2019 (7) TMI 674 - HC - Income Tax

Disallowance of expenses - freight and transportation paid to Venkata Subbareddy Transport Contractors and Subbareddy contractors - on enquiry AO found that transporters are not in existence - HELD THAT - Mere production of crossed demand drafts was not sufficient to establish the stand taken by the assessee. When the AO was able to establish that there was no such person or transport company, the assessee set up another case by stating that there is another partner by name Rama Muni Reddy, who is also in Cuddappah. The said person has given a statement stating that they had nothing to do with the said business. Revenue preferred an appeal before the Tribunal. The Tribunal rightly reversed the finding of the CIT(A) and noted the fact that the transporters are not in existence has not been repelled by the assessee in the appeal proceedings and the CIT(A) merely accepted the plea of the assessee without any material or evidence on record. We find all these records are self-serving and these records do not dislodge the specific finding of the AO based on Commission issued to the ITO, Cuddappah referred above. Therefore, the assessee having not been able to establish by documents that the finding of the AO was incorrect, we have no hesitation to hold that the order passed by the CIT(A) is utterly perverse. According to the learned counsel for the appellant/assessee, the finding of the Tribunal is perverse. We do not agree with said submission as we have already held that the order of the CIT(A) is utterly perverse. Hon'ble Supreme Court of India in the case of Mangalore Ganesh Beedi Works Vs. CIT 2015 (10) TMI 1283 - SUPREME COURT as held that there was no reason to reverse the finding of the fact particularly since nothing has been shown to conclude that the finding of fact was perverse in any manner whatsoever. It was further held that if the finding of the fact arrived at by the Tribunal were to be set aside, a specific question regarding a perverse finding of fact ought to have been framed by the High Court and in the said case, it was noted that the Revenue did not seek for framing of any such question. In this regard, the Supreme Court referred to the decision in the case of K.Ravindranathan Nair Vs. CIT 2000 (11) TMI 3 - SUPREME COURT - Decided against assessee.

Summary

Issues:
1. Entitlement to deduction of freight expenses
2. Entitlement to deduction of purchase amount from Neelam Minerals

Entitlement to Deduction of Freight Expenses:
The appeal under Section 260-A of the Income Tax Act, 1961 questioned the disallowance of deductions amounting to ?19,83,445 for freight and ?11,37,018 for purchases from Neelam Minerals for the Assessment Year 2001-02. The Tribunal's order revolved around the assessee's ability to substantiate these expenses. The Assessing Officer's doubts led to inquiries, revealing discrepancies in the transporters' details provided by the assessee. Despite producing crossed demand drafts, the assessee failed to establish the legitimacy of the expenses. The Commissioner of Income-Tax (Appeals) reversed the Assessing Officer's decision based on the demand drafts, but the Tribunal found the evidence insufficient. The Tribunal noted the absence of the transporters and the lack of rebuttal by the assessee, leading to the dismissal of the appeal.

Analysis of the Judgment:
The Tribunal's decision was based on the failure of the assessee to provide concrete evidence supporting the claimed deductions for freight expenses and purchases from Neelam Minerals. The production of crossed demand drafts was deemed insufficient to validate the expenses, especially in the absence of confirmation from the alleged transporters. The discrepancies highlighted during inquiries, including non-existent addresses and disavowal of business relations, undermined the credibility of the assessee's claims. The Tribunal's emphasis on the lack of substantial evidence to counter the Assessing Officer's findings strengthened the dismissal of the appeal. The judgment underscored the importance of substantiating expenses with verifiable documentation and the consequences of failing to do so in tax assessments.

Entitlement to Deduction of Purchase Amount from Neelam Minerals:
The Tribunal's decision to dismiss the appeal was further supported by the absence of substantial questions of law. Citing the Supreme Court's ruling in Mangalore Ganesh Beedi Works Vs. Commissioner of Income Tax, the Tribunal emphasized the need for specific grounds to challenge factual findings. The Supreme Court precedent highlighted the requirement for a clear demonstration of perversity in factual determinations, which was lacking in the present case. The absence of a request for framing such questions by the Revenue further solidified the Tribunal's decision to reject the appeal.

Conclusion:
In conclusion, the judgment by the Madras High Court upheld the Tribunal's decision to dismiss the appeal regarding the entitlement to deductions for freight expenses and purchases from Neelam Minerals. The failure to substantiate expenses with credible evidence, coupled with the absence of substantial legal questions, led to the rejection of the appeal. The judgment underscored the importance of providing verifiable documentation to support deductions claimed in tax assessments and highlighted the legal standards for challenging factual findings in appellate proceedings.