M/S. TRANSINDIA FREIGHT SERVICES PVT. LTD, MUMBAI V. THE ACIT CEN CIR-44, MUMBAI

ITA 6750/MUM/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 1296 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 7 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-06-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 10-02-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 07-11-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: T T JACOB
• Keywords: Non compliance; Block assessment
• Section: 143(3); 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E MUMBAI BEFORE SHRI S.V. MEHROTRA (AM) AND SMT. ASHA VIJAY ARAGHAVAN (JM) ITA NO. 6750/MUM/2007 ASSESSMENT YEAR-2003-04 M/S. TRANSINDIA FREIGHT SERVICES PVT. LTD., 5 TH FLOOR, DIAMOND SQUARE, CST ROAD, SANTACRUZ (E), MUMBAI-400 098 PAN- AAACT2514R VS. THE ACIT, CC-44, AAYAKAR BHAVAN, MUMBAI-400 020 (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI PARESH SHAPARIA RESPONDENT BY: SHRI T.T. JACOB O R D E R PER SMT. ASHA VIJAYARAGHAVAN (JM) THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DT. 26.2.2007 PASSED BY THE LD. CIT(A)CENTRAL-II, M UMBAI FOR THE ASSESSMENT YEAR 2003-04. 2. THE ASSESSEE IS IN THE BUSINESS OF TRANSPORTATION A ND CONTAINER HANDLING. FOR THE ASSESSMENT YEAR 2003-04, IN THE C OURSE OF ASSESSMENT THE ASSESSING OFFICER ADDED A SUM OF RS. 34,27,570/ - ON ACCOUNT OF LOW NET PROFIT SHOWN FOR THIS YEAR AS COMPARED TO THAT IN THE PREVIOUS YEAR. THE CIT(A) DISMISSED THE APPEAL OF THE ASSESSEE. IN THE APPEAL OF THE ASSESSEE BEFORE US THE MAIN GROUNDS OF APPEAL ARE A S UNDER: 1. THE COMMISSIONER (APPEALS) CENTRAL II MUMBAI ERRE D IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER AND T HEREBY CONFIRMING THE ADDITION OF RS.34,27,540/- TO THE IN COME OF THE ASSESSEE COMPANY FOR THE ASST.YEAR 2003-04 2. THE COMMISSIONER (APPEALS) ERRED IN CONFIRMING THE METHOD OF COMPARING THE NET PROFITS OF A.Y 2003-04 WITH THE N ET PROFITS OF ITA NO. 6750/M/07 2 A.Y. 2002-03 AS ADOPTED BY THE ASSESSING OFFICER FO R MAKING ADDITIONS TO THE INCOME OF THE ASSESSEE COMPANY AND THUS COMING TO THE CONCLUSION THAT THE NET PROFIT OF THE ASSESSEE COMPANY OUGHT TO HAVE BEEN 8.15% FOR THE YEAR UNDER CONSIDERATION. 3. THE COMMISSIONER (APPEALS) ERRED IN CONCLUDING THAT 50% OF THE DIFFERENCE BETWEEN THE NET PROFIT WORKED OUT AT THE RATE OF 8.15% AND THE NET PROFIT DECLARED BY THE ASSESSEE COMPANY IS THE ADDITIONAL INCOME OF THE ASSESSEE COMPANY. 3. THE FACTS OF THE CASE AND ASSESSING OFFICERS CO NCLUSIONS ARE AS UNDER: THE ASSESSEE IS A PRIVATE LTD. COMPANY ENGAGED IN THE BUSINESS OF TRANSPORTATION AND CONTAINER HANDLING F ILED ITS RETURN OF INCOME FOR THE ASST, YEAR 2003-04 ON 1.12.2003 DECL ARING TOTAL INCOME OF RS.1,86,92,860/- THE ASSESSMENT WAS COMPL ETED U/S 143(3) BY THE ASSESSING OFFICER, DCIT, CENTRAL CIRC LE 44, MUMBAI ON 20.3.2006 DETERMINING THE TOTAL INCOME AT RS.2,21,2 0,425/- IN WHICH THE ASSESSING OFFICER MADE ADDITION OF RS.34, 27,570/- AS DISCUSSED IN PARA 3.8.F(D) OF THE ASSESSMENT ORDER . ONLY THIS SINGLE ADDITION IS CONTESTED IN THIS APPEAL IN ALL THE SEV EN GROUNDS OF APPEAL. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASS ESSING OFFICER ASKED THE ASSESSEE TO EXPLAIN WHY THE EXPEN SES SHALL NOT BE DISALLOWED IN THIS ASSESSMENT YEAR ALSO IN THE SAME RATIO AS DISALLOWED IN THE BLOCK ASSESSMENT. HE HAS ALSO AS KED THE ASSESSEE THAT IN CASE THE SYSTEM OF BOOKING THE EXP ENSES WAS CHANGED BY THE ASSESSEE, THEN, THE ASSESSEE WAS TO SUBMIT A DETAILED NOTE WITH RELEVANT EVIDENCE. THERE WAS A SEARCH IN THE ASSESSEES PREMISES. DURI NG THE COURSE OF SEARCH PROCEEDINGS, IT WAS FELT THAT THE ASSESSEE WAS INDULGING IN INFLATING THE EXPENSES IN THE BOOKS OF ACCOUNTS WITHOUT ANY THIRD PARTY VOUCHERS. AS A RESULT OF THE FINDI NG OF THIS FACT, THE MANAGING DIRECTOR OF THE GROUP SHRI SHASIKIRAN SHET TY, IN THE ANSWER TO QUESTION NO.2 OF THE STATEMENT RECORDED F ROM HIM ON 30.10.2001 HAD STATED THAT I AGREE WITH THE EXPENS ES INCURRED FOR SPEEDY CLEARANCE OF GOODS AT DOCK/ CUSTOMS AUTHORIT IES AND OTHER AGENCIES ARE NOT SUPPORTED BY THIRD PARTY VOUCHERS AND HENCE, MAY BE TREATED AS UNDISCLOSED INCOME FOR THE BLOCK PERI OD, PART OF THE EXPENSES UNDER THIS HEAD AS CLAIMED IN THE ACCOUNTS HAVE ACTUALLY HAVE NOT BEEN INCURRED TO COVER UP ALL THESE DISCRE PANCIES. THUS, HE HAS DISCLOSED A SUM OF RS.2,00,00,000/- IN RESPE CT OF TRANS ITA NO. 6750/M/07 3 INDIA/ ALL CARGO GROUP OF COMPANIES, WHICH INCLUDED THIS ASSESSEE, TRANS INDIA FREIGHT SERVICES PVT. LTD. AFTER THE ST ATEMENT, THE ASSESSEE HAD FILED AN AFFIDAVIT ALSO FOR THE SAME D ATE IN WHICH SHRI SHASIKIRAN SHETTY OFFERED THIS RS.2,00,00,000/- FOR THIS TRANS INDIA OF ALL CARGO GROUP COMPANIES ON ACCOUNT OF UNVOUCHE D EXPENDITURE. IN THE BACK DROP OF THIS FACTUAL POSITION, THE ASSE SSING OFFICER HAD ASKED THE ASSESSEE IN THIS ASSESSMENT AS TO WHY SIMILAR DISALLOWANCES AS WAS MADE IN THE BLOCK PERIOD NOT B E MADE IN THIS ASSESSMENT ALSO IN RESPECT OF THE UNVOUCHED EXPENDI TURE. IN THE LETTER DATED 13.3.2006, THE ASSESSING OFFICER ASKED THE ASSESSEE TO FURNISH THE CLASSIFICATION OF EXPENSES UNDER EACH H EAD AND HE ALSO ASKED WHETHER ANY EXPENDITURE WAS INCURRED IN CASH IN RESPECT OF THE FOLLOWING THREE HEADS OF EXPENDITURE. 1. DOCK AND CUSTOM EXPENSES 2. CARGO HANDLING EXPENSES 3. LOADING AND UNLOADING EXPENSES EVEN IN THE QUESTIONNAIRE DATED 18.10.2005 ISSUED T O THE ASSESSEE THESE DETAILS WERE ALREADY CALLED FOR VIDE SL.19 OF THE SAID QUESTIONNAIRE. BUT AS STATED IN PARA 6 OF THE ASSES SMENT ORDER, THE ASSESSEE DID NOT SUBMIT THESE DETAILS EXCEPT FURNIS HING FEW COPIES OF CASH VOUCHERS FOR DOCK EXPENSES, LOADING AND UNL OADING EXPENSES. THE ASSESSING OFFICER HELD THAT FOR OTHER HEADS ALSO SUCH AS CONSUMABLES VEHICLE TRIP EXPENSES WHERE CERTAIN EXPENSES IN CASH HAD BEEN INCURRED THE ASSESSEE DID NOT FURNISH ANY BIFURCATION. THE ASSESSING OFFICER HAS SPECIFICALL Y ASKED FOR THE REASONS OF FALL IN NET PROFIT AND WORKING OF GROSS PROFIT AND NET PROFIT FOR THIS YEAR AND AS WELL AS FOR THE PREVIOUS FOUR YEARS. THIS WAS ALSO NOT SUBMITTED. IN THE LATER QUESTIONNAIRE DAT ED 18.10.2005 THE ASSESSEE WAS ALSO ASKED TO FURNISH THE CASH EXPENDI TURE FOR BOTH RECEIPTED AND NON RECEIPTED EXPENDITURE. THEREFORE, THE ASSESSING OFFICER HAD CONCLUDED VIDE PARA-3.8 F (D) AND (E) O F THE ASSESSMENT ORDER CONCLUDED AS FOLLOWS: 3.8.F.(D) ASSESSEE HAD SHOWN NET PROFIT OF 7.88 IN ASSESSMENT YEAR 2002-03 AS AGAINST 4.98 FOR CURRENT YEAR. HOWEVER CONSIDERING THE INCREASE IN TURNOVER, IF, ON PRORATE BASIS NET PROFIT WAS TO BE CALCULATED, T HIS COMES TO 9.15%. AS MENTIONED EARLIER, CONSIDERING THE FACT THAT ASSESSEE HAD ADDED NEW FORKLIFT AND PICKU P VAN TO ITS EXISTING FLEET, WHICH ENACT SHOULD GO TO REDUCE OVER ALL MAINTENANCE EXPENDITURE DEBITED TO OPERATI ONAL EXPENSES. CONSIDERING THE COMPETITION, INFLATION I N EXPENSES, ETC., FOR WHICH 1% ALLOWANCE BE GRANTED, THEN ITA NO. 6750/M/07 4 ALSO THE NET PROFIT HAS TO BE AROUND 8.15%. THE DIFFERENCE IN NET PROFIT HAS TO BE AROUND 8.15%. TH E DIFFERENCE IN NET PROFIT COMES TO RS.68,55,146/- IN THE ABSENCE OF INFORMATION ON CASH EXPENDITURE PROPERLY EXPLAINED BY THE ASSESSEE, 50% OF THIS DIFFERENCE I .E. RS.34,27,570/- IS ADDED TO THE INCOME OF THE ASSESS EE. 3.8.F.(E) THE ABOVE ADDITION ALSO INCLUDE THE ADDITIONS ON ACCOUNT OF UN-RECEIPTED EXPENDITURE UN DER THE HEAD DOCK PERMIT EXPENSES AS WELL AS UN RECEIPT ED EXPENSES UNDER VARIOUS OTHER HEADS, THE DETAILS OF WHICH WERE NOT GIVEN IN THE ASSESSMENT PROCEEDINGS. THE ABOVE ADDITION ALSO TAKES CARE OF ABNORMAL HIKE IN TRANSPORT AND HIRE EXPENSES FOR WHICH NO PROPER EXPLANATION HAS BEEN SUBMITTED. 4. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE T HE LD.CIT (A). THE ASSESSEE SUBMITTED IN THE WRITTEN SUBMISSIONS AND T HE PAPER BOOK THAT THE ASSESSEES GROSS PROFIT HAS INCREASED FROM 20.6 6% IN THE ASSESSMENT YEAR 2002-03 TO 23.32% IN THIS YEAR 2003-04, THOUGH THE NET PROFIT HAS DIPPED FROM 7.88% IN 2002-03 TO 4.98% IN THIS YEAR. THE DETAILS OF HIRE AND TRANSPORT CHARGES RECEIVED VIDE SCHEDULE XII AN D SCHEDULE XIV OF THE AUDITED ACCOUNTS RESPECTIVELY BOTH FOR THE ASSE SSMENT YEAR 2002-03 AND 2003-04 WERE SUBMITTED. THE OPERATIONAL EXPENSE S WERE 64.5% OF THE HIRE AND TRANSPORT CHARGES RECEIVED FOR THE ASS ESSMENT YEAR 2002-03 AS AGAINST 70.21% OF THE HIRE AND TRANSPORT CHARGES RECEIVED FOR ASSESSMENT YEAR 2003-04. THE INCREASE OF 5.7% IN OP ERATIONAL EXPENSES WAS ON ACCOUNT OF TRAILERS, CRANES, FORKLIFTS AND O THER EQUIPMENT OF OUTSIDE PARTIES TAKEN BY ASSESSEE COMPANY ON HIRE I N ORDER TO CATER TO THE NEEDS OF ITS CLIENTS AS THE SAID TRAILERS, CRAN ES, FORKLIFTS OWNED BY THE ASSESSEE WERE NOT SUFFICIENT AND THIS INCREASE IN E XPENDITURE ALSO NECESSITATED BY THE INCREASE IN THE HIRE AND TRANSP ORT CHARGES RECEIVED TO THE EXTENT OF 2.3% OVER THE RECEIPTS IN THE ASSESSM ENT YEAR 2002-03. THEREFORE, IT WAS SUBMITTED THAT THE FALL IN NET PR OFIT WAS DUE TO THE ADDITIONAL EXPENDITURE INCURRED BY THE ASSESSEE IN RESPECT OF THIS HIRE CHARGES OF TRAILERS, CRANES AND FORKLIFTS AND OTHER EQUIPMENT. AGAIN IT ITA NO. 6750/M/07 5 WAS SUBMITTED THAT THE FUEL EXPENSES INCREASED TO T HE EXTENT OF RS.61,24,423/- ON ACCOUNT OF INCREASE IN THE COST O F DIESEL AND OTHER LUBRICANTS AND ALSO ON ACCOUNT OF INCREASE IN TRIPS OF VEHICLES OF THE COMPANY. 5. IT WAS ALSO SUBMITTED THAT THE ASSESSEE EMPLOYED FOUR MORE EMPLOYEES IN THIS YEAR AND ALSO INCREASED THE SALAR Y OF 53 EMPLOYEES. THEREFORE, IT WAS SUBMITTED THAT THE FALL IN NET PR OFIT WAS DUE TO THE INCREASE IN HIRE AND TRANSPORT CHARGES PAID AND FUE L EXPENSES AND EXPENSES ON SALARY, WAGES BONUS ETC, INCURRED BY TH E ASSESSEE. HENCE, IT WAS PRAYED THAT THE ADDITION OF RS.34,27,570/- SHOU LD BE DELETED AS IT WAS UNWARRANTED IN VIEW OF THE ABOVE SAID EXPLANATI ON. 6. THE LD. CIT(A) DISMISSED THE APPEAL OF THE ASSES SEE HOLDING AS UNDER: I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF TH E APPELLANT AND GONE THROUGH THE ASSESSMENT ORDER AND ALSO PERU SED THE DETAILS FURNISHED IN THE PAPER BOOK . IN THE QUESTI ONNAIRES ISSUED ON 18.10.2005 AS WELL AS ON 13.03.2006., THE ASSESSING OFFICER HAD CLEARLY AND SPECIFICALLY ASKED THE ASSESSEE TO FURN ISH THE FOLLOWING. (I) BREAKUP OF ALL THE EXPENDITURE IN RESPECT OF THE DOCK AND CUSTOM EXPENSES, CARGO HANDLING EXPENSES, LOADING A ND UNLOADING EXPENSES. (II) THE DETAILS FOR CONSUMABLES, VEHICLES TR IP EXPENSES ETC. (III) AND IT HAS BEEN SPECIFICALLY ASKED BY TH E ASSESSING OFFICER TO SPECIFY THAT PART OF EXPENSES WHICH ARE UN RECEIPTE D WHICH HAVE BEEN PAID IN CASH SINCE IN RESPECT OF RECEIPTED EXP ENDITURE SOME PAYMENTS HAVE BEEN MADE IN CASH. (IV) VOUCHERS IN RESPECT OF RECEIPTED EXPENDITU RE WHICH WERE NOT SUPPORTED BY THE THIRD PARTY VOUCHERS. AND THEREFORE HE HAS SPECIFICALLY ASKED THE ASSESSE E TO SUBMIT THE BREAKUP IN RESPECT OF THE AMOUNTS PAID BY WAY OF CA SH AND ALSO IN RESPECT OF THE AMOUNTS NOT SUPPORTED BY THIRD PARTY VOUCHERS WHICH ITA NO. 6750/M/07 6 WERE CLAIMED AS EXPENDITURE. THOUGH, THE ASSESSEE H AD SUBMITTED THE REPLY VIDE ITS LETTER DATED 23.03.2005, THE DET AILS SUBMITTED WERE NOTHING BUT LEDGER EXTRACTS OF SOME ITEMS OF E XPENDITURE . NO BREAKUP OF THE EXPENDITURE WAS FURNISHED- HOW MUCH WERE PAID BY WAY OF CASH HOW MUCH EXPENDITURE WAS RECEIPTED AND HOW MUCH EXPENDITURE WERE RECEIPTED NOT SUPPORTED BY THIRD P ARTY VOUCHERS ETC. IN THE LETTER FILED ON 19.02.2006, ASSESSEE HA S FURNISHED ONLY THE DETAILS OF BANK ACCOUNTS STATEMENT OF SUNDRY DE BTORS AND CREDITORS PURCHASE AND SALE OF FIXED ASSETS, DETAIL S OF OTHER INCOMES STATEMENT OF GROSS PROFIT AND NET PROFIT RATIO FOR LAST THREE YEARS AND STATEMENT OF OUTSTANDING LIABILITIES ETC. EVEN IN T HIS LETTER THE ASSESSEE HAD NOT GIVEN THE BREAKUP OF THE UN RECEIP TED EXPENDITURE AND EXPENDITURE PAID BY WAY OF CASH, EXPENDITURE PA ID BY WAY OF CHEQUE., EXPENDITURE SUPPORTED BY THIRD PARTY RECEI PTS AND EXPENDITURE MADE BY SELF MADE VOUCHERS. 1.3.1. THE MAIN REASON FOR THIS SPECIFIC FURNISHIN G OF PARTICULARS AS ASKED FOR BY THE ASSESSING OFFICER AS REGARDS THE P AYMENT MADE BY WAY OF CASH AND CHEQUES IS THE CONDUCT OF THE ASSES SEE IN THE EARLIER YEARS WHERE THE ASSESSEE HAD MADE THE PAYME NT BY WAY OF CASH IN RESPECT OF SOME EXPENSES AND NOT SUPPORTED BY PROPER VOUCHERS IN RESPECT OF SOME PART OF EXPENSES. THE ASSESSEE WAS HAVING THE SYSTEM OF BOOKING THE EXPENDITURE ON SEL F MADE VOUCHERS WITHOUT SUPPORTED BY ANY THIRD PARTY VOUCHERS AND A LSO SUBSTANTIAL PORTION OF THE EXPENDITURE WERE PAID OUT BY WAY OF CASH. THIS FACT OF THE ASSESSEES PRACTICE OF MAKING CASH PAYMENTS IN RESPECT OF LOADING AND UNLOADING EXPENDITURE, CUSTOMS AND DOCK EXPENSES, AND CARGO HANDLING EXPENSES WAS FOUND OUT DURING TH E COURSE OF THE SEARCH CONDUCTED IN THE ASSESSEES PREMISES IN THE EARLIER YEARS, WHICH WERE SUBJECT MATTER OF THE BLOCK ASSESSMENT A ND ALSO APPEAL IN RESPECT OF SAID BLOCK ASSESSMENT. IN FACT, I HA VE DECIDED THE APPEALS IN RESPECT OF THE ENTIRE GROUP OF THE COMPA NIES INCLUDING THE APPELLANT COMPANY IN RESPECT OF THE BLOCK ASSESSMEN T. 1.3.2. PRECISELY FOR THIS REASONS, THE ASSESSING O FFICER HAD ASKED THE ASSESSEE TO FURNISH THE BREAKUP OF THE EXPENDIT URE AS CALLED FOR BY HIM. APART FROM THIS ABOVE THREE HEADS HE HAS AL SO ASKED FOR THE EXPENDITURE INCURRED BY WAY OF CASH IN RESPECT OF V EHICLE TRIP EXPENSES CONSUMABLES ETC. WITHOUT FURNISHING THE DE TAILS IN THE MANNER SPECIFICALLY ASKED FOR BY THE ASSESSING OFFI CER THE ASSESSEE HAS FILED THE DETAILS BEFORE THE ASSESSING OFFICER FROM WHICH IT WOULD NOT BE POSSIBLE FOR THE ASSESSING OFFICER TO SEGRE GATE THE QUANTUM OF EXPENSES PAID BY THE ASSESSEE IN CASH AND ALSO T HE QUANTUM OF EXPENDITURE PAID BY THE ASSESSEE WITHOUT THE SUPPOR T OF THIRD PARTY VOUCHERS . THEREFORE IN THE ABSENCE OF SPECIFIC INF ORMATION ITA NO. 6750/M/07 7 FORTHCOMING, THE ASSESSING OFFICER WAS JUSTIFIED IN RESORTING TO MAKE AN ESTIMATED DISALLOWANCE OF THE EXPENDITURE. 1.3.3. IN FACT SIMILAR TREATMENT OF ADDITION OF INC OME HAS BEEN MADE IN ONE OF THE GROUP COMPANIES OF THE APPELLANTS GR OUP COMPANY FOR THE SAME ASSESSMENT YEAR 2003-04 NAMELY ALL CAR GO GLOBAL LOGISTICS LIMITED WHERE THE ASSESSING OFFICER HAD A SKED THE ASSESSEE TO FURNISH THE SIMILAR BREAK- UP OF THE DE TAILS AS CALLED FOR BY THE ASSESSING OFFICER IN THIS CASE. IN THE ABSEN CE OF ANY SUCH DETAILS FORTHCOMING FROM THE ASSESSEE THE ASSESSING OFFICER HAS DETERMINED THE INCOME AND MADE ADDITIONS OF RS.63,2 4,530/- BY ADOPTING HIGHER GROSS PROFIT. I HAVE DECIDED THAT C ASE IN APPEAL NO.CIT(A)/IT 154-ACCC-44/06-07 DATED 8.11.2006. I HAVE HELD VIDE PARA 1.3.0 TO 1.3,2 OF THE SAID ORDER AS FOLLO WS: 1.3.0. I HAVE CONSIDERED THE SUBMISSIONS OF THE A PPELLANT FROM THE FACTS STATED BY ME IN PARA 1 OF THIS ORDER, THE ASS ESSING OFFICER HAD MADE THIS ADDITION BY REJECTING THE BOOKS OF ACCOUN TS IN VIEW OF THE NON COMPLIANCE OF THE ASSESSEE IN FURNISHING THE IN FORMATION AND OTHER DETAILS AS CALLED FOR BY HIM. IT IS AN ADMITT ED FACT THAT THE ASSESSEE COMPANY HAD MADE CASH PAYMENTS, AS ADMITTE D BY IT TO THE EXTENT OF RS.19,33,142/- UNDER THE HEAD DOCKS A ND CUSTOMS EXPENSES AND CARGO HANDLING EXPENSES. OUT OF THIS AMOUNT OF CASH PAYMENTS OF RS.19,33,142/- A SUM OF RS.10,29,5 12/- WERE UNRECEIPTED AND THE BALANCE WERE RECEIPTED. WHEN T HE ASSESSING OFFICER SPECIFICALLY ASKED FOR THE DETAILS OF CONVE YANCE EXPENSES AND OTHERS WERE CASH EXPENSES HAVE BEEN INCURRED, THE A SSESSEE DID NOT GIVE THE BREAK UP BETWEEN THE CASH PAYMENTS AND THE CHEQUE PAYMENTS. DURING THE COURSE OF APPELLATE HEARING IT IS FOUND THAT THE ASSESSEE HAD INCURRED CONVEYANCE EXPENDITURE OF RS.25,11,231/- OUT OF WHICH PAYMENTS WERE MADE BY C HEQUES TO THE EXTENT OF RS.4,96,594/- AND THE BALANCE OF RS.20,14 ,637/- WAS PAID ONLY BY CASH. FROM THIS IT IS VERY MUCH EVIDENT AND CLEAR THAT THE ASSESSEE HAD MADE PAYMENTS IN CASH WHICH ARE CLAIME D AS EXPENDITURE IN THE BOOKS OF ACCOUNTS BUT THEY WERE NOT SUPPORTED BY ANY RECEIPTS OR VOUCHERS ETC. THIS ASPECT OF UNRECE IPTED EXPENDITURE BOOKED IN THE ASSESSEES ACCOUNTS ITSELF COULD FROM THE BASIS FOR HOLDING THAT THE ASSESSEES BOOKS OF ACCOUNTS ARE N OT RELIABLE. THEREFORE THE CORRECTNESS OR COMPLETENESS OF THE AC COUNTS OF THE ASSESSEE CANNOT BE ACCEPTED AS SUCH AND HENCE THE A SSESSING OFFICER WOULD BE JUSTIFIED IN REJECTING THE BOOKS A S EMPOWERED U/S 145(3) OF THE INCOME TAX ACT. 1.3.1. IT HAS BEEN HELD BY THE ASSAM AND NAGALAND HIGH COURT IN THE CASE OF STEELSWORTH LTD VS CIT 69 ITR 366 THAT NON MAINTENANCE OF DAILY RECORD OF PRODUCTION COULD BE A REASON FOR REJECTING THE ITA NO. 6750/M/07 8 BOOKS OF ACCOUNTS . SIMILARLY WHERE THE ASSESSEE HA S NOT ADDUCED STOCK REGISTER AND SALES AND PURCHASE VOUCHERS FOR VERIFICATION THE ASSESSING OFFICER WAS HELD TO BE JUSTIFIED IN REJEC TING THE BOOKS OF ACCOUNTS IN 2006 CTR RAJ 346 RAJASTHAN WINE AGENCY VS CIT. THE HONBLE SUPREME COURT IN THE CASE OF CIT VS BRITISH PAINTS LTD 188 ITR 444 (SC) HAS AFFIRMED THE POWER OF THE ASSESSIN G OFFICER WITH REFERENCE TO REJECTION OF THE BOOKS OF ACCOUNTS MAI NTAINED BY THE ASSESSEE. THE HONBLE SUPREME COURT HAS HELD THAT I T WAS NOT ONLY THE RIGHT, BUT THE DUTY OF THE ASSESSING OFFICER TO CONSIDER WHETHER OR NOT THE BOOKS DISCLOSED TRUE STATE OF ACCOUNTS A ND THE CORRECT INCOME ADDUCED BY THE FIRM AND IT WAS INCORRECT TO SAY THAT THE OFFICER WAS BOUND TO ACCEPT THE SYSTEM OF ACCOUNTIN G, THE CORRECTNESS OF WHICH HAVE NOT BEEN QUESTIONED IN PA ST. THE HONBLE COURT HAS FURTHER STATED THAT IT WAS THE DUTY OF TH E ASSESSING OFFICER TO DETERMINE THE CORRECT TAXABLE INCOME BY MAKING S UCH COMPUTATION AS HE MIGHT THINK FIT. THE MADRAS HIGH COURT IN TH E CASE OF T.V. SUNDARAM IYENGAR & SONS LTD VS CIT 241 ITR 420 IN A CASE WHERE THAT THE EXPENDITURE WAS DISALLOWED IN THE ABSENCE OF DETAILS REGARDING THE PRESENTATION ARTICLES IN RESPECT OF W HICH THEY CLAIMED FOR DEDUCTION IN THE RETURN OF INCOME THE MADRAS HI GH COURT HAS CONFIRMED SUCH DISALLOWANCE. THE GAUHATI HIGH COUR T IN THE CASE OF KESHRICHAND JAISUKHLAL VS CIT 248 ITR 47 HAS HELD T HAT THE ASSESSING OFFICER WAS JUSTIFIED IN MAKING AN ASSESS MENT OF INCOME IN THE ABSENCE OF INFIRMITIES AND INCONSISTENCIES I N THE ACCOUNTS. IT HAS BEEN HELD BY VARIOUS COURTS AS FOLLOWS:= 256 ITR 373 KER - MANI AND CO. VS CIT WHERE EXPENSES HAVE NOT BEEN PROPERLY VOUCHED AND THE ASSESSEE WAS NOT ABLE TO SUBSTANTIATE THE EXPENDITURE. THE AO WAS JUSTIFIED IN REJECTING THE BOOKS OF ACCOUNTS. 164 ITR 102 (GUJ) CIT VS CHANDRA VILAS HOTEL MERE PRODUCTION OF VOUCHERS IN SUPPORT OF THE CLAIM FOR DEDUCTION OF EXPENDITURE WOULD NOT PROVE THE CLAIM MADE BY THE ASSESSEE 55 ITR 392 ALL ASIAN TOOLS & PLASTIC CO. VS CIT WHER E EXPENSES HAVE BEEN INFLATED TO THE PROVISIONS OF SEC. 13 OF THE ACT, 1922 ANALOGOUS TO SEC. 145(3) OF THE ACT, 1961 CAN BE INVOKED. 1.3.2. THUS ALL THE ABOVE JUDGEMENTS WHICH ARE ON LY ILLUSTRATIVE AND NOT EXPENDITURE HAVE SPELT OUT CLEARLY THAT IF THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE CORRECTNESS AND COMPLETENESS OF THE ACCOUNTS HE WOULD BE WELL FORTIFIED IN HIS POWE R TO MAKE THE ITA NO. 6750/M/07 9 DISALLOWANCE OF EXPENDITURE OR TO ESTIMATE THE INCO ME OR TO MAKE AN ADDITION AS HE MAY THINK FIT. IN THIS CASE THE ASSE SSING OFFICER HAS FOUND OUT THAT THE ASSESSEE HAD BEEN CLAIMING EXPEN DITURE BY MAKING CASH PAYMENTS IN THE BOOKS OF ACCOUNTS, IN S OME CASES WITH THIRD PARTIES RECEIPT AND IN SOME CASES WITHOUT RE CEIPTS AT ALL. THIS PRACTICE OF THE ASSESSEE HAS BEEN FOUND IN EXISTENC E IN THE EARLIER YEARS TOO WHICH WAS THE SUBJECT MATTER OF BLOCK AS SESSMENT U/S 158BC AND ALSO IN APPEAL. IN FACT, I HAVE DISCUSSE D THIS ISSUE VIDE MY APPELLATE ORDER NO.CIT(A)/C II/IT/131/03-04 DATE D 31.3.2006 WHERE I HAVE HELD THAT 25% OF THE EXPENDITURE WAS T O BE DISALLOWED. IN THIS YEAR ALSO, THERE ARE CASH PAYMENTS NOT SUPP ORTED BY VOUCHERS AND RECEIPTS AND THE ASSESSING OFFICER DID NOT ACCEPT THE EXPENDITURE CLAIMED BY THE ASSESSEE. FOR THIS PURPO SE HE HAS ASKED THE ASSESSEE TO FILE SEPARATE TABLES OF GP AND NP F OR PREVIOUS FOUR YEARS AND THE REASONS FOR SHORTFALL IN GP OR NP IF ANY. THE ASSESSEE DID NOT SUBMIT THIS BEFORE THE ASSESSING OFFICER. THE ASSESSEE ALSO WAS ASKED BY THE ASSESSING OFFICER TO SUBMIT XEROX COPIES OF VOUCHERS AND CASH EXPENSES ON THE 30 TH DATE OF EVERY ALTERNATE MONTH AND WHICH WAS NOT SUBMITTED BY THE ASSESSEE. AS REGARDS THE EXPLANATION BY THE ASSESSEE ABOUT THE ABNORMAL INCREASE IN 21% IN HIRE AND TRANSPORT EXPENSES AS THE REASON FOR SH ORTFALL IN INCOME THE ASSESSING OFFICER HAS STATED THAT NEITHER THE A SSESSEE HAD SUBSTANTIATED THIS EXPLANATION NOR IT HAD PUT UP AN Y FIGURES ABOUT THE INCREASE IN FUEL COST ETC. THEREFORE THE ASSES SING OFFICER HAD ADOPTED THE GP FOR THIS YEAR AT 16% ON THE BASIS OF GP REPORTED BY THE ASSESSEE AT 16.03% IN THE PRECEDING YEAR AS AGA INST THE GP OF 15.47% SHOWN AND WORKED OUT BY HIM IN PARA 3.9 OF T HE ASSESSMENT ORDER WHICH HAS BEEN EXTRACTED IN PARA 1 .1.1 OF THIS ORDER. 1.3.4. IN THIS CASE, IT IS AN ADMITTED FACT THAT T HE ASSESSEE HAD MADE CASH PAYMENTS IN RESPECT OF VARIOUS EXPENSES . ON PERUSAL OF PAGE 20 OF THE PAPER BOOK IT IS SEEN THAT THE FOLLO WING ITEMS OF EXPENSES HAVE INCREASED MARKEDLY IN THIS YEAR OVER THE EARLIER YEAR. SCHEDULE XIV OPERATIONAL EXPENSES RS. ASSESSMENT YEAR 2002-03 RS. ASSESSMENT YEAR 2003-04 RS. % OF INCREASE RS. INCREASE IN EXP.IN 2003-04 RS. 1 2 3 4 5 HIRE AND TRANSPORT 3,95,07,364 5,08,49,607 28.7% RS. 2,42,18,519 ITA NO. 6750/M/07 10 LABOUR CHARGES 25,62,789 23,55,844 ( - )8% LOADING AND UNLOADING PAID 9,84,659 20,71,710 110.3% NATIONAL PERMIT CHARGES 3,88,595 7,37,923 89.8% VEHICLE TRIP EXPENSES 21,49,529 49,27,723 129.2% SEA/AIR FREIGHT OPERATIONAL EXPENSES .. 88,68,648 100% TOTAL 4,55,92,936 6,98,11,455 IT IS THE ABOVE ITEMS OF EXPENDITURE WHICH NORMALL Y INVOLVE CASH PAYMENTS EXCEPT LABOUR ALL OTHER OVER HEAD OF EXPENSES STATED ABOVE HAVE SHOWN MARKED INCREASE IN THE PAY OUT BY THE ASSESSEE IN THIS YEAR 2003-04 ANY CASH PAYMENT MADE IN RESPE CT OF ANY EXPENDITURE INCURRED BY THE ASSESSEE WOULD BE ATTRA CTING DISALLOWANCE U/S 40A (3) OF THE IT ACT TO THE EXTEN T OF 20% OF THE CASH PAYMENT. PROBABLY IN ORDER TO AVOID THE SPECIF IC DISALLOWANCE THE ASSESSEE HAS NOT FURNISHED THE DETAILS OF THIS CASH PAYMENTS MADE BY THE ASSESSEE IN RESPECT OF THE VARIOUS HEAD S OF EXPENSES. EVEN BEFORE ME IN THE APPELLATE PROCEEDINGS THE AUT HORISED REPRESENTATIVES DID NOT FURNISH THOSE BREAK UP THOU GH THEY ADMITTED THAT THERE WERE CASH PAYMENTS AND PAYMENTS NOT SUPPORTED BY THIRD PARTY VOUCHERS. THEREFORE, THE ASSESSING OFFICER IS VERY MUCH JUSTIFIED IN RESORTING TO THE ESTIMATI ON OF INCOME BY INVOKING THE PROVISIONS OF SEC 145 OF THE IT ACT. T HIS ASPECT ALSO HAS BEEN CONFIRMED BY ME IN THE ASSESSEES GROUP CASE O F ALL CARGO GLOBAL LOGISTICS PVT. LTD AS STATED ABOVE IN PARA 1 .3.3 EXCEPT THE FACTS OF DATES, AND FIGURES THE ISSUE AND THE NATUR E OF THE EXPENDITURE REMAINS THE SAME FOR BOTH THE COMPANIES . THEREFORE MY CONCLUSION IN THE CASE OF ALL CARO LOGISTICS PVT. L TD EQUALLY APPLY TO THIS COMPANY ALSO. 1.3.5. IN ADDITION TO THE ABOVE, QUITE RECENTLY H ONBLE SUPREME COURT HAS HELD IN THE CASE OF KACHWALA GEMS VS JT C IT 288 ITR 10 SC THAT THE ASSESSING OFFICER IN THE PAST JUDGMENT OF THE ASSESSMENT MADE BY THE ASSESSING OFFICER SOME GUESS WORK ALSO WOULD BE INVOLVED. THE ASSESSING OFFICERS ACTION M ADE THE ADDITION ON ACCOUNT OF FALL IN NET PROFIT ON THE BASIS OF TH E DIFFERENCE BETWEEN THE NET PROFIT ESTIMATED BY HIM AT 8.15% AS AGAINST THE 4.98% SHOWN BY THE ASSESSEE. THUS HE HAS ARRIVED AT THE D IFFERENCE OF ITA NO. 6750/M/07 11 RS.68,55,146/- 50% OF WHICH HE DETERMINED AS THE AD DITIONAL INCOME. THIS MEANS THE A.O. HAS MADE A DISALLOWANC E OF THE CASH PAYMENT EXPENDITURE AND ALSO OF THE EXPENDITURE NO SUPPORTE D BY THE THIRD PARTY VOUCHERS TO THE EXTENT OF 50% OF THE ABOVE DI FFERENCE OF RS.68,55,146/- THUS THE ADDITION OF RS.34,570/- WOU LD MEAN THE DISALLOWANCE OF EXPENSES TO THE EQUAL AMOUNT OUT OF THE EXPENDITURE CLAIMED BY THE ASSESSEE. THE POSSIBILITY OF THE PAY MENTS HAVE BEEN MADE UNDER CASH WAS THERE AS EVIDENCED BY THE PRACT ICE FOUND OUT THE DURING THE COURSE OF SEARCH IN THE ASSESSEES C ASE. THE HONBLE ITAT, MUMBAI E BENCH IN THE CASE OF A.P.L (INDIA) (P) LTD VS DCIT 96 ITD 227 (MUM) HAS HELD IN A SIMILAR CASE OF DOCKYARD & CUSTOM EXPENSES, LOADING AND UNLOADING E XPENSES WHICH WERE EITHER PAID IN CASH OR NOT SUPPORTED BY THIRD PARTY VOUCHERS THAT A DISALLOWANCE OF 25% OF THE TOTAL EX PENDITURE WOULD BE REASONABLE. IN THIS APPELLANTS CASE THERE IS AN INCREASE IN SIMILAR TYPE OF EXPENDITURE TO THE EXTENT OF RS.2,42,18,519 /- OVER THE EARLIER YEAR (RS.6,98,11,455 MINUS RS.4,55,92,936/-). IF W E APPLY THE 25% DISALLOWANCE EVEN ONLY ON THE EXCESS OF RS.2,42,18, 519/- BY APPLYING THE PRINCIPLE LAID DOWN IN APL INDIA LTDS CASE (SUPRA) (ALTHOUGH IN THAT CASE THE DISALLOWANCE OF 25% WAS ON THE TOTAL EXPENDITURE), THE DISALLOWANCE WOULD BE RS.60,54,63 0/- APPROXIMATELY. HOWEVER THE ADDITION MADE IN THE ASS ESSMENT IS ONLY RS.34,27,570/- WHICH IS LESS THAN RS.60,54,630 /- THEREFORE THE ADDITION TO INCOME TO THE EXTENT OF RS.34,27,57 0/- AS PERFECTLY JUSTIFIED AND HENCE IT IS CONFIRMED. IN THE RESULT, THE APPEAL IS DISMISSED. 7. AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE US. T HE MAIN OBJECTION OF THE ASSESSING OFFICER IS THAT THE TURNOVER INCRE ASED BY 23%, WHILE THE OPERATIONAL EXPENSES INCREASED BY 34%. PART OF THE EXPENSES DID NOT HAVE THIRD PARTY VOUCHERS AND WERE INCURRED IN CASH . THERE WAS ADDITION FOR THE SAME REASON IN THE BLOCK ASSESSMENT. HE THE REFORE CONCLUDED THAT PART OF THE EXPENDITURE IS `INGENUINE. THE AO HELD THAT THE ASSESSEE HAD SHOWN A NET PROFIT OF 7.88% IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR AND 4.98% IN THE CURRENT YEAR. HE C ONCLUDED `HOWEVER CONSIDERING THE INCREASE IN TURNOVER IF ON PRO RATA BASIS NET PROFIT WAS TO BE CALCULATED THIS COMES TO 9.15%. AGAIN CONSIDERI NG COMPETITION, INFLATION IN EXPENSES ETC., FOR WHICH 1% ALLOWANCE IS GRANTED THEN ALSO ITA NO. 6750/M/07 12 THE NET PROFIT HAS TO BE AROUND 8.15%. THE DIFFEREN CE IN NET PROFIT COMES TO RS. 68,55,146/-. IN THE ABSENCE OF INFORMATION O N CASH EXPENDITURE PROPERLY EXPLAINED BY THE ASSESSEE, 50% OF THE DIFF ERENCE I.E. RS. 34,27,570/- IS ADDED TO THE INCOME OF THE ASSESSEE . THE ABOVE ADDITION WILL ALSO INCLUDE ADDITION ON ACCOUNT OF UNRECEIPTE D EXPENDITURE. THIS HAS BEEN CONFIRMED BY THE CIT(A). 8. WE FIND THAT THE REASONS STATED BY THE AO FOR RE JECTING THE PROFITS RETURNED BY THE ASSESSEE AND THE METHOD ADOPTED FOR ESTIMATING THE NET PROFIT CANNOT BE SUSTAINED. THE ASSESSEE HAS EXPLAI NED IN DETAIL THE REASON FOR THE VARIATION IN THE NET PROFIT. THE CIT (A) HAS NOT ASSAILED ANY OF THE CONTENTIONS OF THE ASSESSEE. THE AO AND THE LD. CIT(A) HAD RELIED HEAVILY ON THE ADDITIONS MADE IN THE BLOCK ASSESSME NT (FOR THE BLOCK PERIOD ENDING 31.10.01) IN THE CASE OF THE ASSESSEE . THE ITAT IN IT (SS) NO 222/MUM/2006 DATED 28.11.2008 HAS DELETED THE AD DITION MADE ON ACCOUNT OF THE STATEMENT OF THE MD AS WELL AS DISAL LOWANCE ON ACCOUNT OF EXPENDITURE IN CASH. IN THE LINE OF BUSINESS OF THE ASSESSEE EXPENDITURE IN CASH CANNOT BE AVOIDED. THE MADRAS HIGH COURT IN THE CASE OF CIT VS SOUTH INDIA CORPORATION (AGENCIES) LTD (290 ITR 217 ), HAS HELD THAT CASH PAYMENT MADE TO THE DOCK LABOUR FOR SPEEDY LOADING AND UNLOADING IS FULLY ALLOWABLE. 9. FURTHER, THE METHOD ADOPTED BY THE AO IN ESTIMAT ING THE NET PROFITS IS VERY VAGUE. IT IS NOT CLEAR AS TO HOW HE DETERMINED THAT THE NET PROFIT FOR THE YEAR SHOULD BE 9.15% ON THE BASIS OF TURNOVER. IT IS EQUALLY NOT CLEAR AS TO WHY HE GAVE A FURTHER REDUCTION OF 1% AND FINALLY TOOK 50% OF THE DIFFERENCE BETWEEN THE NOTIONAL PROFITS WORKED OUT BY HIM AND THE ACTUAL PROFITS RETURNED BY HIM. THERE DOES NOT APPEAR TO BE ANY RATIONAL OR BASIS FOR DETERMINING THE NET PROFITS A S WAS DONE BY THE ASSESSING OFFICER. IN THE CIRCUMSTANCES WE ARE NOT IN A POSITION TO SUSTAIN THE ADDITION OF RS. 34,27,570/- MADE BY THE AO AND CONFIRMED ITA NO. 6750/M/07 13 BY THE CIT(A). WE DELETE THE SAME. HOWEVER THE AO H AS TELESCOPED THE ADDITION DUE TO EXPENDITURE INCURRED IN CASH INTO T HIS ADDITION. AS THE ADDITION MADE BY THE AO IS DELETED, ALLOWABILITY OF EXPENDITURE INCURRED IN CASH HAS STILL TO BE EXAMINED. IN THE PAPER BOOK SUBMITTED BY THE ASSESSEE (PAGES 29 TO 34), EXPENDITURE INCURRED IN CASH UNDER VARIOUS HEADS BEING DOCK EXPENSES (RS. 1,49,808/-), LOADING AND UNLOADING EXPENSES (RS. 8,96,313/-), VEHICLE TRIP EXPENSES ( RS. 49,27,723/-), NATIONAL PERMIT EXPENSES (RS. 3,30,121/-) AND CONSU MABLE EXPENSES (RS. 1.86,462/-) HAS BEEN FURNISHED. WE ARE REMITTING TH E ISSUE OF ALLOWABILITY OF THESE EXPENSES INCURRED IN CASH TO THE FILE OF T HE ASSESSING OFFICER WHO WILL CONSIDER THE DEDUCTIBILITY OF THESE AMOUNTS UN DER THE PROVISIONS OF SEC 40A(3). HE WILL GIVE REASONABLE OPPORTUNITY TO THE ASSESSEE TO PUT FORTH THEIR CASE. 10. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON THIS 25 TH DAY OF JUNE, 2010 SD/- SD/- (S.V. MEHROTRA) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 25 TH JUNE, 2010 RJ COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR E BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, I.T.A.T, MUMBAI ITA NO. 6750/M/07 14 DATE INITIALS 1 DRAFT DICTATED ON: 11.5.2010 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 13.5 .2010 ______ SR. PS/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: _________ ______ JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: _________ ______ JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: _________ ______ SR. PS/PS 6. KEPT FOR PRONOUNCEMENT ON: _________ ______ SR. PS/PS 7. FILE SENT TO THE BENCH CLERK: _________ ______ SR. PS/PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK: _________ ______ 9. DATE OF DISPATCH OF ORDER: _________ ______