2015 (1) TMI 1264 - AT - Income Tax

Disallowance of the freight and fuel expenses - Held that - We find that the assessee is into transport business and has 4 trucks. In the preceding assessment year (AY 2007-08), the assessment was carried out u/s 143(3) of the Act, wherein the fuel expenses of ₹ 21,56,080/- was accepted by the department, which worked out to 36.34% of the total receipt of ₹ 59,31,687/-. In the instant year, the assessee claimed freight/fuel/other charges of ₹ 21,92,980/-, when the total receipt was ₹ 61,44,530/- which works out to 35.69% only. When the department has accepted the expenditure of 36.34% in AY 2007-08, in that year, so when the expenses is less i.e. 35.69% in this year, the ad hoc disallowance without bringing in comparable cases is not justified. Moreover, as per section 44AE, the income from four trucks works out to ₹ 1,64,000/- whereas the assessee has declared an income of ₹ 5,93,612/- which puts the assessee s case in a better position; and the assessee s contention that taking into consideration the transport business carried out by the assessee, wherein expenses are incurred for which no bills can be obtained always, cannot be ruled out. So we find force in the argument of the ld. AR, that in the aforesaid facts and circumstances and considering the previous year results too, the ad hoc disallowance was not warranted. So we direct deletion of the addition - Decided in favour of assessee

Summary

Issues:
Challenge to disallowance of expenses in transport business.

Analysis:
The appeal was filed against the CIT (Appeals) order for the assessment year 2008-09. The sole ground of appeal was the disallowance of Rs. 4 lakhs from freight and fuel expenses claimed by the assessee. The assessee, engaged in transport business, had filed returns showing expenses of Rs. 39,51,550, mainly on fuel and freight. The AO rejected the books due to lack of verifiable bills and made a lump sum disallowance of Rs. 5 lakhs. The CIT (A) partly confirmed the addition but reduced it to Rs. 4 lakhs, citing section 145(3) of the Income Tax Act. The assessee then appealed against the sustained addition of Rs. 4 lakhs.

During the hearing, the AR for the assessee argued that the AO failed to provide a basis for the disallowance and did not justify the substantial amount. The AR highlighted the increase in transportation receipts and decrease in fuel and freight charges compared to the previous year. The AR also pointed out discrepancies in the AO's assessment under section 44AE. The AR presented comparative charts to support the argument for deletion of the addition.

After considering both sides, the tribunal noted that the AO rejected the books due to missing bills and made an ad hoc disallowance of Rs. 5 lakhs, later reduced to Rs. 4 lakhs by the CIT (A). The tribunal observed that in the previous year, the department accepted fuel expenses of 36.34% of total receipts, whereas in the current year, it was only 35.69%. Given the previous acceptance of higher expenses, the tribunal found the ad hoc disallowance unjustified without comparable cases. Additionally, the tribunal agreed with the AR's argument regarding the income calculation under section 44AE and the nature of expenses in the transport business. Consequently, the tribunal directed the deletion of the addition, allowing the appeal of the assessee.

In conclusion, the tribunal ruled in favor of the assessee, ordering the deletion of the Rs. 4 lakhs disallowance from the freight and fuel expenses.