2016 (7) TMI 1435 - AT - Income Tax

Bogus transportation expenses - Addition on the basis of sworn statement u/s 131 of Mr.R.Gangadhar - Held that - Main basis for this disallowance is statements of the transporters of whom the assessee requested for cross examination but the same was not allowed by the AO - As decided in case of CIT Vs SMC Share Brokers Ltd. 2006 (8) TMI 110 - DELHI HIGH COURT in the absence of third party being made available for cross examination despite repeated requests by the assessee, his statement could not be relied upon to the detriment of the assessee - Decided in favour of assessee. Disallowance of expenses as 40% of the business is illegal - Held that - In the present case, we are not concerned as to whether he assessee is engaged in illegal mining or not but in the present case, because this is not the case of the AO that any deduction has been claimed by the assessee for facilitating to carry out the illegal mining alleged by the AO or for any penalty in respect of such illegal mining because the disallowance has been made by the AO to the extent of 40% of the total mining expenses and since 60% of the expenses are allowed by the AO, the remaining 40% of the same expenses cannot be considered as expenses for the purpose of offence or unlawful purposes. Hence, this disallowance is not justified. Addition of expenditure incurred on vehicles, Telephone for personal use of directors - Held that - This issue is covered in favour of the assessee by the judgment of the Hon ble Gujarat High Court rendered in the case of Sayaji Iron & Engg.Co.(2001 (7) TMI 70 - GUJARAT High Court ) wherein it was held by the Hon ble High Court that in respect of expenditure incurred on vehicles, Telephone etc., even if there is any personal use by Director/employee of the assessee company, addition can be made in the hands of such Director/employee on account of perquisite value of such personal use by concerned person but no disallowance can be made in the hands of the assessee company. Thus this disallowance is deleted. However, the A.O. of the concerned director is at liberty to make addition as per law in the hands of the concerned director Addition of gross amount of sale proceeds of land which was kept as advance by the assessee in its balance sheet at the end of the year - Held that - The amount of ₹ 86,60,079/- for which addition has been by the AO is the amount of assessee s share in the sale consideration for sale of land and hence, even if it is held that income on this account is to be taxed in the present year, the same cannot be to the extent of gross amount of sale proceeds and income has to be assessed after allowing deduction regarding cost of acquisition, if any incurred by the assessee but since there is no discussion on this aspect in the orders of the authorities below, we feel it proper that this issue should be restored back to the file of the AO for a fresh decision in the light of the above discussion after providing adequate opportunity of being heard to the assessee.

Issues Involved:
1. Confirmation of bogus transportation expenses.
2. Disallowance based on allegations of illegal business.
3. Disallowance of helicopter expenses.
4. Addition of entire sale consideration without considering the method of accounting.

Issue-wise Detailed Analysis:

1. Confirmation of Bogus Transportation Expenses:
The assessee contended that the addition of ?168,69,93,902 as bogus transportation expenses was made without affording an opportunity for cross-examination. The AO based the addition on statements recorded under Section 131 and independent evidence from banks and the Transport Department. The Tribunal noted that the AO's objections, such as the lack of introducer details in bank accounts and the same mobile numbers for different account holders, warranted further enquiry. However, the main basis for disallowance was the statements of transporters, which the assessee was not allowed to cross-examine. Citing judgments from the Hon’ble Delhi High Court (CIT Vs SMC Share Brokers Ltd. and CIT Vs Pradeep Kumar Gupta), the Tribunal held that without the opportunity for cross-examination, these statements could not be relied upon. Therefore, the disallowance was not sustainable, and ground no.2 was allowed.

2. Disallowance Based on Allegations of Illegal Business:
The AO disallowed 40% of the total expenditure under Explanation 1 to Section 37(1), alleging illegal mining activities. The Tribunal examined the charge sheet and the report of a three-member committee, which did not specifically charge the assessee with illegal mining. The Tribunal clarified that even if illegal mining were assumed, the expenses for mining itself are not an offence or prohibited by law. Expenses incurred for facilitating illegal activities like bribes could be disallowed, but not the normal mining expenses. The Tribunal referenced judgments (CIT Vs Piara Singh, CIT Vs S.C. Kothari, Badridas Daga Vs CIT) to support that normal business expenses are allowable. Consequently, ground no.3 was allowed.

3. Disallowance of Helicopter Expenses:
The AO disallowed 50% of helicopter expenses, presuming personal use by the Director. The Tribunal referenced the Hon’ble Gujarat High Court judgment in Sayaji Iron & Engg. Co. Vs CIT, which held that even if there is personal use by a Director, disallowance cannot be made in the hands of the company. Instead, the perquisite value can be added to the Director's income. Thus, the Tribunal deleted the disallowance, allowing ground no.4.

4. Addition of Entire Sale Consideration Without Considering the Method of Accounting:
The AO added ?86,60,079, the gross amount of sale proceeds of land, without considering the cost of acquisition. The Tribunal agreed with the assessee that the income should be assessed after deducting the cost of acquisition. Since the AO's orders lacked discussion on this aspect, the Tribunal remanded the issue back to the AO for fresh consideration, allowing ground no.5 partly for statistical purposes.

Conclusion:
The Tribunal partly allowed the assessee's appeal, providing relief on the issues of bogus transportation expenses, disallowance based on illegal business allegations, and helicopter expenses, while remanding the issue of sale consideration for fresh assessment.

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