERE TAKEN ON HIRE. 5.2 THE AR SUBMITTED THAT ALL PAYMENTS MADE TOWARDS FRE IGHT CHARGE ARE GENUINE, FULL DETAILS ARE AVAILABLE IN T HE LORRY HIRE CONTRACTS FOR HIRED VEHICLES AND THAT IF ADEQUATE T IME WAS GIVEN, IN MOST OF THE 185 CASES PICKED BY THE AO, FRESH CO NFIRMATIONS COULD BE OBTAINED IN ADDITION TO THE MATERIAL ALREA DY ON RECORD. THEREFORE, NO DISALLOWANCE IS CALLED FOR. EVEN IF A NY 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) GI VE THE FACTUAL POSITION. THESE FACTS ARE ONCE AGAIN REITERATED. T HE 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 T HE ABOVE 85 CASES 13 PERSONS HAVE DIRECTLY SENT CONFIRMATION TO THE ITA NO. 1069/HYD/2012 & ORS. M/S. TRANSPORT CORPORATION OF INDIA LTD. ============================== 4 ASSESSING OFFICER BEFORE COMPLETION OF THE ASSESSME NT. THE TIME GIVEN TO THE ASSESSEE WAS VERY SHORT TO OBTAIN THES E LETTERS OF CONFIRMATION BEFORE COMPLETION OF ASSESSMENT. THE A SSESSEE 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 PERSON S HAVE IN FACT SENT COPIES OF RC BOOKS OF THE TRUCKS TAKEN ON HIRE AND CONFIRMATIONS DIRECTLY TO THE ASSESSING OFFICER ALS O. THE ASSESSEE TOOK COPIES OF THE CORRESPONDENCE FROM THE OWNERS O F THE TRUCKS, AND FILED THESE COPIES BEFORE THE CIT(A) AS ADDITIONAL EVIDENCE. ADDITIONAL EVIDENCE FILED BEFORE THE CIT( A) ARE AS UNDER: PARTICULARS 85 CASES 100 CASES ADDITIONAL EVIDENCE FILED ALONG WITH PETITION DATED 6.7.2011 UNDER RULE 46A. 56 69 ADDITIONAL EVIDENCE FILED ALONG WITH PETITION DATED 1.8.2011 4 2 ADDITIONAL EVIDENCE FILED ALONG WITH PETITION DATED 25.8.2011 - 4 TOTAL 60 75 CONFIRMATIONS DIRECTLY RECEIVED BY AO BEFORE COMPLETION OF ASSESSMENT 13 - 73 75 5.4 THE AR SUBMITTED THAT IN ALL 148 CONFIRMATIONS WERE RECEIVED OF LORRY HIRE PAYMENTS OUT OF 185 CASES SE LECTED BY THE AO. THE REASONS FOR FILLING ADDITIONAL EVIDENCE HAV E BEEN EXPLAINED BEFORE THE CIT(A) AND THE REASONS GIVEN I N THE PETITION FILED IS EXTRACTED IN PARA 4.1 OF THE CIT(A) ORDER. THE SAME ARE REITERATED. THE ADDITIONAL EVIDENCE WAS FORWARDED T O THE AO BY THE CIT(A). THE AO SUBMITTED HIS REMAND REPORT WHIC H IS EXTRACTED AT PARA 5 OF THE CIT(A)'S ORDER. THE ASS ESSEE COMPANY FURNISHED REPLY IN RESPONSE TO THE REMAND REPORT. T HE FOLLOWING EVENTS WOULD SHOW THAT THE TIME GIVEN WAS VERY SHOR T: ITA NO. 1069/HYD/2012 & ORS. M/S. TRANSPORT CORPORATION OF INDIA LTD. ============================== 5 A) FOR THE FIRST TIME SHOW CAUSE LETTER DATED 17 TH 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 31 ST 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 FO R 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 RE PLY TO THE AO'S ENQUIRY 5.5 THE AR SUBMITTED THAT THE CIT(A) ADMITTED THE ADDIT IONAL 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, SUBMITTE D TO THE AO, HE HAS NOT DISPUTED THE GENUINENESS OF T HE 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 INVITE D 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 ADMISSIO N OF THE ADDITIONAL EVIDENCE, OR, ITA NO. 1069/HYD/2012 & ORS. M/S. TRANSPORT CORPORATION OF INDIA LTD. ============================== 6 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 WHIC H IT DID NOT FILE. 5.7 THE AR SUBMITTED THAT THE CIT(A) IS JUSTIFIED IN AD MITTING THE ADDITIONAL EVIDENCE AND CONSIDERING THE SAME FO R THE DISPOSAL OF THE APPEAL. THE CIT(A) ALSO FOUND THAT THE PROFIT BEFORE TAX TO TURNOVER IS HIGHER THAN OTHERS WHO AR E IN THE SAME LINE OF BUSINESS. FURTHER THE CIT(A) ALSO FOUND THA T THE OPERATING EXPENSES ON FREIGHT CHARGES IS LOW IN THE CASE OF THE ASSESSEE, IN COMPARISON TO OTHERS. THE CIT(A) OBSER VED THAT THERE IS NO TRUTH IN THE ALLEGATION AGAINST THE ASS ESSEE 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 REAS ONS GIVEN BY THE CIT(A) ARE AS UNDER: A) THE TOTAL NUMBER OF ITEMS PICKED UP FOR VERIFICATIO N 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% O F 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 TRANSPA RENT AND ARE VERIFIABLE. THE ASSESSEE'S RECORDS CONTAIN ALL DETAILS OF TRUCKS HIRED TRIPS MADE AND PAYEES ARE ALL IDENTIFI ABLE. FULL DETAILS ARE AVAILABLE AS STATED AT POINT 13 AT PAGE 5 OF THE ITA NO. 1069/HYD/2012 & ORS. M/S. TRANSPORT CORPORATION OF INDIA LTD. ============================== 7 APPELLATE ORDER. THE ASSESSEE COULD NOT OBTAIN 100% CONFIRMATIONS OF ALL LORRY HIRE PAYMENTS FROM THE O WNERS FOR THE REMAINING 37 CASES BECAUSE OF THE FOLLOWING REASONS : (A) THE TIME LAG BETWEEN THE DATE OF HIRING AND THE DAT E 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 I N THE MATTER TO REPLY AS IT DOES NOT RELATE TO THEM (D) MOST OF THE LORRY OWNERS/DRIVERS ARE EITHER UNEDUCA TED OR SEMI EDUCATED AND DO NOT UNDERSTAND THE NOTICES (E) THE LORRY OWNERS HAVING FURNISHED THE DETAILS EARLI ER 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 TH E INCOME-TAX DEPARTMENT FOR THEIR OWN PERSONAL REASON S. 5.10 THE AR SUBMITTED THAT THE CIT(A) SHOULD HAVE CONSID ERED THESE FACTS AS ADEQUATE JUSTIFICATION FOR ITS INABI LITY TO PRODUCE THE REMAINING CONFIRMATIONS. EVEN THE 1% OF DISALL OWANCE MADE, IS VERY HIGHLY ARBITRARY, UNCALLED FOR AND SH OULD BE DELETED. WITHOUT PREJUDICE TO THE SUBMISSION THAT N O DISALLOWANCES ARE CALLED FOR, THE AR SUBMITTED THAT EVEN IF ANY DISALLOWANCE IS TO BE MADE, IT SHOULD BE LIMITED ON LY TO THE AMOUNT FOR WHICH RECONFIRMATION COULD NOT BE OBTAIN ED. THE AMOUNT COVERED IN RESPECT OF THESE 37 CASES IS RS. 6,93,759. THE ADDITION COULD BE RESTRICTED TO THIS AMOUNT ALO NE. IN SUPPORT OF THIS PLEA, THE AR RELIED ON THE ASSESSME NT MADE FOR AY 1990-91 AND APPEAL ORDER FOR THE SAID YEAR. HE POINTED OUT THAT IN ASSESSMENT YEAR 1990-91 SIMILAR ADDITIONS W ERE MADE BY THE ASSESSING OFFICER TO THE EXTENT OF RS. 14,40 ,585 IN RESPECT ITA NO. 1069/HYD/2012 & ORS. M/S. TRANSPORT CORPORATION OF INDIA LTD. ============================== 8 OF ALL THE FREIGHT CHARGES PAID AT BANGALORE ACCOUN TING CENTRE. SIMILARLY, DISALLOWANCE OF RS. 13,98,000 WAS MADE I N RESPECT OF ALL THE FREIGHT CHARGES PAID AT HYDERABAD ACCOUNTIN G CENTRE. BOTH THESE ADDITIONS WERE MADE BY THE AO AS ACCORDI NG TO HIM, THIS EXPENDITURE WAS NOT PROVED IN THESE CENTRES BE CAUSE 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 WHI CH VERIFICATION WAS ACTUALLY CARRIED OUT AND FOR WHICH THE ASSESSEE COULD NOT BRING SATISFACTORY EVIDENCE. SIMILARLY TH E CIT(A) UPHELD THE DISALLOWANCE OF RS. 45,400 IN RESPECT OF HYDERABAD ACCOUNTING CENTRE WHICH WERE HELD TO BE UNPROVED. H E 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 CO NFIRMED THE DISALLOWANCES SUSTAINED BY THE CIT(A). ON THE SAID ANALOGY THE AMOUNT OF DISALLOWANCE IF ANY CAN ONLY BE RESTRICTE D 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. TH E BREAK-UP OF THE TOTAL FREIGHT CHARGES DURING THE FINANCIAL Y EAR ENDED 31 ST 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 O F FREIGHT CHARGES AT TRANSPORT DIVISION ARE MADE IN C ASH, AS THE PAYEES IN THE TRANSPORT DIVISION ARE VEHICLES GENER ALLY HIRED FROM THE MARKET AND ARE NOT REGULAR VENDORS. HOWEVE R AT THE XPS AND SUPPLY CHAINS SOLUTIONS DIVISIONS, MOST PAY MENTS FOR FREIGHT CHARGES ARE PAID BY CHEQUES, AS THE PAYEES ARE REGULAR ITA NO. 1069/HYD/2012 & ORS. M/S. TRANSPORT CORPORATION OF INDIA LTD. ============================== 9 VENDORS AND CARRY THE CONSIGNMENTS OF THE ASSESSEE ON REGULAR BASIS. THE ASSESSEE HAS THEIR FULL ADDRESSES AND AL SO THEIR PAN NOS., IN ITS RECORD. THE AO HAD MADE ENQUIRIES IN R ESPECT OF PAYEES OF FREIGHT CHARGES OF TRANSPORT DIVISION ONL Y. 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 O F 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 PAS T YEARS, A DETAILED ENQUIRY WAS MADE WHILE MAKING ASSESSMENT F OR A.Y. 2010-11 BY THE ADDL. CIT, RANGE-2, HYDERABAD. IN TH E ORDER SHEET FOR AY 2010-11 THE ADDL. CIT ALSO ENDORSED TH AT HE WILL MAKE A DETAILED VERIFICATION OF THE PAYMENT OF FREI GHT CHARGES BY MAKING PERSONAL INSPECTION OF HYDERABAD BRANCH. ACCORDINGLY HE PERSONALLY INSPECTED THE HYDERABAD B RANCH FOR A FULL DAY ON 08/11/2012 AND VERIFIED THE VOUCHERS AN D ALSO THE PROCEDURES AND SYSTEM EMPLOYED FOR MAKING THE FREIG HT PAYMENTS. THE VOUCHERS AND OTHER PAPERS WERE FURTHE R VERIFIED BY THE STAFF OF THE ADDL. CIT. THE ADDL. CIT AFTER HAVING BEEN SATISFIED THAT THE FREIGHT PAYMENTS ARE MADE IN ROU TINE COURSE OF BUSINESS, THEY ARE GENUINE, AND COULD BE CORRELATED TO TRIPS MADE BY TRUCKS TAKEN ON HIRE, HAS NOT MADE ANY ADDI TION UNDER THIS HEAD IN A.Y. 2010-11, DESPITE HEAVY ADDITIONS MADE IN THE PAST YEARS. THIS AMPLY DEMONSTRATES THE CORRECTNES S OF THE CLAIM OF THE ASSESSEE THAT NO DISALLOWANCE IS WARRA NTED UNDER THIS HEAD. 5.13 THE LEARNED DR SUBMITTED THAT THE GENUINENESS OF TH E EXPENDITURE IS NOT PROVED BY THE ASSESSEE. CERTAIN LETTERS SENT ITA NO. 1069/HYD/2012 & ORS. M/S. TRANSPORT CORPORATION OF INDIA LTD. ============================== 10 BY THE AO TO THE ADDRESSES FURNISHED BY THE ASSESSE E WERE RETURNED UNSERVED. AS SUCH THE ASSESSEE FAILED TO DISCHARGE THE ONUS CAST UPON IT AND AS SUCH THE DISALLOWANCE IS W ARRANTED. THE DR RELIED ON THE ORDER OF THE AO. HE ALSO RELI ED ON THE JUDGEMENT OF BOMBAY HIGH COURT IN THE CASE OF RAMAN AD SAGAR VS. DCIT (122 TAXMAN 152) AND NUND & SAMONT CO. PVT . LTD. VS. CIT (78 TAXMAN 268). HE ALSO RELIED ON THE JUD GEMENT IN ASSESSEE'S OWN CASE REPORTED IN 256 ITR 701 (AP) WH EREIN IT WAS HELD THAT THE BURDEN IS ON THE ASSESSEE TO PROVE TH E GENUINENESS OF THE EXPENDITURE CLAIMED AND IT IS AL LOWABLE. 6. ON THE DISALLOWANCE OF FREIGHT CHARGES FOR AY 2009-10 , THE LEARNED AR SUBMITTED THAT THE AO MADE THE DISAL LOWANCE 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 T O THE VEHICLE OWNERS U/S 133 (6) AND THAT ABOVE 50% O F LETTERS SENT HAS BEEN RETURNED UNSERVED. C) THEREFORE THE APPELLANT DID NOT DISCHARGE THE BURDE N 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 W ERE PAID TO THE OWNERS/ DRIVERS WHO'S TRUCKS WERE TAKEN ON HIRE FOR TRANSPORTING OF GOODS. THE PAYMENTS WERE MADE SPREA D OVER 1289 BRANCHES ALL OVER THE COUNTRY WITH 147 ACCOUNT ING CENTRES. THE PAYMENTS WERE MADE FOR HIRING OF TRUCK S FOR 5,60,309 CONTRACTS ON A TRIP TO TRIP BASIS. THE NET INCOME TO GROSS RECEIPTS OF THE ASSESSEE IS MORE THAN WHAT OT HER TRANSPORTERS HAVE DECLARED. THE OPERATING RESULTS O F THE COMPANY ARE MUCH BETTER AND COMPARISON TO OTHER TRA NSPORTERS ITA NO. 1069/HYD/2012 & ORS. M/S. TRANSPORT CORPORATION OF INDIA LTD. ============================== 11 IN THE TRANSPORT BUSINESS. THAT THE ENQUIRY IN RESP ECT OF 35 CASES WHICH WERE DONE GAVE NO REASONABLE TIME TO TH E APPELLANT TO OBTAIN CONFIRMATIONS OF THE PERSONS FROM WHOM TR UCKS WERE TAKEN ON HIRE. THAT ALL PAYMENTS MADE TOWARDS FREIGHT CHARGE ARE GENUINE .FULL DETAILS ARE AVAILABLE IN T HE LORRY HIRE CONTRACTS FOR HIRED VEHICLES AND THAT IF ADEQUATE T IME WAS GIVEN, IN ALL THE 35 CASES PICKED BY THE AO, FRESH CONFIRM ATIONS COULD BE OBTAINED IN ADDITION TO THE MATERIAL ALREADY ON RECORD. THEREFORE NO DISALLOWANCE IS CALLED FOR. EVEN IF AN Y DISALLOWANCE IS WARRANTED, IT SHOULD BE CONFINED TO ONLY THOSE I TEMS EXAMINED BY THE AO AND WHERE CONFIRMATION IS NOT FO RTHCOMING 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 RECEI VED BY THE ASSESSING OFFICER BEFORE COMPLETION OF THE ASSESSME NT. THE ASSESSEE VIDE ITS LETTER DATED 26 TH DECEMBER FURNISHED 19 COPIES OF CERTIFICATES OF REGISTRATION OF THE CONCERNED VE HICLES TAKEN ON HIRE FORMING PART OF THE 35 CASES. THE TIME GIVEN T O THE ASSESSEE WAS VERY SHORT TO OBTAIN THE LETTERS OF CONFIRMATIO NS BEFORE COMPLETION OF ASSESSMENT. THE ASSESSEE CORRESPONDED WITH THESE PERSONS OBTAINED COPIES OF THEIR RC BOOKS, CO NFIRMATIONS 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. TH E 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 FURNIS HED REPLY TO THE REMAND REPORT. ACCORDING TO THE AR THE FOLL OWING EVENTS ITA NO. 1069/HYD/2012 & ORS. M/S. TRANSPORT CORPORATION OF INDIA LTD. ============================== 12 WOULD SHOW THE TIME GIVEN WAS VERY SHORT: A) FOR THE FIRST TIME THE ASSESSING OFFICER INFORMED V IDE ORDER SHEET ENDORSEMENT DATED 20 TH DECEMBER 2011 THAT LETTERS U/S 133(6) WERE ISSUED FOR 35 ITEMS AN D STATING THAT MORE THAN 50% OF THE LETTERS WERE RETURNED UNSERVED. HENCE HE PROPOSED DISALLOWANCE A T 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 26 TH DECEMBER, 2011. THE TIME AVAILABLE WAS 6 DAYS. D) IN FACT, THE ASSESSING OFFICER FURNISHED THE DETAIL S 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 C ONTACT THEM. G) THIS ENQUIRY WAS MADE IN THE YEAR DECEMBER, 2011 FO R 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 ABOV E FACTS PETITION WAS FILED TO ADMIT THE CONFIRMATIONS WERE SUBSEQUENTLY RECEIVED AS ADDITIONAL EVIDENCE. THE C IT(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; ITA NO. 1069/HYD/2012 & ORS. M/S. TRANSPORT CORPORATION OF INDIA LTD. ============================== 13 B) THE ASSESSEE FILED CONFIRMATIONS AND PROOF IN RESPE CT 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 T HE PURPOSE OF DECIDING THE ISSUE OF DISALLOWANCE OF FR EIGHT 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 ASSE SSEE. OUT OF THE REMAINING 8 PARTIES, 3 PARTIES HAVE LEFT THEIR BUSINESSES, 2 PARTIES HAVE CHOSEN NOT TO RESPOND AND THE REMAININ G 3 PARTIES SHIFTED THEIR ADDRESSES. THEREFORE WHILE THE ASSESS EE PRODUCED COPIES OF RC BOOKS IN ALL THE 35 CASES, WHICH WERE AVAILABLE WITH IT, CONFIRMATIONS WERE ALSO PRODUCED FOR 28 CA SES AND IN RESPECT OF 8 CASES, IT WAS BEYOND THE CONTROL OF TH E ASSESSEE TO PRODUCE CONFIRMATION LETTERS BECAUSE OF REASONS MENTIONED ABOVE. THE AR, THEREFORE, SUBMITTED THAT THERE IS JUSTIFICATION IN THE ASSESSEE'S INABILITY TO PRODUC E CONFIRMATIONS FROM 8 PERSONS. HOWEVER, IF TOTALITY OF THE MATTER IS CONSIDERED, IT CAN SAFELY BE CONCLUDED THAT THE EVIDENCE WAS PR ODUCED IN ALL THE 35 CASES SHOWING THAT THE TRUCKS WERE TAKEN ON HIRE AND THE FREIGHT WAS PAID TO THEM. THE HIRE OF TRUCKS I S 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 INVITE D OUR ATTENTION TO THE GROUNDS TAKEN IN THE DEPARTMENTAL APPEAL. ON A SURVEY OF THESE GROUNDS IT IS APPARENT THAT TH E AO DID NOT ITA NO. 1069/HYD/2012 & ORS. M/S. TRANSPORT CORPORATION OF INDIA LTD. ============================== 14 DISPUTE THE ADMISSION OF THE ADDITIONAL EVIDENCE, O R, THE GENUINENESS OF THE CONFIRMATIONS FILED BY THE ASSES SEE. HIS ONLY GROUND IS THAT SUFFICIENT TIME WAS MADE AVAILABLE T O THE ASSESSEE TO FILE THE EVIDENCE WHICH IT DID NOT FILE AND THE ASSESSEE FAILED TO BRING ON RECORD ALL THE CONFIRMA TIONS IN RESPECT OF 35 CASES EVEN AT THE STAGE OF APPELLATE PROCEEDINGS. THE AR CONTENDED THAT THE OBJECTIONS TAKEN BY THE A O WAS WITHOUT MERIT AND THE CIT(A) RIGHTLY ADMITTED THE A DDITIONAL EVIDENCE FOR THE PURPOSE OF APPEAL PROCEEDINGS. THE CIT(A) HAS ALSO FOUND THAT THE PROFIT BEFORE TAX TO TURNOVER I S HIGHER THAN OTHERS WHO ARE IN THE SAME LINE OF BUSINESS. FURTHE R THE CIT(A) HAS ALSO FOUND THAT THE OPERATING EXPENSES ON FREIG HT CHARGES IS LOW IN THE CASE OF THE ASSESSEE, IN COMPARISON TO O THERS. 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 SI MILAR CALCULATIONS AND HELD THAT SINCE IN 8 CASES CONFIRM ATIONS WERE NOT AVAILABLE, THE FREIGHT EXPENSES SHOULD BE DISAL LOWED AT 1% IN THE PLACE OF 5% AS STATED BY THE AO. THE REASONS FO R 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 RE LEVANT 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 COU LD NOT HAVE BEEN TAKEN AS BASIS FOR DISALLOWING 1%. THE AR CONTENDED THAT THE HIRE OF TRUCKS IS TRANSPARENT AND IS VERIF IABLE. THE ASSESSEE'S RECORD CONTAIN ALL DETAILS OF TRUCKS HIR ED, TRIPS MADE AND PAYEES ARE ALL IDENTIFIABLE. IN THE FACTS OF TH E CASE, THE AR ITA NO. 1069/HYD/2012 & ORS. M/S. TRANSPORT CORPORATION OF INDIA LTD. ============================== 15 SUBMITTED THAT THE ENTIRE EXPENDITURE SHOULD HAVE B EEN ALLOWED AS EXPENDITURE. 6.8 THE BREAK-UP OF THE TOTAL FREIGHT CHARGES DURING TH E FINANCIAL YEAR ENDED 31 ST 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 FREIGH T 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 FO R FREIGHT CHARGES ARE PAID BY CHEQUES, AS THE PAYEES ARE REGU LAR VENDORS AND CARRY THE CONSIGNMENTS OF THE ASSESSEE ON REGUL AR 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 ENQUIRI ES, WHATSOEVER, WERE MADE FROM THE PAYEES OF XPS AND SU PPLY SOLUTION DIVISIONS. THERE COULD, THEREFORE, BE NO J USTIFICATION WHATSOEVER FOR ANY DISALLOWANCE OUT OF FREIGHT CHAR GES PAID TO PAYEES AT THE XPS AND SUPPLY CHAIN SOLUTIONS DIVISI ONS. 6.10 THE DR SUBMITTED THAT DISALLOWANCE OF FREIGHT CHARG ES 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 FREIGH T CHARGES ON ITA NO. 1069/HYD/2012 & ORS. M/S. TRANSPORT CORPORATION OF INDIA LTD. ============================== 16 THE REASON THAT THE PAYMENTS ARE NOT GENUINE. HOWE VER, THE CIT(A) RESTRICTED THE DISALLOWANCE TO 1% OF THE TOT AL FREIGHT CHARGES FOR THE A.Y. 2008-09 ON THE REASON THAT THE RE WAS 148 CONFIRMATIONS OUT OF 185 CASES PICKED FOR VERIFICAT ION IN A.Y. 2008-09. SIMILARLY, FOR A.Y. 2009-10, 35 CASES WE RE SELECTED FOR VERIFICATION AND OUT OF THEM THE ASSESSEE PROD UCED CONFIRMATIONS FROM 28 PARTIES AND IN RESPECT OF 8 C ASES THE ASSESSEE FAILED TO PRODUCE THE CONFIRMATION LETTERS . ACCORDINGLY, THE CIT(A) RESTRICTED THE DISALLOWANCE TO 1% FOR T HE A.Y. 2009- 10 ALSO. THE BASIS FOR THIS WAS THE PERCENTAGE OF NON- CONFIRMATIONS PRODUCED BY THE ASSESSEE IN RESPECT O F THE ITEMS PICKED FOR VERIFICATION FOR A.Y. 2008-09 AND 2009-1 0 I.E., 20% (37185 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 PROPO RTION 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 DETA ILED ENQUIRY. THERE WAS ENQUIRY ON RANDOM BASIS. CONSID ERING THE RESULT OF RANDOM ENQUIRY, THE CIT(A) SUSTAINED DISA LLOWANCE OF 20% OF THE DISALLOWANCE MADE BY THE AO. 6.12 IN OUR OPINION, THIS KIND OF APPROACH TO DISALLOW A N EXPENDITURE CANNOT BE SUSTAINED IN ITS ENTIRETY. T HE DEPARTMENT IS NOT DISPUTING INCURRING OF EXPENDITUR E AND, ON THE OTHER HAND, ONLY DISPUTING THE QUANTUM OF EXPEN DITURE. THE EXPENDITURE IS DULY SUPPORTED BY VOUCHERS WITH FULL DETAILS OF EXPENSES AND DETAILS OF TRUCKS AND DETAILS OF GO ODS TRANSPORTED AND OTHER DETAILS LIKE DATE OF HIRING, NO. OF DAYS HIRED, RATE OF HIRING, DATE OF PAYMENT, NUMBER OF T RUCKS AND THE ASSESSEE FURNISHED ENTIRE DETAILS OF ADDRESSES. WH EN THESE DETAILS ARE AVAILABLE WITH THE DEPARTMENT, IT IS LE FT TO THE DEPARTMENT TO EXAMINE THE SAME. IT IS NEEDLESS TO MENTION ITA NO. 1069/HYD/2012 & ORS. M/S. TRANSPORT CORPORATION OF INDIA LTD. ============================== 17 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 VERIF ICATION BY THE AO, WE ARE NOT INCLINED TO SUSTAIN THE DISALLOW ANCE IN ITS ENTIRETY MADE BY THE AO. FURTHER, IT IS ALSO BROUG HT ON RECORD THAT FOR A.Y. 2010-11, THE ADDL. CIT, RANGE-2, HYDE RABAD, MINUTELY CHECKED THE FREIGHT CHARGES BY PERSONAL IN SPECTION OF HYDERABAD BRANCH OF THE ASSESSEE AND VERIFIED THE V OUCHERS AND PROCEDURE EMPLOYED BY THE ASSESSEE IN BOOKING T HE FREIGHT AND PAYMENT OF CHARGES. HE WAS SATISFIED ABOUT THE SYSTEM FOLLOWED BY THE ASSESSEE AND FOUND THAT THE PAYMENT S ARE GENUINE AND HE OPTED NOT TO MAKE ANY ADDITION ON TH IS COUNT FOR A.Y. 2010-11. WHEN THE ACTUAL POSITION IS SO F OR A.Y. 2010- 11, HAD THE DEPARTMENT EXAMINED THE ISSUE IN ITS EN TIRETY, IT WOULD HAVE BEEN MOST APPROPRIATE. FAILING TO DO TH IS, THE ASSESSEE CANNOT BE PENALISED. 6.13 IN THE PRESENT CASE, THE DISALLOWANCE WAS MADE BY T HE LOWER AUTHORITIES ON THE REASON THAT THE ASSESSEE N OT 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 ASS ESSEES COUNSEL IS THAT THE ENTIRE DETAILS WERE FURNISHED T O THE AO REGARDING THESE PAYMENTS. BEING SO, IT CANNOT BE D ISALLOWED. HOWEVER, THE ASSESSEE NOT FULLY DISCHARGED THE BURD EN 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 WHO LLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. MERE INCUR RING EXPENDITURE BY ITSELF WOULD NOT ENTITLE THE ASSESSE E TO DEDUCTION OF SUCH EXPENDITURE UNLESS THE SAME WAS PROVED TO B E PAID FOR ITA NO. 1069/HYD/2012 & ORS. M/S. TRANSPORT CORPORATION OF INDIA LTD. ============================== 18 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 WA S NOT ALLOWED BY THE ASSESSING OFFICER OR BY APPELLATE AU THORITY ON THE REASON THAT THIS PAYMENT IS NOT FULLY VERIFIABLE AN D THEY DOUBTED THE GENUINENESS OF THE PAYMENTS. 6.15 WITH REGARD TO THE PROPOSITION THAT IT IS FOR THE A SSESSEE TO DISCHARGE WHETHER ANY EXPENDITURE SHOULD BE INCURRE D IN THE COURSE OF HIS BUSINESS OR TRADE AND SUCH EXPENDITUR E MAY BE INCURRED VOLUNTARILY AND WITHOUT ANY NECESSITY AND SUCH EXPENDITURE IS INCURRED, EVEN VOLUNTARILY FOR PROMO TING 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, S ECONDLY IT IS NOT THE CASE OF THE ASSESSEE BEFORE THE ASSESSING A UTHORITY THAT THE PARTICULARS OF THE PERSONS TO WHOM THE AMOUNTS WERE PAID COULD BE FURNISHED WITHOUT DETRIMENT TO THE BUSINES S OF THE ASSESSEE. ACCORDING TO THE DR THE PAYMENT IS BASED ON INSUFFICIENT EVIDENCE, AND IT IS BASED ON IRRELEV ANT CONSIDERATIONS. ALLOWANCE OR DISALLOWANCE OF A CLAI M UNDER SECTION 37(1) SHOULD DEPEND UPON EXISTENCE OR OTHER WISE OF THE FOUR CONDITIONS AS FOLLOWS: 1. THE EXPENDITURE IN QUESTION SHOULD NOT BE OF THE NA TURE DESCRIBED UNDER THE SPECIFIC PROVISIONS OF SS. 30 T O 36. 2. THE EXPENDITURE SHOULD NOT BE OF NATURE OF CAPITAL EXPENDITURE 3. IT SHOULD NOT BE A PERSONAL EXPENDITURE ITA NO. 1069/HYD/2012 & ORS. M/S. TRANSPORT CORPORATION OF INDIA LTD. ============================== 19 4. THE EXPENDITURE HAVE BEEN LAID OUT FOR EXPENDED WH OLLY AND EXCLUSIVELY FOR THE PURPOSES BUSINESS OR PROFES SION. 6.16 NOW, WE WILL EXAMINE, WHETHER IN THIS CASE THE ASSE SSEE HAS FULFILLED THE REQUIREMENT AS ENVISAGED BY THE P ROVISIONS OF THE ACT. WE HAVE CAREFULLY GONE THROUGH THE PROVIS IONS OF SECTIONS 30 TO 36. 6.17 THE CLAIM OF PAYMENT OF FREIGHT CHARGES BY THE PRES ENT ASSESSEE IS NOT DISQUALIFIED FOR DEDUCTION UNDER TH E ACT. NOW, COMING TO NEXT QUESTION AS TO WHETHER THE EXPENDITU RE IS CAPITAL EXPENDITURE OR NOT, WE ARE OF THE OPINION THE EXPEN DITURE IS NOT A CAPITAL EXPENDITURE SINCE THE ASSESSEE DID NOT AC QUIRE ANY CAPITAL ASSET. 6.18 AS FOR THE THIRD CONDITION AS TO WHETHER THE PAYMEN T IS IN THE NATURE OF PERSONAL EXPENDITURE OR NOT, AGAIN, I N OUR OPINION, THIS IS NOT THE PAYMENT RELATING TO PERSONAL BENEFI T 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 INCU RRED 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 SHOU LD BE INCURRED IN THE COURSE OF HIS OR ITS BUSINESS. SUCH EXPENDITURE MAY BE INCURRED VOLUNTARILY WITHOUT ANY NECESSITY A ND IT IS INCURRED FOR PROMOTING THE BUSINESS AND TO EARN PRO FITS, THE ASSESSEE CAN CLAIM DEDUCTION EVEN THOUGH THERE WAS NO COMPELLING NECESSITY TO INCUR SUCH EXPENDITURE. TH E FACT THAT SOMEBODY OTHER THAN THE ASSESSEE IS ALSO BENEFITED BY THE EXPENDITURE SHOULD NOT COME IN THE WAY OF AN EXPEN DITURE ITA NO. 1069/HYD/2012 & ORS. M/S. TRANSPORT CORPORATION OF INDIA LTD. ============================== 20 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 DISALLO WED ON THE REASON THAT THERE IS NO SUFFICIENT EVIDENCE FOR SUC H PAYMENT. NOW, THE ISSUE BEFORE US IS WHETHER THE ASSESSEE HA S ESTABLISHED THE PAYMENT OF FREIGHT CHARGES BY PRODU CING THE NECESSARY EVIDENCE. THE REASON FOR DISALLOWANCE IS THAT THE LETTERS ADDRESSED TO THE PARTIES IN CERTAIN CASES B Y THE ASSESSING OFFICER WERE NOT RESPONDED BY THE CONCERNED PARTIES . HOWEVER, IN THE PRESENT CASE THERE WAS HIRING OF TRUCKS. TH E 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 DAT E 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 I N THE MATTER TO REPLY AS IT DOES NOT RELATE TO THEM (D) MOST OF THE LORRY OWNERS/DRIVERS ARE EITHER UNEDUCA TED OR SEMI EDUCATED AND DO NOT UNDERSTAND THE NOTICES (E) THE LORRY OWNERS HAVING FURNISHED THE DETAILS EARLI ER 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 TH E INCOME-TAX DEPARTMENT FOR THEIR OWN PERSONAL REASON S. ITA NO. 1069/HYD/2012 & ORS. M/S. TRANSPORT CORPORATION OF INDIA LTD. ============================== 21 6.21 BEING SO, NON-CONFIRMATION BY THEM CANNOT BE A REA SON 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 RESPON DENT- ASSESSEE, HAS INVITED OUR ATTENTION TO THE FACT THA T THE ASSESSEE HAD APPEARED AS AN INTERVENER BEFORE THE SPECIAL BENCH OF THE TRIBUNAL WHEN IT WAS CONSIDERI NG THE APPEALS RELATING TO FRENCH DYES AND CHEMICALS (I.) (P.) LTD. HE HAS FURTHER INVITED OUR ATTENTION TO PARAGR APHS 24 TO 28 OF THE JUDGMENT IN THAT CASE TO SHOW THAT THE ASSESSEE HAD PRODUCED VARIOUS DETAILS AND THE RECOR DS MAINTAINED BY THE COMPANY RELATING TO THE SECRET COMMISSION PAYMENTS. VOUCHERS FOR THE AMOUNTS RECEI VED BY THE SALES OFFICER OR OTHER RESPONSIBLE PERSONS F OR THE PAYMENT OF SECRET COMMISSION WERE AVAILABLE. THE DE TAILS OF SALES TRANSACTIONS ENTERED INTO WITH VARIOUS MIL L- COMPANIES, IN RESPECT OF WHICH SECRET COMMISSION HA D TO BE PAID, WERE AVAILABLE. THERE WAS A COMPLETE TALLY BETWEEN THE COMMISSION PAID AND THE EXTENT OF BUSIN ESS DONE BY THE MILL-COMPANY. DETAILS WERE ALSO AVAILAB LE OF THE EXACT TRANSACTIONS IN RESPECT OF WHICH THE ASSE SSEE HAD TO PAY THE SECRET COMMISSION THE ASSESSEE HAD G IVEN A COMPLETE LIST SHOWING THE TURNOVER AND THE AMOUNT OF SECRET COMMISSION PAID FROM YEAR TO YEAR. THE PERCE NTAGE OF SECRET COMMISSION WAS MINIMAL. THE FULL DETAILS OF PAYMENT ON THE ABOVE BASIS IN RESPECT OF SEVERAL PA RTIES WERE AVAILABLE. THEY WERE CORRELATED TO THE TRANSAC TIONS WHICH THE ASSESSEE HAD WITH THOSE PERSONS AND THE PERIOD DURING WHICH THE TRANSACTIONS WERE ENTERED I NTO. 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 WITH OUT DETRIMENT TO THE BUSINESS OF THE ASSESSEE IN THE VE RY 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 TH E 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 (I NCOME- TAX REFERENCE NO. 606 OF 1976) DATED AUGUST 21, 199 0, SQUARELY APPLIES. ACCORDINGLY, WE AGREE WITH THE TR IBUNAL THAT ITS CONCLUSION IS BASED ON A FINDING OF FACT A RRIVED AT ON THE BASIS OF GOOD AND COGENT MATERIAL' ITA NO. 1069/HYD/2012 & ORS. M/S. TRANSPORT CORPORATION OF INDIA LTD. ============================== 22 6.23 IN THE INSTANT CASE OF THE ASSESSEE-COMPANY TOO, TH E FACTS ARE IDENTICAL WITH THOSE CONSIDERED BY THE HONBLE 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 PAYE ES AS RECIPIENTS, HAD BEEN PRODUCED BY THE ASSESSEE-COMPA NY BEFORE THE ASSESSING OFFICER. THE PAYMENT VOUCHERS CONTAIN ED FULL DETAILS OF THE NATURE OF TRANSACTION. IN OTHER WORD S, 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 TH E 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, GENUI NENESS OF THE PAYMENTS WAS ESTABLISHED BY THE ASSESSEE. 6.25 WE MAY NOTE AT THE COST OF REPETITION THAT THE DECI SION OF THE HON'BLE BOMBAY HIGH COURT IN CIT VS. SIGMA PAIN TS 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 RELATI NG TO COMMISSION PAYMENTS. THE DETAILS OF SALES TRANSACTI ONS ENTERED INTO WITH VARIOUS MILL COMPANIES, IN RESPECT OF WHI CH SECRET COMMISSION HAD BEEN PAID, WERE PRODUCED BEFORE THE ASSESSING OFFICER ALONG WITH PAYMENT VOUCHERS. THERE WAS A CO MPLETE RECONCILIATION AND TALLY BETWEEN THE COMMISSION PAI D AND THE EXTENT OF BUSINESS DONE BY THE MILL COMPANY. THE PA YMENTS WERE CORRELATED TO THE TRANSACTIONS WHICH THE ASSES SEE HAD WITH THOSE PERSONS. THE ONLY MISSING LINK WAS STATED TO BE THE NAMES ITA NO. 1069/HYD/2012 & ORS. M/S. TRANSPORT CORPORATION OF INDIA LTD. ============================== 23 OF THE PARTICULAR PARTIES TO WHOM THE PAYMENTS WERE MADE. THIS, THE TRIBUNAL HELD, COULD NOT BE SUPPLIED WITH OUT DETRIMENT TO THE BUSINESS INTERESTS OF THAT ASSESSEE, CONSIDE RING THE VERY NATURE OF THINGS. 6.26 THE INITIAL ONUS AND BURDEN OF PROOF WAS ON THE ASS ESSEE. IN THE INSTANT CASE, SUCH INITIAL ONUS AND BURDEN O F PROOF HAS BEEN DULY DISCHARGED BY THE ASSESSEE COMPANY BY PRO DUCING ITS AUDITED BOOKS OF ACCOUNTS, PAYMENT VOUCHERS-AND OTHER DOCUMENTS GIVING FULL DETAILS AS TO THE NATURE OF T RANSACTIONS, WHICH NECESSITATED THE PAYMENT OF SUCH FREIGHT CHAR GES AND THAT THIS WAS AN ACCEPTED NORM AND ESTABLISHED IN T HIS LINE OF BUSINESS AND THAT WITHOUT SUCH PAYMENT, IT WAS NOT POSSIBLE TO SURVIVE IN THIS LINE OF BUSINESS, AS WELL AS THE PR EVALENT TRADE PRACTICE IN THE LINE OF BUSINESS CARRIED ON BY THE ASSESSEE COMPANY ALL ALONG. HOWEVER, IN THIS CASE THE INFLA TING OF EXPENDITURE BY THE ASSESSEE CANNOT BE RULED OUT. C ONSIDERING THE ENTIRE FACTS AND CIRCUMSTANCE OF THE CASE AND C HANCES 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 A ND 8 PARTIES IN A.Y. 2009-10. ACCORDINGLY, WE PARTLY AL LOW THE GROUND TAKEN BY THE ASSESSEE. CONSEQUENTLY, THE GR OUND 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. 20 08-09. OUT OF THE ABOVE AMOUNT THE AMOUNT PAID BY CROSSED ACCO UNT PAYEE CHEQUES IS RS. 67,36,472. FULL PARTICULARS OF THE C HEQUE PAYMENTS WERE FURNISHED TO THE AO. THESE CHEQUE PAY MENTS WERE VERIFIED BY THE AO. THE REMAINING SUM OF RS. 23,04,086/- WAS PAID IN CASH AND THESE ARE ALL SMALL PAYMENTS R ANGING ITA NO. 1069/HYD/2012 & ORS. M/S. TRANSPORT CORPORATION OF INDIA LTD. ============================== 24 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 OR DERS 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, AN D DIRECTED DISALLOWANCE OF COMMISSION AT 15% OF CASH PAYMENTS. BEING SO, OUT OF THE DISALLOWANCE OF RS. 23,04,086 MADE B Y THE AO THE CIT(A) CONFIRMED THE DISALLOWANCE AT 15% AMOUNTING TO RS. 3,45,613 AND ORDERED RELIEF FOR THE REMAINING SUM O F RS. 19,58,473. THE AR CONTENDED THAT THE ENTIRE AMOUNT SHOULD HAVE BEEN ALLOWED AS A DEDUCTION AND THE DISALLOWAN CE 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 AB OVE 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 VER IFIED BY THE AO. THE REMAINING SUM OF RS. 5,48,520/- WAS PAID IN CASH AND THESE ARE ALL SMALL PAYMENTS RANGING BETWE EN RS. 1000 TO RS. 2000. THE AO DISALLOWED THE ENTIRE CASH PAYMENTS. 8.1 THE AR SUBMITTED THAT THE CIT(A) RELIED UPON THE OR DERS OF THE TRIBUNAL IN ITA NO. 1214/HYD/04 & BATCH, DT. 25/1/2012 FOR A.YS. 2000-01 TO 2005-06 WHICH ALSO C ONSIDERED THE JUDGEMENT OF THE A.P. HIGH COURT, AND DIRECTED DISALLOWANCE OF COMMISSION AT 15%. BEING SO, OUT OF THE DISALLOW ANCE OF RS. 5,48,520 MADE BY THE AO THE CIT(A) CONFIRMED THE DI SALLOWANCE AT 15% OF CASH PAYMENTS AMOUNTING TO RS. 82,278 AND ORDERED RELIEF FOR THE REMAINING SUM OF RS. 4,66,242. THE A R CONTENDED ITA NO. 1069/HYD/2012 & ORS. M/S. TRANSPORT CORPORATION OF INDIA LTD. ============================== 25 THAT THE ENTIRE AMOUNT SHOULD HAVE BEEN ALLOWED AS A DEDUCTION AND THE DISALLOWANCE SHOULD NOT HAVE BEEN MADE OF 1 5% 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 MATE RIAL ON RECORD. ADMITTEDLY, THIS ISSUE CAME UP FOR CONS IDERATION BEFORE THIS TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y S. 2000-01 TO 2005-06 IN ITA NO. 1214/HYD/2004 & ORS DATED 25.1.2 012, WHEREIN THE TRIBUNAL FROM PARAS 27 TO 87 VERY ELABO RATELY DISCUSSED ON THIS ISSUE AND SUSTAINED THE DISALLOWA NCE OF COMMISSION AT 15% OF THE PAYMENT, THE CONCLUDING PA RA (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 (CITE D SUPRA), WE ARE INCLINED TO SUSTAIN THE DISALLOWANCE AT 15% ON CASH PAYMENT OF THE COMMISSION AND THE PAYMENTS BY CROSS ED CHEQUE/DD SHALL NOT BE CONSIDERED FOR DISALLOWANCE. THIS GROUND OF THE ASSESSEE IS PARTLY ALLOWED FOR A.Y. 2 008-09 AND 2009-10 AND THE GROUND TAKEN BY THE REVENUE ON THE SAME ISSUE IS DISMISSED FOR BOTH THE YEARS. ITA NO. 1069/HYD/2012 & ORS. M/S. TRANSPORT CORPORATION OF INDIA LTD. ============================== 26 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 ALLOWE D AND CONFIRMED REMAINING 15%. THE CIT(A) ORDERED RELIEF AT RS. 10,85,87,783 AND UPHELD THE DISALLOWANCE AT RS. 1,9 1,62,550. FOR THE NEXT ASSESSMENT YEAR 2009-10, THE ASSESSING OFFICER DISALLOWED ONLY 30% OF THIS EXPENDITURE WHILE FOR T HE YEAR UNDER APPEAL 100% WAS DISALLOWED. PERHAPS IN THE NEXT YEA R IT MUST HAVE OCCURRED TO THE AO THAT DISALLOWANCE AT 100% W OULD BE UNJUST AND UNREASONABLE. 9.1 THE AR SUBMITTED THAT THE BASIS OF THE DISALLOWANCE MADE IS THAT NO DETAILS ARE AVAILABLE IS FACTUALLY INCOR RECT. IT IS ALSO INCORRECT TO STATE THAT THEY ARE WITHOUT ANY SUPPOR TING EVIDENCE. IT IS A FACT THAT THESE EXPENSES WERE INCURRED IN C ASH EN-ROUTE AS NO ONE CAN MAKE PAYMENTS IN CHEQUES EN-ROUTE WHI LE IN TRANSIT. NO ONE WILL ACCEPT SUCH CHEQUE PAYMENT WHE N THE PAYER IS UNKNOWN AND TRAVELLING EN-ROUTE. IT IS OB VIOUS 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 T HE 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 ITA NO. 1069/HYD/2012 & ORS. M/S. TRANSPORT CORPORATION OF INDIA LTD. ============================== 27 9.2 THE AR SUBMITTED THAT ON THE BASIS OF THE FINDINGS OF THE CIT(A) IN HIS ORDER, DISALLOWANCE IS NOT WAR RANTED AT ALL. IN FACT THE CIT(A) SHOULD HAVE DELETED THE ENTIRE A DDITION INSTEAD OF CONFIRMING 15% DISALLOWANCE, AS ESTIMATE D 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 EXPENDITU RE 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 EXP ENDITURE WAS SHOWN ON THE REVERSE OF TRIP CONTRACT VOUCHERS. THE DISALLOWANCE WAS MADE BECAUSE OF AN ERRONEOUS IMPRE SSION THAT THE DETAILS OF EXPENDITURE INCURRED ARE NOT AV AILABLE .SINCE THE BASIC EXEMPTION FOR MAKING THE DISALLOWANCE IS ERRONEOUS AND CONSIDERING THE NATURE OF EXPENDITURE THAT ENTI RE EXPENDITURE DESERVES TO BE DELETED. 10. DISALLOWANCE OF FIXED EN-ROUTE EXPENSES FOR A.Y. 2009-10 , THE LEARNED AR SUBMITTED THAT THE TOTAL EXPENDITU RE 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 1 5%. 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 D ISALLOWANCE MADE IS THAT NO DETAILS ARE AVAILABLE IS FACTUALLY INCORRECT. IT IS ALSO INCORRECT TO STATE THAT THEY ARE WITHOUT ANY S UPPORTING EVIDENCE. IT IS A FACT THAT THESE EXPENSES WERE INC URRED IN CASH EN-ROUTE AS NO ONE CAN MAKE PAYMENTS IN CHEQUES EN- ROUTE ITA NO. 1069/HYD/2012 & ORS. M/S. TRANSPORT CORPORATION OF INDIA LTD. ============================== 28 WHILE IN TRANSIT. NO ONE WILL ACCEPT SUCH CHEQUE PA YMENT WHEN THE PAYER IS UNKNOWN AND TRAVELLING EN-ROUTE. THE A R SUBMITTED THAT THE AO HAS NOT SEEN ON THE REVERSE O F THE TRIP CONTRACT VOUCHER WHICH GIVES THE BRAKE UP OF THE EN -ROUTE EXPENSES. TOLL TAX PAYMENTS ARE ALSO INCLUDED IN TH IS EXPENDITURE AND NOT SEPARATELY CLAIMED AS ASSUMED B Y THE AO. 10.1 THE AR SUBMITTED THAT THE DISALLOWANCE IS NOT WARRA NTED AT ALL. IN FACT THE CIT(A) SHOULD HAVE DELETED THE ENTIRE ADDITION INSTEAD OF CONFIRMING 15% DISALLOWANCE, AS ESTIMATE D 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 EXPENDITUR E B) DISALLOWANCE FOR A.Y. 2009-10 30% OF EXPENDITURE C) DISALLOWANCE AS PER ORDER OF CIT(A) 15% OF EXPE NDITURE 10.2 THE AR SUBMITTED THAT THE EXPENDITURE WAS INCURRED FOR THE PURPOSE OF BUSINESS AND THE BREAK-UP OF THE EXP ENDITURE WAS SHOWN ON THE REVERSE SIDE OF TRIP CONTRACT VOUCHERS. THE DISALLOWANCE WAS MADE BECAUSE OF AN E RRONEOUS IMPRESSION THAT THE DETAILS OF EXPENDITURE INCURRED ARE NOT AVAILABLE. SINCE THE BASIC EXEMPTION FOR MAKING A D ISALLOWANCE IS ERRONEOUS AND CONSIDERING THE NATURE OF EXPENDIT URE THAT ENTIRE EXPENDITURE DESERVES TO BE DELETED. 11. FOR THE ABOVE PROPOSITIONS, THE LEARNED AR RELIED O N THE JUDGEMENT OF THE GUJARAT HIGH COURT IN THE CASE OF CIT VS. SWAMINARAYAN VIJAY CARRY TRADE (P) LTD (33 TAXMAN.C OM 403). WITH REGARD TO FREIGHT EXPENSES THE FACTUAL POSITIO N IN THIS CASE IS IDENTICAL TO THE CASE OF THE ASSESSEE. LIKE IN T HE ABOVE CASE, EVEN IN THE CASE OF ASSESSEE THE TRIP CONTRACT VOUC HER GIVES FULL DETAILS. THE HIRING OF THE TRUCKS IS ALSO CORRELATE D TO THE ACTUAL ITA NO. 1069/HYD/2012 & ORS. M/S. TRANSPORT CORPORATION OF INDIA LTD. ============================== 29 TRIPS MADE. THESE DETAILS ARE METICULOUSLY GIVEN IN SUPPORTING VOUCHERS. IT WOULD BE APPROPRIATE TO POINT OUT THA T DISALLOWANCE OF THIS EXPENDITURE WAS NOT MADE AT LE AST IN THE PRECEDING 10 YEARS PRIOR TO ASSESSMENT YEAR 2008-09 AND ALSO IN THE SUBSEQUENT ASSESSMENT YEARS 2010-11 AFTER FU LL ENQUIRY. FACTS BEING IDENTICAL, THERE CANNOT BE ANY DISALLOW ANCE FOR ASSESSMENT YEAR 2008-09 AND 2009-10. THE AR SUBMITT ED THAT THE JUDGEMENT OF GUJARAT HIGH COURT SUPPORTS THE AS SESSEE'S CASE THAT THE DISALLOWANCE OF FREIGHT EXPENSES IS U NWARRANTED. 12. REGARDING DISALLOWANCE OF FIXED EN-ROUTE EXPENSES, THE AR SUBMITTED THAT THIS DISALLOWANCE IS IDENTICAL TO TH E EXPENSES DISALLOWED IN THE ABOVE JUDGEMENT OF GUJARAT HIGH C OURT 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 N ON BUSINESS PURPOSES OR SUCH EXPENDITURE IS EXCESSIVE OR UNREAS ONABLE. 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 HELPE RS ARE ILLITERATE AND MANY TIMES THEY WORK IN ADVERSE COND ITIONS. THE AR SUBMITTED THAT THE ABOVE DECISION SUPPORT THE AS SESSEE'S PLEA THAT THE DISALLOWANCE IS UNWARRANTED. 12.1 THE LEARNED DR SUBMITTED THAT THE EXPENDITURE IS NO T PROPERLY VOUCHED AND HENCE, THERE IS EVERY CHANCE O F INFLATING THE EXPENDITURE AND THE ASSESSEE HAS NOT GIVEN SUPP ORTING DETAILS. HE SUBMITTED THAT EVEN BASIC DETAILS ARE NOT FURNISHED BY THE ASSESSEE. THEREFORE, THE ADDITION MADE BY T HE AO IS TO BE SUSTAINED. 12.2 WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. FOR A.Y. 2008-09, THIS EXPENDITURE WAS INCURRED ITA NO. 1069/HYD/2012 & ORS. M/S. TRANSPORT CORPORATION OF INDIA LTD. ============================== 30 WHILE TRANSPORTING THE GOODS FROM ONE PLACE TO ANOT HER PLACE BY THE DRIVERS. THESE EXPENSES WERE INCURRED IN CASH. WHILE TRANSPORTING THE GOODS BY ROAD, NO ONE CAN MAKE PAY MENT BY CHEQUES, AS THE SAME ARE ENROUTE EXPENSES WHILE TRA NSPORTING 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 ASSO CIATIONS/ LOCAL DRIVERS, SPARES AND REPAIRS EXPENSES, THERE C ANNOT BE 100% FOOLPROOF EVIDENCES TO SUPPORT THESE PAYMENTS. IT IS IMPOSSIBLE TO EXPECT FROM THE DRIVERS AND CONDUCTOR S FOOLPROOF SUPPORTING EVIDENCES AND VOUCHERS. CONSIDERING THE SE FACTS, IT IS APPROPRIATE TO DISALLOW 15% OF THESE TWO EXPENSE S. 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 REVEN UE 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 APPEAL S IN ITA NOS. 1366 AND 1367/HYD/2012 ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH SEPTEMBER, 2013. SD/ - (SAKTIJIT DEY) JUDICIAL MEMBER SD/ - (CHANDRA POOJARI) ACCOUNTANT MEMBER HYDERABAD, DATED THE 16 TH SEPTEMBER, 2013 TPRAO ITA NO. 1069/HYD/2012 & ORS. M/S. TRANSPORT CORPORATION OF INDIA LTD. ============================== 31 COPY FORWARDED TO: 1. M/S. TRANSPORT CORPORATION OF INDIA LTD., 306 & 307 , 3 RD 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), 8 TH 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