VARDHAN ASSOCIATES, RAIPUR V. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 3(1), RAIPUR

ITA 81/RPR/2019

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 3192 (ITAT-RAIPUR)
• Duration Of Justice: 3 year(s) 3 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-07-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2013-2014
• Appeal Filed On: 21-04-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Search and seizure
• Section: 143(3); 37(1)

Judgement Text

आयकर अपीलȣय अͬधकरण Ûयायपीठ रायप ु र मɅ। IN THE INCOME TAX APPELLATE TRIBUNAL, RAIPUR BENCH, RAIPUR BEFORE SHRI RAVISH SOOD, JUDICIAL MEMBER AND SHRI RATHOD KAMLESH JAYANTBHAI, ACCOUNTANT MEMBER आयकर अपील सं. / ITA No. 81/RPR/2019 Ǔनधा[रण वष[ / Assessment Year : 2013-14 Vardhan Associate B-5, Sector-5, Devendra Nagar, Raipur-492 001 (C.G.) PAN : AAGFV8271Q .......अपीलाथȸ / Appellant बनाम / V/s. The Assistant Commissioner of Income Tax-3(1), Raipur (C.G.) ......Ĥ×यथȸ / Respondent Assessee by : Shri Veekaas S Sharma, CA Revenue by : Shri G.N Singh, Sr. DR स ु नवाई कȧ तारȣख / Date of Hearing : 09.06.2022 घोषणा कȧ तारȣख / Date of Pronouncement : 26.07.2022 2 Vardhan Associate Vs. ACIT-3(1) ITA No. 81/RPR/2019 आदेश / ORDER PER RAVISH SOOD, JM: The present appeal filed by the assessee is directed against the order passed by the CIT(Appeals)-I, Raipur, dated 31.01.2019, which in turn arises from the order passed by the A.O under Sec. 143(3) of the Income Tax Act, 1961 (for short ‘the Act’) dated 07.03.2016 for assessment year 2013-14. Before us the assessee has assailed the impugned order on the following effective ground of appeal: “1. On the facts and in the circumstances of the case, the Learned A.O has erred on facts and in law in making disallowance of Rs.5,19,864/- on account of transportation expenses and Rs.2,20,080/- out of Diesel & Lubricant expenses claimed in the profit & loss account totaling to Rs.7,39,944/- and the Learned CIT(A)-1, Raipur is not justified in confirming the disallowances to the extent of Rs.3,00,000/- on adhoc basis and contrary to the facts and documentary evidences on record, hence it is prayed that the disallowance and consequential enhancement to the total income may kindly be deleted.” 2. Succinctly stated, the assessee company which is engaged in the business of cargo handling & transportation had e-filed its return of income for the assessment year 2013-14 on 17.09.2013, declaring an income of Rs.57,64,190/-. Subsequently, the case of the assessee was selected for scrutiny assessment u/s.143(2) of the Act. 3. During the course of the assessment proceedings, it was observed by the A.O that the Gross profit (GP) and Net profit (NP) rates of the assessee firm had during 3 Vardhan Associate Vs. ACIT-3(1) ITA No. 81/RPR/2019 the year under consideration witnessed a decline as in comparison to that of the preceding years, as under: On being queried as regards the fall in the profit ratios the assessee came forth with multiple reasons, viz., (i) that the price of the fuel had increased as in comparison to the preceding years which was one of the material reason for lower profit rate in its transportation business; (ii) that fall in the NP rate was attributable to higher depreciation, labour charges, transportation expenses, diesel and lubricant expenses, salary, tyre expenses, unloading charges etc.; and (iii) that due to cut- throat competition in the market the transportation charges for providing transportation service had marked a decline as in comparison to the preceding years. However, the aforesaid explanation of the assessee did not find favour with the A.O. On a perusal of the financial results, it was noticed by the A.O that the assessee firm was maintaining different accounts for determining its gross profit qua its two streams of income, viz. (i) cargo handling services; and (ii) transportation services. It was observed by the A.O that as the assessee during the year had debited an amount of Rs.5,19,86,424/- on account of transportation expenses as in comparison to Rs.3,55,78,602/- in the immediately preceding years, thus, there was a steep Particulars A.Y.2013-14 A.Y.2012-13 A.Y.2011-12 Turnover 13,75,52,855/- 9,75,09,340/- 6,85,00,712/- Gross profit 2,55,98,434/- 2,73,32,235/- 2,00,86,741/- Gross profit ratio 18.61% 28.03% 29.32% Net profit 57,64,187/- 89,54,904/- 17,60,806/- Net profit ratio 4.19% 9.18% 2.57% 4 Vardhan Associate Vs. ACIT-3(1) ITA No. 81/RPR/2019 46.11% increase in the said expenditure as against that of the immediately preceding year. On being queried the assessee produced the ledger account of the aforesaid head of expenditure a/w. supporting bills and vouchers for verification before the AO. Noticing that the gross receipts from rendering of transportation services by the assessee during the year under consideration was Rs.5,71,62,703/- as in comparison to that of Rs. 4,01,31,510/- in the immediately preceding year, it was observed by the AO that though the gross receipts of the aforesaid stream of income as in comparison to the immediately preceding year had witnessed an increase of 42.43%, but the transportation expenses had increased by 46.11% as in comparison to that of the said preceding year. On the basis of his aforesaid analysis the AO called upon the assessee to put forth an explanation as regards the distorted increase in the transportation expenses which was not found to be in conformity with the increase in its receipts. Also, it was observed by the A.O that some of the bills and vouchers supporting the assessee’s claim of transportation expenses were not fond available on record. Backed by his aforesaid observations the A.O disallowed 1% of the transportation expenses of Rs.5,19,86,424/- and accordingly, worked out a disallowance of Rs.5,19,864/- in order to cover up any possible leakage of revenue. 3.1 On a similar footing, it was observed by the A.O that as the diesel and lubricant expenses had during the year under consideration increased to 5 Vardhan Associate Vs. ACIT-3(1) ITA No. 81/RPR/2019 Rs.2,20,08,056/- as in comparison to Rs.1,42,75,960/- that were booked in the immediately preceding year, therefore, there was 54.16% increase in the said expenditure as in comparison to the preceding year. On being called upon to substantiate the aforesaid claim of expenses the assessee produced the ledger account of the aforesaid head of expenditure a/w. the supporting bills and vouchers for necessary verification before the AO. Noticing that the total gross receipts of the truck and cargo handling account for the year under consideration amounted to Rs.8,03,90,151/- as in comparison to Rs, 5,73,77,829/- of the preceding year, it was observed by the AO that the receipts under the aforesaid head had witnessed 40.10% increase as in comparison to that of the preceding year. Observing that the assessee had failed to come forth with any plausible justification for the substantial increase in the diesel and lubricant expenses as in comparison to a low increase in its truck and cargo handling receipts, the A.O disallowed 1% of the diesel and lubricants expenses of Rs.2,20,08,056/- and made a disallowance of Rs.2,20,080/- in order to avoid any possible leakage of revenue. On the basis of his aforesaid observations, the A.O vide his order passed u/s.143(3), dated 07.03.2016 determined the income of the assessee at Rs.65,04,130/-. 4. Aggrieved, the assessee carried the matter in appeal before the CIT(Appeals). Observing that the increase in the transportation expenses of the assessee firm during the year under consideration was in conformity with the corresponding 6 Vardhan Associate Vs. ACIT-3(1) ITA No. 81/RPR/2019 increase in its turnover, the CIT(Appeals) was of the view that there was justification qua the increase in the transportation expenses. However, the CIT(Appeals) found no justification in the steep rise in the diesel and lubricants expenses as against that of the immediately preceding year. At the same time, the CIT(Appeals) observed that the A.O had failed to place on record any specific data which would substantiate his conviction that there were unexplained reasons for the increase in expenses. Considering the facts involved in the case before him, the CIT(Appeals) restricted the total disallowance to an amount of Rs.3 lac. 5. The assessee being aggrieved with the order of the CIT(Appeals) has carried the matter in appeal before us. 6. We have heard the Ld. Authorized Representatives of both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by them to drive home their respective contentions. 7. On a perusal of the assessment order, we find that the A.O except for analyzing the increase in the aforesaid expenses in question, viz. (i) transportation expenses; and (ii) diesel & lubricant expenses as in comparison to that of the immediately preceding year, in the backdrop of the comparative increase of the gross receipts qua both streams of income, i.e., transportation receipts and cargo handing receipts during the year as against that of the preceding year, had however, not 7 Vardhan Associate Vs. ACIT-3(1) ITA No. 81/RPR/2019 pointed out any discrepancy or irregularity in the claim of the assessee’s as regards the expenses in question. In sum and substance, all that the AO had done is to establish a scientific co-relation between the comparative increase in the expenses and the comparative increase in the gross receipts of the assessee, i.e, in reference to that of the immediately preceding year. Admittedly, an increase in the transportation expenses and diesel & lubricant expenses does have a positive co- relation with the corresponding transportation receipts and the cargo handling receipts, but we cannot remain oblivion of the other factors which too play a pivotal role and, on many occasions on a standalone basis, in the fluctuation of the aforesaid expenses in question as well as a fall in the respective receipts. As stated by the Ld. AR, and rightly so, the cut-throat competition in the market would though result in slashing of its receipts, while for on the other hand an increase in the fuel expenses, diesel and lubricants expenses etc., might result to manifold increase in the transportation and cargo handling expenses. In sum and substance, a definite positive co-relation between the aforesaid streams of income, i.e, transportation receipts and cargo handling receipts on the one hand, and the aforesaid expenses on the other hand, which is being visualized by the A.O would clearly stand distorted on account of the aforesaid reasons, which we are afraid had been lost sight by the A.O. Be that as it may, a mere analysis of a comparative increase in the expenses, i.e., transportation and diesel and lubricants expenses and the comparative increase in the respective receipts, i.e. transportation and cargo handling receipts, i.e, in 8 Vardhan Associate Vs. ACIT-3(1) ITA No. 81/RPR/2019 context of the preceding year can by no means form an impeccable standalone basis for drawing of adverse inferences as regards the assessee’s claim of expenses during the year under consideration. Admittedly, the aforesaid factors can undoubtedly form a yardstick or, in fact can lead to serious doubts as regards the veracity of the assessee’s claim of expenses, but then we are afraid that in the absence of any material placed on record by the A.O which would prove to the hilt that the assessee’s claim of expenses was either not supported by documentary evidences or, did not fall within the realm of the provisions of section 37(1) of the Act, the drawing of adverse inferences as regards the same would not be justified. For instance, the A.O had though observed that some of the bills/vouchers in support of the assessee’s claim of expenses are found missing, but then he had not done the bare minimum to point out the details of any such bills and vouchers which were found amiss. Neither anything is discernible from the record, nor brought to our notice by the Ld. DR which would prove that any part of expenditure claimed by the assessee under the aforesaid heads of expenses i.e., transportation expenses or diesel and lubricant expenses were not allowable as a deduction per the mandate of Income-Tax Act. As the observation of the A.O that the assessee’s claim for deduction of expenses was on the higher side, de hors any such material which would reveal that either any part of such expenditure was not found to have been incurred wholly and exclusively for the purpose of its business or; was found to be bogus, we are afraid that the same cannot be subscribed on our part. We, thus, not 9 Vardhan Associate Vs. ACIT-3(1) ITA No. 81/RPR/2019 being able to persuade ourselves to concur with the view taken by the CIT(Appeals) who had without giving any cogent reason sustained an addition of Rs. 3 lac (supra), set-aside his order and vacate the said disallowance. Thus, the solitary ground of appeal raised by the assessee is allowed in terms of our aforesaid observations. 8. In the result, appeal of the assessee is allowed in terms of our aforesaid observations. Order pronounced under rule 34(4) of the Appellate Tribunal Rules, 1963, by placing the details on the notice board. Sd/- Sd/- RATHOD KAMLESH JAYANTBHAI RAVISH SOOD (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) रायप ु र/ RAIPUR ; Ǒदनांक / Dated : 26 th July, 2022 **SB आदेश कȧ ĤǓतͧलͪप अĒेͪषत / Copy of the Order forwarded to : 1. अपीलाथȸ / The Appellant. 2. Ĥ×यथȸ / The Respondent. 3. The CIT(Appeals)-1, Raipur (C.G) 4. The Pr. CIT-1, Raipur (C.G) 5. ͪवभागीय ĤǓतǓनͬध, आयकर अपीलȣय अͬधकरण,रायप ु र बɅच, रायप ु र / DR, ITAT, Raipur Bench, Raipur. 6. गाड[ फ़ाइल / Guard File. आदेशान ु सार / BY ORDER, // True Copy // Ǔनजी सͬचव / Private Secretary आयकर अपीलȣय अͬधकरण, रायप ु र / ITAT, Raipur. 10 Vardhan Associate Vs. ACIT-3(1) ITA No. 81/RPR/2019 Date 1 Draft dictated on 28.06.2022 Sr.PS/PS 2 Draft placed before author 29.06.2022 Sr.PS/PS 3 Draft proposed and placed before the second Member JM/AM 4 Draft discussed/approved by second Member AM/JM 5 Approved draft comes to the Sr. PS/PS Sr.PS/PS 6 Kept for pronouncement on Sr.PS/PS 7 Date of uploading of order Sr.PS/PS 8 File sent to Bench Clerk Sr.PS/PS 9 Date on which the file goes to the Head Clerk 10 Date on which file goes to the A.R 11 Date of dispatch of order