Shri. M. Mallikarjuna, Bellary V. ACIT, Bellary

ITA 229/BANG/2009

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9540 (ITAT-BANGALORE)
• Duration Of Justice: 5 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-08-2009
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2003-2004
• Appeal Filed On: 19-03-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V S SREELEKHA
• Assessee Lawyers: BABU PRASAD; ANIRUDH
• Keywords: Business expenditure; TDS
• Section: 271(1)(c); 133(6); 251; 37

Judgement Text

PAGE 1 OF 21 ITA NO.229 & 230/BANG/2009 1 IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH B' BEFORE SHRI K P T THANGAL, VICE PRESIDENT AND SHRI N L KALRA, A.M. ITA NO.229 & 230/BANG/09 (ASST. YEARS 2003-04 & 2004-05) SHRI M MALLIKARJUN, PROP: M/S SREE MAHAVEER ENTERPRISES, D.NO.25B, WARD NO.XVII, PATEL NAGAR, BELLARY. - APPELLANT VS THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE-1, BELLARY. - RESPONDENT APPELLANT BY : S/SHRI ANIRUDH & BABUPRASAD RESPONDENT BY : SMT. V S SREELEKHA O R D E R PER N L KALRA : THE ASSESSEE HAS FILED APPEALS AGAINST THE ORDER OF LEARNED CIT(A), HUBLI DATED 27TH NOVEMBER, 2008. 2. THE LEARNED CIT(A) HAS DISPOSED OFF THE APPEALS FOR BOTH THE ASST. YEARS BY A CONSOLIDATED ORDER. TH E GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE SIMILAR FOR BOT H THE ASST.YEARS. THE GROUNDS OF APPEAL RAISED BY THE ASSE SSEE ARE AS UNDER:- PAGE 2 OF 21 ITA NO.229 & 230/BANG/2009 2 I) THE LEARNED CIT(A) HAS ERRONEOUSLY UPHELD THE DISALLOWANCE OUT OF TRANSPORT CHARGES BY SIMPLY PRESCRIBING WHAT THE APPELLANT SHOULD HAVE DONE AND ON ASSUMPTIONS AND PRESUMPTIONS THAT THE APPELLANT HAS MISREPRESENTED FACTS AND WITHOUT ANY FINDINGS AS TO WHETHER THE EXPENDITURE IS NOT GENUINE OR INFLATED AND WITHOUT STATING WHAT FACT IS MISREPRESENTED. II) THE ACTION OF THE LEARNED CIT(A) IN UPHOLDING THE DISALLOWANCE IS ILLEGAL AND WITHOUT ANY AUTHORITY OF LAW IN SO FAR AS THERE IS NO FINDING THAT THESE EXPENDITURES ARE BOGUS OR UNTRUE OR NOT RELATED TO THE BUSINESS OR INFLATED. III) THE LEARNED CIT(A) OUGHT TO HAVE ORDERED DELETION OF THE DISALLOWANCE FOR THE REASONS STATED BY THE LEARNED CIT(A), GULBARGA IN HIS REMAND ORDER REFERRED TO SUPRA IN THE STATEMENT OF FACTS TO THE EFFECT THAT THE DISALLOWANCE IS NOT BASED ON ANY FACTS OR EVIDENCE AND IS WITHOUT PROPER INQUIRIES. IV) THE LEARNED CIT(A) FAILED TO APPRECIATE THAT THESE EXPENDITURES ARE SELF VOUCHED DOES NOT LEAD TO ANY INFERENCE THAT THE EXPENDITURE IS NOT RELATED TO THE BUSINESS WITHOUT ANY FURTHER EVIDENCE TO SHOW THAT IT IS NON BUSINESS EXPENDITURE AND AS SUCH OUGHT TO HAVE ORDERED THE DELETION OF ADDITIONS MADE BY THE LEARNED AO. V) THE LEARNED CIT(A) HAVING OBSERVED THAT THE DETAILS OF TRUCK OWNERS NUMBRS ETC. ARE AVAILABLE IN THE TRIP SHEET MAINTAINED BY THE PRINCIPALS FOR WHOM THE VEHICLES ARE MADE AVAILABLE OUGHT TO HAVE FOUND THAT THIS FACT SHOW THAT THE EXPENDITURE IS GENUINE AND THAT AO IF HE STILL HAD DOUBTS COULD HAVE CARRIED OUT PROPER INQUIRIES AND INVESTIGATION PAGE 3 OF 21 ITA NO.229 & 230/BANG/2009 3 WITH RTO BY INVOKING SECTION 133(1) AND 133(6) OF THE I T ACT, 1961 AND COULD HAVE VERIFIED WHETHER THE AMOUNT SHOWN AGAINST ANY OF THE OWNERS OF TRUCKS IS GENUINE OR INFLATED AND WITHOUT SUCH PROPER AND COMPLETE INQUIRIES THE DISALLOWANCE IS NOT SUSTAINABLE AS HELD IN DCIT V ADINATH INDUSTRIES (2001) 247 ITR (STATUTES) 34(SC). VI) THE LEARNED CIT(A) HAS ERRONEOUSLY DIRECTED THE AO TO INITIATE ACTION U/S 271(1)(C) AND SUCH A DIRECTION IS ILLEGAL AS WITHOUT JURISDICTION EVEN WITHOUT STATING WHICH IS THE FACT THAT IS MISREPRESENTED AND ALSO WITHOUT APPRECIATING THE FACT THAT WHEN THE APPEAL IS DISMISSED THERE IS NO NEED FOR THE AO TO PASS ANY ORDER TO GIVE EFFECT TO ORDER OF CIT(A). 3. THE ASSESSING OFFICER HAS DISALLOWED RS.5 LAKHS OUT OF TRANSPORT CHARGES FOR THE ASST. YEAR 2003-04 AND RS.75,000/- FOR THE ASST.YEAR 2004-05. THE OBSERVAT IONS OF THE ASSESSING OFFICER FOR BOTH THE YEARS ARE SIMILAR EXCEPT THAT FIGURES FOR BOTH THE ASST.YEARS ARE DIFFERENT A ND THEREFORE, WE ARE REPRODUCING THE ORDER OF THE AO O N THIS ISSUE FOR THE ASST.YEAR 2003-04. THE ASSESSING OFFI CER WHILE MAKING DISALLOWANCE HAS OBSERVED AS UNDER:- 'IN THE PROFIT AND LOSS A/C OF THE PROPRIETARY BUSINESS, THE ASSESSEE HAS CLAIMED TRANSPORT CHARGES OF RS.2,34,19,896/-. ON EXAMINATION OF RELEVANT VOUCHERS, IT IS SEEN THAT MANY OF THE VOUCHERS ARE SELF-MADE AND AS SUCH ARE PAGE 4 OF 21 ITA NO.229 & 230/BANG/2009 4 NOT FULLY VERIFIABLE. UNDER THESE CIRCUMSTANCES, AN AMOUNT OF RS.5,00,000/- IS TREATED AS AN EXPENDITURE NOT RELATED TO BUSINESS AND IS ADDED BACK TO THE INCOME DECLARED'. 4. AGAINST THE DISALLOWANCE, THE ASSESSEE FILED AN APPEAL. IN THE WRITTEN SUBMISSIONS FILED BEFORE TH E LEARNED CIT(A), THE ASSESSEE RAISED THE FOLLOWING CONTENTIO NS:- 4.1 APPELLANT DOES NOT OWN ANY TRUCKS FOR PURPOSE OF TRANSPORTATION AND HIRING TRUCKS FROM VARIOUS TRUCK OWNERS FOR TRANSPORTING FOR PRINCIPLES LIKE M/S SOUTH WEST MINING LTD., TORANGALLU AND VIJAY NAGAR MINING LTD. IT IS FACT THAT TRUCKS ARE NOT OWNED BY OWNERS BUT THEY ARE OWNED BY INDIVIDUAL TRUCK OWNER WHO ARE BARGAINING FOR HIGHER TRANSPORT CHARGES SO, IT IS VERY DIFFICULT TO ENTER INTO CONTRACT WITH SUCH TRUCK OWNERS INDIVIDUALLY AND ALSO TO OBTAIN VOUCHERS FROM THESE TRUCK OWNERS. 4.2 SOUTH WEST MINING LTD., TORANGALLU AND VIJAY NAGAR MINING ARE MAINTAINING ACCOUNTS TRIP WISE FOR TRANSPORTING IRON ORE. ON CONFIRMATION FROM PRINCIPLE PARTY PAYMENT IS MADE EACH TRUCK OWNER ON COMPLETION OF JOB BUT IT IS VERY DIFFICULT TO OBTAIN SIGNATURES OR VOUCHERS FROM THEM. SONME LORRY TRIP SHEETS ARE PRODUCED FOR PERUSAL WHICH CONTAINS LORRY NUMBER, TRIP SHEET NUMBER, DAY AND TIME OF DELIVERY, NAME OF THE CONTRACTOR, WEIGHT AND PAGE 5 OF 21 ITA NO.229 & 230/BANG/2009 5 NATURE OF ORE ALONG WITH SIGNATURE OF RECEIVER. THUS, RECORD IS MAINTAINED BY SANDUR MANGANESE & IRON ORE LTD., BENGERI TO WHOM SOUTH WEST MINING LTD. IS SUPPLYING ORE THROUGH VEHICLES HIRED BY APPELLANT. THEREFORE, IT IS STATED THAT THERE IS NO FOOLPROOF SYSTEM IN TRANSPORTING ORE AND OBTAINING PROPER VOUCHERS FROM THEM. 4.3 IN BOOKS OF ACCOUNT AS CARRIED OVER FROM JOURNAL ENTRIES WHERE DAILY DETAILS ARE ACCOUNTED BUT IN LEDGER ACCOUNT PAYMENT MADE TO EACH TRUCK OWNERS FOR WHOLE YEAR ARE MAINTAINED. THEREFORE, IT IS DIFFICULT TO MAINTAIN VOUCHERS SIGNED BY TRUCK OWNERS/DRIVERS. 5. THE LEARNED CIT(A) REQUIRED THE AO TO SUBMIT TH E REMAND REPORT VIDE LETTER DATED 28TH JUNE, 2006. T HE REMAND REPORT WAS SUBMITTED VIDE LETTER DATED 20TH JULY, 20 06. THERE WERE 86 TRANSPORT CONTRACTORS FOR THE ASST. YEAR 200 3-04 AND 81 TRANSPORT CONTRACTORS FOR THE ASST. YEAR 2004-05. THE FULL ADDRESSES OF THE CONTRACTORS WERE NOT AVAILABLE AS IT WAS SUGGESTED BY THE ASSESSEE THAT THEY MIGHT HAVE MIGRAT ED TO OTHER PLACES. 8 PERSONS WERE PRODUCED AND THEY WERE ASKED TO FURNISH THE DETAILS OF THEIR ASSESSMENTS AND DOCUME NTS OF OWNING VEHICLES. FURTHER TIME WAS REQUESTED AND UL TIMATELY IT WAS SUBMITTED VIDE LETTER DATED 24TH JUNE, 2006 THA T IT IS NOT POSSIBLE TO SUBMIT SUCH DETAILS. THE ASSESSEE WAS ASKED TO FURNISH NAME AND ADDRESS OF PARTY, BASIS OF RATE FIX ED, COPIES OF AGREEMENT, IF ANY, DETAILS OF TDS MADE AND TRIP S HEETS PAGE 6 OF 21 ITA NO.229 & 230/BANG/2009 6 ISSUED BY SUB CONTRACTORS. THE ASSESSEE FILED LIST OF TRANSPORTS, TRANSPORT CHARGES, LEDGER ACCOUNT OF TR ANSPORT CHARGES PAID, AGREEMENT COPIES WITH SOUTH WEST MINI NG LTD. AND VIJAYANAGAR MINING LTD. HOWEVER, THE CORRECT AD DRESSES OF CONTRACTORS WERE NOT FURNISHED. IT WAS ALSO SUBMIT TED THAT THE DETAILS OF TRIPS MADE WERE HANDED OVER TO SOUTH WES T MINING LTD. AND VIJAYANAGAR MINING LTD. THERE WERE NO AGRE EMENT WITH THE TRANSPORTS. THE ASSESSING OFFICER CONCLUDED TH AT THOUGH THERE ARE PROOFS OF ASSESSEE ENGAGING FOR TRANSPORT ING IRON ORE FOR HIS PRINCIPLES LIKE SOUTH WEST MINING LTD. AND VIJAYANAGAR MINING LTD. BUT HE HAS NOT GIVEN ACTUAL RATE FIXED AND DETAILS OF CONTRACTOR. THE ASSESSEE HAS ALSO NOT DEDUCTED TAX U/S 194C(2). 6. BEFORE THE LEARNED CIT(A) IT WAS SUBMITTED THAT IT IS ABSOLUTELY IMPRACTICAL TO GET PROPER VOUCHERS FRO M TRANSPORT CONTRACTORS, HENCE, ADDITION SHOULD BE DELETED. 7. THE LEARNED CIT(A), GULBARGA WROTE A LETTER TO ASSESSING OFFICER ON 28TH MARCH, 2006 VIDE WHICH HE MADE REFERENCE TO CERTAIN VOUCHERS AND THE AO WAS ASKED TO SUBMIT THE REMAND REPORT. THE VARIOUS VOUCHERS POINTED OU T BY THE LEARNED CIT(A) IN HIS LETTER DATED 28TH MARCH, 2006 ARE AS UNDER:- PAGE 7 OF 21 ITA NO.229 & 230/BANG/2009 7 (A) REQUESTED AO TO VERIFY AS TO WHY ASESSEE HAS NOT PAID SINGLE PAISE BY CHEQUE TO ANY OF SUCH TRANSPORTERS IN SUCH HUGE PAYMENT. (B) RANGE OF PAYMENT IS BETWEEN RS.18,000/- TO RS.19,000/- WHICH IS INTENTIONAL AND AS PER LEDGER EXTRACT PAYMENT TO ONE CONTRACTOR TOUCHES UP TO RS.9,11,168/- TO ZAHIR SAHAY HAVING VEHICLE NO.KA-36/1359. THERE ARE HUGE PAYMENTS RUNNING INTO LAKHS EXCEPT ONLY ONE PERSON WHOSE PAYMENT IS RS.49,255/- TO KASIM PEERA OWNING VEHICLE NO.KA-35/B- 3555. ASSESSEE HAS PURPOSELY DIVIDED PAYMENT ON DAILY BASIS LESS THAN RS.20,000. (C) ALL PAYMENTS ARE RECORDED THROUGH SELF MADE VOUCHERS. (D) APPELLANT HAS NOT GIVEN CORRECT NAME AND ADDRESSES OF ANY OF TRANSPORTERS AND STATED THAT NO AGREEMENT IS ENTERED WITH THEM. ATLEAST IT IS NECESSARY TO EXAMINE HIGHEST TRANSPORT CHARGES RECEIVED PERSONS LIKE AS UNDER: SL. NO . TRANSPORTERS NAME PLACE VEHICLE NUMBER TRANSPORT CHARGES 1 ZAHEER SAHEB TORANAGAL KA- 36/1359 9,11,168 2 SUDHARKAR HYDERABAD KA-34/B- 555 8,93,328 3 KASIM PEERA T TORANAGAL KA-35 /2745 8,18,084 4 SRINIVASA TORANAGAL KA- 34/5994 7,22,869 5 VENKATA SWAMY TORANAGAL KA-35/ B-1224 6,94,598 6 CHINNA REDDY TORANAGAL KA-34/ B-3555 6,23,911 7 RAVISHANKAR TORANAGAL KA-34/ 4116 5,98,873 8 SIDDARAMANA GOWDA TORANAGAL KA-35/ 2172 5,88,996 9 N H REDDY BELLARY KA- 34/2277 5,88,576 PAGE 8 OF 21 ITA NO.229 & 230/BANG/2009 8 10 LINGANA GOWDA TORANAGAL KA-3351A -555 5,75,933 11 SHIVANNA TORANAGAL KA-35/ 3811 5,67,482 12 A SOMASHEKARA TORANAGAL KA-35/ 4433 5,63,945 13 RAMANNA TORANAGAL AP-27/ T-8777 5,44,496 14 KISTAPPA TORANAGAL KA-35/ 3339 5,20,013 15 CHANNA GOWDA TORANAGAL KA-16/ B8469 5,19,999 16 BHEEMALINGAPPA TORANAGAL KA-34/ 6588 5,15,248 17 C MAHESH TORANAGAL KA-34/ 2799 5,05,962 (E) TEHRE WERE 8 PERSONS PRODUCED BEFORE AO BUT IT WAS STATED THAT THEY DID NOT UNDERSTAND EITHER HINDI OR ENGLISH. (F) IT WAS SEEN THAT A CONSOLIDATED BILL WHERE AMOUNTS IS RUNNING IN LAKH WAS ISSUED TO EACH TRANSPORTER BUT ON DAILY BASIS IT WAS REDUCED TO LESS THAN RS.20,000/- IN LEDGER FOR THE ENTRIES PASSED THROUGH JOURNAL. IT IS STATED BY APPELLANT THAT THEY ARE ALL SMALL VEHICLE OWNERS AND COULD NOT MANAGE TO WORK ON CREDITS. BUT IN THAT CASE TILL COMPLETION OF WORK NOT A SINGLE PAYMENT IS MADE, THEREFORE, IT BECOMES SURPRISING THAT HOW THEY USE TO PULL ON TILL COMPLETION OF ENTIRE JOB. IT WAS ALSO OBJECTED BY THEN CIT(A), GULBARGA THAT SOME OF THE HIGHEST PAID TRUCK OWNERS WERE ALSO NOT VERIFIED BY AO AND INFORMATION WAS NOT SUBMITTED BY APPELLANT. (G) THE THEN CIT(A), GULBARGA HAS SUGGESTED TO AO BY HIS LETTER DT.28.3.06 TO CONDUCT ENQUIRIES ON VARIOUS LINES BUT SAME WAS NOT DONE WHILE SUBMITTING REMAND REPORT. PAGE 9 OF 21 ITA NO.229 & 230/BANG/2009 9 8. ACCORDING TO THE LEARNED CIT(A), THE AO HAS NOT CARRIED OUT ENQUIRIES ON THE LINES SUGGESTED BY CIT( A) BECAUSE THE ASSESSEE HAS NOT COOPERATED IN FURNISHING INFOR MATION. THE ONLY EXPLANATION GIVEN BY THE ASSESSEE WAS THAT IT IS HIGHLY IMPRACTICAL TO MAINTAIN PROPER VOUCHERS FROM EACH T RANSPORT CONTRACTOR AND RELIED ON TRIP VOUCHERS MAINTAINED B Y PRINCIPLES. THE LEARNED CIT(A) INFERRED THAT IT WAS VERY EASY FOR THE ASSESSEE TO MAINTAIN DETAILED VOUCHERS BUT HE HAS P REFERRED NOT TO MAINTAIN SAME AND CLAIMED EXPENSES BASED ON SELF-MADE VOUCHERS. THIS ITSELF IS AN ENOUGH PROOF THAT ASSE SSEE IS TRYING TO HIDE OR CONCEAL OR MISREPRESENT FACTS WHICH IS M AIN INGREDIENT OF HIS BUSINESS I.E. TRANSPORTATION. IN A BIG CONTRACT, INDIVIDUAL TRUCK OWNERS ARE VERY FEW AND THEY CONTRAC T SUCH TRANSPORTATION IN GROUPS THROUGH SOME OF THEIR LEAD ER. THE ASSESSEE HAS MADE PAYMENT ONLY IN CASH AND NO AMOUNT HAS BEEN PAID BY CHEQUE. THE ASSESSEE IS HAVING NAME OF THE TRANSPORTER, REGISTRATION NUMBER OF VEHICLES AND TH EREFORE, IT WAS VERY EASY FOR HIM TO LOCATE THE PERSON, EVEN AFT ER A GAP OF MANY YEARS THROUGH RTO OFFICE, WHERE A VEHICLE IS REG ISTERED. THE ASSESSEE PRODUCED ONLY 8 PERSONS AND SUCH PERSON S WERE NOT PROPERLY EXAMINED ON THE GROUND THAT SUCH PERSON S ARE NOT UNDERSTANDING HINDI OR ENGLISH LANGUAGE. AS PER RU LES OF MINING, EACH TRUCK AND ITS WEIGHT ALONG WITH REGISTRATION N UMBER OF TRUCK, NAME OF DRIVER, NAME OF PRINCIPLE FOR WHOM O RE IS TRANSPORTED IS MAINTAINED BUT THE ASSESSEE HAS PREF ERRED NOT TO MAINTAIN VOUCHERS BY TAKING INFORMATION FROM SUCH MINING PAGE 10 OF 21 ITA NO.229 & 230/BANG/2009 10 RULES AND REGULATIONS. ACCORDING TO THE LEARNED CI T(A), THE AO HAS MADE LUMPSUM ADDITION WHICH AMOUNTS TO ONLY 0.02 % OF TRANSPORT CHARGES FOR THE ASST. YEAR 2003-04 AND 200 4-05. THE TRANSPORT CHARGES DEBITED ARE TO THE EXTENT OF RS.2,34,896/- AND RS.3,58,78,569/- FOR THE ASST. YEA RS 2003- 04 AND 2004-05. ACCORDINGLY, THE LEARNED CIT(A) HAS CONFIRMED THE ADDITION. 9. DURING THE COURSE OF PROCEEDINGS BEFORE US, THE LEARNED AR SUBMITTED THAT IT IS AN UNDISPUTED FACT THAT THE ASSESSEE DOES NOT OWN VEHICLES AND DEPENDS UPON THE VEHICLE OWNERS FOR HIS BUSINESS. THE ASSESSEE CANNOT IMPOS E CONDITIONS ON THE VEHICLE OWNERS AS OTHERWISE IT WILL MEAN LOO SING HIS BUSINESS. THE ASSESSEE HAD MADE AVAILABLE TO END U SER BIG COMPANIES AND SUCH COMPANIES MAINTAINED TRIP SHEETS . THIS FACT IS ADMITTED BY THE REVENUE THAT TRIP SHEETS MAINTAIN ED ARE AVAILABLE WITH THE BIG COMPANIES. THE ASSESSEE APP EARED BEFORE THE AO IN THE COURSE OF REMAND PROCEEDINGS A ND PRODUCED 7 TO 8 PERSONS FOR EXAMINATION. THE REMAN D REPORT OF THE ASSESSING OFFICER WAS NOT FURNISHED TO THE A SSESSEE. THE ASSESSEE ENGAGED TRUCK OWNERS FOR THE BUSINESS OF THE PRINCIPALS AND HE HAS NOT GIVEN THE RATE FIXED AND DETAILS OF THE CONTRACTS. UNDER THE CIRCUMSTANCES, THE ASSESSEE W AS LEFT WITH NO ALTERNATIVE BUT TO MAINTAIN SELF VOUCHERS B ECAUSE THE VEHICLE OWNERS DO NOT MAINTAIN BILLS/VOUCHERS. SUC H VEHICLE OWNERS/TIPPER OWNERS DO NOT HAVE ANY OFFICE. THE EXPENSES PAGE 11 OF 21 ITA NO.229 & 230/BANG/2009 11 DEBITED BY THE ASSESSEE ARE VOUCHED AND IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ASSESSEE COULD HAVE MAINTAINED ONLY SELF VOUCHERS. THE AO HAS NOT BEEN ABLE TO POI NT OUT ANY MATERIAL TO SHOW THAT THE EXPENSES DEBITED AS PER T HE VOUCHERS WERE DOUBTFUL. THE LEARNED AR THEREFORE REQUESTED THAT DISALLOWANCE REQUIRES TO BE DELETED. 10. ON THE OTHER HAND, THE LEARNED DR HAS FILED CO PY OF LETTER DATED 28TH MARCH, 2006 FROM THE CIT(A), G ULBARGA. COPY OF THIS LETTER WAS ALSO GIVEN TO THE ASSESSEE. AS PER THIS LETTER, THE LEARNED CIT(A) FELT THAT THE ISSUE NEED S TO BE INVESTIGATED IN ITS ENTIRETY. THIS WAS BECAUSE THE AO HAD MADE A HUGE DISALLOWANCE BUT HAS NOT IDENTIFIED EVEN A S INGLE VOUCHER WHICH COULD BE CONSIDERED AS INFLATION OF EXPENSES. THE LEARNED CIT(A) FURTHER OBSERVED THAT THE ASSESSEE WAS TRYING TO WRIGGLE OUT OF THE LEGAL PROCEEDINGS BY NOT PRODUCIN G THE BOOKS OF ACCOUNTS AND VOUCHERS. THEREAFTER, THE LEARNED DR DREW OUR ATTENTION TO PARA 5 OF THAT LETTER IN WHICH, THE LE ARNED CIT(A) HAS MADE HIS OBSERVATION AS TO WHY THE INVESTIGATION IS NEEDED. THEREAFTER, THE LEARNED DR DREW OUR ATTENTION TO PA RA 6 OF THAT LETTER. IN THIS PARA, THE LEARNED CIT(A) HAS MADE HIS OBSERVATION IN RESPECT OF 8 PERSONS PRODUCED FOR EX AMINATION. BEFORE THE LEARNED CIT(A) IT WAS POINTED OUT THAT T RUCK TIPPER OWNERS INSISTED FOR CASH PAYMENT AND DO NOT INSIST F OR CHEQUE PAYMENT. THE PERSONS WHO WERE PRODUCED BEFORE THE L EARNED CIT(A) STATED THAT THEY NEED MONEY TO BUY DIESEL AND T YRE ON PAGE 12 OF 21 ITA NO.229 & 230/BANG/2009 12 REGULAR BASIS. THEREAFTER, THE LEARNED DR DREW OUR ATTENTION TO PARA 7.2 TO 7.4 OF THE LETTER. THE LEARNED CIT( A) HAS OBSERVED THAT ONE OF THE TIPPER OWNERS, WHO WAS PRO DUCED A BILL ON 1ST MAY, 2003 FOR RS.4,81,966/-. THIS IS IN RESP ECT OF TRANSPORT CHARGES PAYABLE FOR THE PERIOD 4TH APRIL, 2003 TO 1ST MAY, 2003. HOWEVER, THERE WERE ONLY THREE CASH PAYMEN TS TO THIS PERSON DURING THE MONTH OF APRIL, 2003 THOUGH THERE WAS AN OPENING BALANCE OUTSTANDING IN HIS NAME TO THE E XTENT OF RS,.1,53,012/-. IN CASE SUCH TIPPER VEHICLE OWNERS NEEDED MONEY FOR DIESEL AND TYRES THEN HE WOULD HAVE WITHDRA WN THE AMOUNT DURING THE MONTH OF APRIL FOR THAT PURPOSE. SIMILARLY, THE LEARNED CIT(A) HAS ALSO MENTIONED THE PAYMENTS T O SHRI SUDHAKAR IN THE MONTH OF APRIL AND THE RAISING OF B ILL OF RS.4,74,825/- ON 31ST MARCH, 2003. THE LEARNED DR T HEREAFTER DREW OUR ATTENTION TO PARA 7.5 OF THIS LETTER. AFT ER MAKING SUCH OBSERVATION, THE LEARNED CIT(A) DIRECTED THE A O TO MAKE ENQUIRIES ON THE LINES AS SUGGESTED BY HIM. IN VIEW OF THE FACTS POINTED OUT BY THE LEARNED CIT(A), THE LEARNED DR SU BMITTED THAT SELF-MADE VOUCHERS ARE NOT AT ALL RELIABLE AND CANNOT BE ACCEPTED. THE ASSESSEE HAS FAILED TO PRODUCE THE P RIMARY EVIDENCE IN SUPPORT OF THE TRANSPORT CHARGES DEBITE D. 11. WE HAVE HEARD BOTH THE PARTIES. THE ASSESSEE IS MAKING PAYMENTS IN CASH. THE LEARNED CIT(A) HAS POI NTED OUT THAT THE VEHICLE OWNERS HAVE RAISED THE BILL AND AG AINST THOSE BILLS, THE ASSESSEE HAS MADE THE PAYMENTS. BEFORE W E PROCEED PAGE 13 OF 21 ITA NO.229 & 230/BANG/2009 13 FURTHER, IT WILL BE USEFUL TO REPRODUCE THE OBSERVA TIONS OF THE LEARNED CIT(A) AS CONTAINED IN PARA 6.1 AND 7.1 TO 7.4:- 6.1 ON THE NEXT DATE OF HEARING ON 16.3.06, THE APPELLANT CONFIRMED THAT THEY HAVE NOT MADE ANY WRITTEN AGREEMENT WITH ANY OF THE PERSONS WHOSE TRUCKS/TIPPERS WERE ENGAGED. THEY ALSO CONFIRMED THAT ALL THE PAYMENTS WERE MADE IN CASH. THEY ALSO GAVE A LIST OF TRANSPORTERS FOR EACH OF THE ASSESSMENT YEARS WHEREIN ALL PERSONS TO WHOM TRANSPORT CHARGES WERE PAID WERE INCLUDED. AS PER THE DIRECTIONS CONTAINED IN ORDER SHEET ENTRY DATED 7.3.03, THE APPELLANT WAS REQUIRED TO PRODUCE THE TOP 20 PERSONS (RECIPIENT OF THE TRANSPORT CHARGES) FOR EACH OF THE ASST. YEAR. BUT OUT OF THE 40 NAMES, THE APPELLANT WAS ABLE TO PRODUCE ONLY 8 PERSONS. I HAVE PERSONALLY SEEN ALL THESE 8 PERSONS AND TALKED TO THEM, THE RESULT OF MY CONVERSATIONS IS ALSO RECORDED VIDE ORDER SHEET ENTRY DATED 16.3.06 AND IS REPRODUCED AS UNDER:- 'SRI J J P GUPTA AND SRI MALLIKARJUN ATTENDED. THEY CONFIRMED THAT ALL OF THEIR PAYMENTS ARE IN CASH. THEY HAVE NOT ENTERED INTO ANY WRITTEN AGREEMENTS WITH ANY OF THEIR PAYEES. THEY GAVE A LIST FOR BOTH AY GIVING LIST OF NAMES AND PAYMENTS, BUT THIS LIST DOES NOT CONTAIN ADDRESSES OF THE PAYEES. THEY PRODUCED THE FOLLOWING EIGHT PERSONS:- PAGE 14 OF 21 ITA NO.229 & 230/BANG/2009 14 1. GURUSWAMY 2. LINGARAJ 3. VEERABHADRA GOUD 4. RAMASWAMY 5. KASIM REERA T 6. SRINIVAS 7. CHINNA REDDY 8. MANOHAR ALL THESE PERSONS WERE TALKED TO BECAUSE THEY DID NOT UNDERSTAND HINDI/ENGLISH. IT WAS FOUND THAT FIRST FIVE ARE ONLY DRIVERS/CLEANER BY PROFESSION AND CLAIMED TO HAVE SOLD OFF THE VEHICLES WHICH HAD OWNED TO CONDUCT THE TRANSPORT BUSINESS. THE LAST THREE HAVE MORE THAN ONE VEHICLE AND ARE DOING REGULAR TRANSPORT BUSINESS. THEY ALL SAID THAT ENGAGEMENT OF THEIR TIPPERS/VEHICLES WAS BASED ON VERBAL AND CASUAL CONTRACTS. PAYMENT WAS MADE TO THEM AFTER TRIPS WERE MADE. NO PARTICULAR REASON WAS GIVEN BY THEM AS TO WHY PAYMENTS WERE NOT RECEIVED IN CHEQUE EXCEPT TO SAY THAT THEY NEEDED MONEY TO BUY DIESEL AND TYRES ON REGULAR BASIS. IN ABSENCE OF IMMEDIATE CASH THEY COULD NOT RUN THEIR BUSINESS. IN VIEW OF THESE FACTS THE LEDGER ACCOUNTS OF THESE PERSONS WERE SEEN. IT WAS INVARIABLY NOTICED THAT IN EACH CASE THE PROVIDER OF TIPPER HAS GIVEN A CONSOLIDATED BILL RUNNING IN LACS, BUT PAYMENT IS MADE IN CASH OF RS.15000 TO RS.18000 PER DAY. WHEN THESE TIPPER OWNERS WERE SO POOR THEN HOW COULD THEY HAVE WORKED FOR THE ASSESSEE ONLY ON CREDIT? WHY SHOULD THIS BE NOT TREATED AS AN EVIDENCE OF THE FACT THAT THE SO CALLED PAGE 15 OF 21 ITA NO.229 & 230/BANG/2009 15 RECORD OF PAYMENT INCLUDING THE SELF MADE VOUCHERS ARE ONLY A MAKE BELIEF AND DO NOT GIVE THE REAL PICTURE OF ACTUAL EXPENSES. ASSESSEE TO GIVE THEIR REPLY ON 21.3.06 AT 11 A.M. CASE ADJOURNED TILL THEN'. 7.1 ON ONE SIDE THE APPELLANT HAS ARGUED THAT THE VEHICLE OWNERS ARE POOR PEOPLE WHO NEED TO BE PAID ON A REGULAR BASIS OTHERWISE THEY WILL NOT BE ABLE TO OPERATE THE VEHICLES. ON THE OTHER HAND FROM THE BOOKS OF ACCOUNTS, IT IS SEEN THAT NOT EVEN ON A SINGLE OCCASION, THE VEHICLE OWNER WAS PAID BEFORE THE ENTIRE JOB WAS PERFORMED. 7.2 TO UNDERSTAND THIS ISSUE LET US START WITH THE VERY FIRST PERSON WHO APPEARS IN THE LIST FOR AY 2004-05. HIS NAME IS MR. ZAHIR SAHIB WHOSE VEHICLE NO. IS KA-36-1359 AND THE TOTAL PAYMENT AGAINST HIS NAME ARE RS.9,11,168/-. THIS PERSON WAS NOT PRODUCED FOR VERIFICATION. HIS LEDGER ACCOUNT SHOWS THAT ON 1.4.03 THERE WAS AN OUTSTANDING DUES TO BE PAID TO HIM AMOUNTING TO RS.1,53,012/-. AGAINST THIS IN THE ENTIRE MONTH OF APRIL 2003, ONLY 3 PAYMENTS OF RS.19,000 EACH ARE MENTIONED. ON 1.5.03, A CREDIT ENTRY OF RS.4,81,966 IS FOUND MENTIONED AGAINST THE NAME OF THIS PERSON ON ACCOUNT OF TRANSPORT CHARGES PAYABLE FOR THE PERIOD 5.4.03 TO 1.5.03. THE TOTAL QUANTITY TRANSPORTED BY THIS PERSON IS MENTIONED AS 4227.78 TONNES AT A RATE OF RS.114/- PER TONNE. THEREFORE, WE SEE THAT THIS PERSON MR. ZAHIR SAHIB HAS RENDERED SERVICES OF RS.4,81,966/- ON CREDIT. THIS IS IN TOTAL CONTRAST WITH THE ARGUMENT RAISED BY THE APPELLANT THAT THE TRUCK/TIPPER OWNERS ARE SMALL PERSONS WHO ARE NOT WILLING TO WORK UNLESS AND UNTIL CASH PAGE 16 OF 21 ITA NO.229 & 230/BANG/2009 16 IS PAID TO THEM. THIS PERSON HAS AGAIN RENDERED FURTHER SERVICES ON CREDIT AMOUNTING TO RS.97,600/- AND RS.6,31,842/- ON 11.9.2003 AND 28.11.2003 RESPECTIVELY. ALL THESE CREDITS ARE ULTIMATELY PAID OFF IN SMALL AMOUNTS OF RS.19,000 EACH IN CASH. 7.3 NOW WE CAN TAKE THE 2ND ENTRY FOR AY 2004-05. THIS IS IN THE NAME OF SRI SUDHAKAR, WHO OWNS A VEHICLE NO.KA-34-B- 555. THE TOTAL PAYMENT IN HIS NAME ARE RS.8,93,328/-. HIS LEDGER A/C ALSO SHOWS SIMILAR TRANSACTIONS. THE OPENING BALANCE IS RS.1,53,969/- AS ON 1.4.03. AGAINST WHICH ONLY 4 PAYMENTS OF RS.19,000 EACH IN CASH IS MENTIONED. ON 31.5.02 A CREDIT OF RS.4,74,825/- IS GIVEN REFLECTING THE TRANSPORT CHARGES PAYMENT FOR THE PERIOD 29.4.03 TO 31.5.03. THE TOTAL WORK PERFORMED IS 4,128.91 METRIC TONES AT A RATE OF RS.115/- PER METRIC TONNE. THIS ENTRY AGAIN REFLECTS THAT SRI SUDHAKAR IS NOT A SMALL PERSON WHO NEEDS MONEY ON A DAILY BASIS TO RUN HIS OPERATIONS. HE HAS IN FACT, RENDERED SERVICE AND GIVEN CREDIT OF RS.4,74,825/-. IT IS FURTHER INTERESTING TO SEE THE ENTRIES MADE IN HIS ACCOUNT. FROM 4.6.03 TILL 28.11.03 THERE ARE ALMOST 30 ENTRIES OF PAYMENT IN CASH EACH AMOUNTING TO RS.19,000. THEREAFTER SUDDENLY A CREDIT OF RS.4,18,503/- APPEARS AGAINST THE TRANSPORT WORK PERFORMED FOR THE MONTH OF FEBRUARY ALONE. THE QUANTUM OF WORK IS 3,804.75 TONNES AT A RATE OF RS.110 PER TONNE. THIS SHOWS THAT SRI SUDHAKAR IS A VERY BIG BUSINESSMAN WHO IS CAPABLE OF DOING BUSINESS ON CREDIT WITH THE APPELLANT FOR HUGE SUMS. BUT THE APPELLANT WANTS TO PAY PAGE 17 OF 21 ITA NO.229 & 230/BANG/2009 17 HIM ONLY IN CASH AND AT ANY POINT OF TIME THE TOTAL AMOUNT IS LESS THAN RS.20,000/-. 7.4 FROM THE ABOVE, IT CAN BE SEEN THAT THE DEVICE TO MAKE ALL PAYMENTS IN ROUND SUMS OF RS.19,000/- IN CASH IS A DEVICE TO ESCAPE FROM THE PROVISIONS OF SEC.40A(3). THESE ARE CLEAR CUT INDICATIONS THAT THE SELF MADE VOUCHERS CONTAIN AN ELEMENT OF INFLATION OF EXPENSES. 12. IN ORDER TO CLAIM AN EXPENDITURE U/S 37 OF THE ACT, THE BURDEN OF PROVING THE NECESSARY FACTS IN TH AT CONNECTION IS ON THE ASSESSEE. THE ASSESSEE HAS TO BRING ALL MATERIAL FACTS ON RECORD TO SUBSTANTIATE HIS CLAIM FOR DEDUCTION. MERE PRODUCTION OF VOUCHERS IN SUPPORT OF THE CLAIM FOR DEDUCTION OF THE EXPENDITURE WOULD NOT PROVE TH E CLAIM MADE BY THE ASSESSEE. IT IS THE DUTY OF THE ASSESSEE TO PROVE THE PAYMENT ESPECIALLY WHEN THE AO DOUBTS GENUINENESS THEREOF. 13. IT IS TRUE THAT THE AO HAS DISALLOWED THE EXPENDITURE BY NOT BRINGING SUFFICIENT MATERIAL ON R ECORD FOR THE DISALLOWANCE. THE HON'BLE APEX COURT IN THE CA SE OF JUTE CORPORATION OF INDIA LTD. V CIT 187 ITR 688 HAS HEL D THAT AN APPELLATE AUTHORITY HAS ALL THE POWERS WHICH THE ORI GINAL AUTHORITY MAY HAVE IN DECIDING THE QUESTION BEFORE IT , SUBJECT TO THE RESTRICTIONS OR LIMITATIONS, IF ANY, PRESCRIB ED BY THE STATUTORY PROVISIONS. IN THE ABSENCE OF ANY STATUTO RY PROVISION, THE APPELLATE AUTHORITY IS VESTED WITH ALL THE PLENA RY POWERS, PAGE 18 OF 21 ITA NO.229 & 230/BANG/2009 18 WHICH THE SUBORDINATE AUTHORITY MAY HAVE IN THE MATTE R. THERE IS NO GOOD REASON TO JUSTIFY CURTAILMENT OF THE POWE R OF THE FIRST APPELLATE AUTHORITY IN ENTERTAINING AN ADDITIO NAL GROUND RAISED BY THE ASSESSEE IN SEEKING MODIFICATION OF TH E ORDER OF ASSESSMENT PASSED BY THE ASSESSING OFFICER. 14. THE HON'BLE APEX COURT IN THE CASE OF CIT V NIRBHERAM DALURAM 224 ITR 610 HELD THAT THE APPELLA TE POWERS CONFERRED ON THE FIRST APPELLATE AUTHORITY U/S 251 O F THE ACT ARE NOT CONFINED TO THE MATTERS CONSIDERED BY THE AO . HOWEVER, IN THE INSTANT CASE, THE LEARNED CIT(A) HA S CONSIDERED ONLY THAT ISSUE, WHICH HAS BEEN CONSIDERE D BY THE AO. THE LEARNED CIT(A) HAS THOROUGHLY EXAMINED THE CASE AND WE HAD ALREADY REPRODUCED THE OBSERVATIONS OF THE LE ARNED CIT(A). HIS OBSERVATIONS IN PARA 6.1 AND 7.1 TO 7. 4 HAVE BEEN CONSIDERED. NO PRUDENT PERSON WILL ACCEPT THE BILL WITHOUT VERIFYING FROM HIS OWN RECORD. LOOKING TO THE QUANT UM OF TRANSPORT EXPENSES DEBITED, IT WAS NOT POSSIBLE FOR THE ASSESSEE TO MAKE PAYMENT WITHOUT HAVING THE PRIMARY R ECORD. THE PRIMARY RECORD HAS NOT BEEN PRODUCED BEFORE THE LOWER AUTHORITIES. THUS, THE EXPENSES DEBITED BY THE ASSE SSEE WERE NOT SUBJECT TO VERIFICATION FROM THE PRIMARY RECORD MAINTAINED BY THE ASSESSEE. THE ONUS WAS ON THE ASSESSEE TO PL ACE THE MATERIALS BEFORE THE LOWER AUTHORITIES IN ORDER TO JUSTIFY THAT THE EXPENDITURE BEING CLAIMED IS FOR THE PURPOSE OF THE BUSINESS AND THE ENTIRE EXPENDITURE IS ALLOWABLE. THE LEARNED PAGE 19 OF 21 ITA NO.229 & 230/BANG/2009 19 CIT(A) HAS POINTED OUT THAT THE PERSONS WHO APPEARE D BEFORE HIM STATED THAT THEY HAVE TO RECEIVE MONEY FOR DIESEL AND TYRES. HOWEVER, THE LEDGER ACCOUNTS SHOWED THAT THE Y HAVE WORKED ON CREDIT BASIS. 15. ONE HAS TO CONSIDER THE HUMAN PROBABILITIES WH ILE APPRECIATING THE EVIDENCE ON RECORD. THE HON'BLE A PEX COURT IN THE CASE OF SUMATHI DAYAL V CIT 214 ITR 801 HAS H ELD THAT THE TEST OF HUMAN PROBABILITIES CAN BE APPLIED FOR APPRECIATING THE EVIDENCES. 16. MOREOVER, THE LEARNED CIT(A) HAS ALSO POINTED OUT THAT THE AO HAS MADE MEAGER DISALLOWANCE OF EXPENSE S LOOKING TO THE QUANTUM OF EXPENSES DEBITED. CONSIDERING TH E TOTALITY OF THE FACTS AS POINTED OUT BY THE LEARNED CIT(A) IN HIS ORDER AND THE FACTS AS MENTIONED IN HIS LETTER DATED 28TH MARCH, 2006, WE FEEL THAT THE LEARNED CIT(A) WAS JUSTIFIED IN UPHOLDING THE ADDITION. 17. ONE OF THE GRIEVANCES OF THE APPELLANT IS THAT THE LEARNED CIT(A) HAS ERRED IN GIVING A DIRECTION TO L EVY PENALTY U/S 271(1)(C) OF THE ACT. 18. PENALTY PROCEEDINGS CAN BE INITIATED BY AN AUTHORITY WHO HAS MADE ADDITION DURING THE COURSE OF THE PROCEEDINGS. IN THIS CASE, THE ASSESSING OFFICER H AS NOT INITIATED THE PENALTY PROCEEDINGS. THIS IS NOT A CA SE WHERE THE PAGE 20 OF 21 ITA NO.229 & 230/BANG/2009 20 LEARNED CIT(A) HAS MADE AN ENHANCEMENT. IT IS TRUE THAT SECTION 271(1)(C) AUTHORIZES THE COMMISSIONER (APPE ALS) TO INITIATE PENALTY IN CASE HE IS SATISFIED THAT THE A SSESSEE HAS CONCEALED THE PARTICULARS OF HIS INCOME OR HAS FURN ISHED INACCURATE PARTICULARS OF THE INCOME. THE HON'BLE APEX COURT IN THE CASE OF KAMALAPATI MOTILAL V CIT 45 ITR 266 HAS HELD THAT THE FIRST APPELLATE AUTHORITY CAN EXERCISE THE POWER OF INITIATION OF PENALTY IN CASE THE AO HAS NOT INITIA TED ANY PENALTY PROCEEDINGS. 19. HOWEVER, THE LEARNED CIT(A) HAS GIVEN A DIRECT ION TO THE AO TO LEVY PENALTY U/S 271(1)(C) OF THE ACT WH ILE GIVING EFFECT TO HIS ORDER. THIS DIRECTION IS VACATED AS IT IS WITHOUT JURISDICTION. THE LEARNED CIT(A) COULD HAVE INITIA TED THE PENALTY HIMSELF IF HE FELT THAT THE ASSESSEE HAS CON CEALED THE PARTICULARS OF INCOME OR HAS FILED INACCURATE PARTI CULARS OF INCOME. MOREOVER, THE DIRECTION TO LEVY PENALTY CANN OT BE GIVEN WITHOUT GIVING OPPORTUNITY TO THE ASSESSEE. THE LEA RNED CIT(A) COULD HAVE INITIATED THE PENALTY IF HE WAS SATISFIE D THAT PENALTY PROCEEDINGS U/S 271(1)(C) ARE REQUIRED TO BE INITIA TED. THUS, THE DIRECTION OF THE LEARNED CIT(A) TO THE AO FOR L EVYING PENALTY IS VACATED IN VIEW OF THE DISCUSSION MADE AB OVE. PAGE 21 OF 21 ITA NO.229 & 230/BANG/2009 21 20. IN THE RESULT, THE APPEALS ARE PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 21ST AUGUST, 2009. SD/- SD/- (K P T THANGAL) (N L KALRA) VICE PRESIDENT ACCOUNTANT MEMBER BANGALORE, DTD.21/8/2009 COPY TO : 1. THE ASSESSEE 2.THE REVENUE 3. THE CIT( A) CONCERNED.4. THE CIT CONCERNED. 5. THE DR 6. GUAR D FILE. 7. GF, ITAT, NEW DELHI. MSP/5.8. BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.