2020 (9) TMI 157 - HC - Income Tax

Allowability of transportation expenses - allowable business expenses u/s 37(1) - Disallowance u/s 40A(3) as payments made to transporters on a particular day exceeds 20, 000/- - ITAT directed deletion of additions made by Assessing Officer as well as Commissioner of Income Tax (Appeals) - HELD THAT - Tribunal has neither assigned any reasons nor has disclosed any basis for directing deletion of additions made by the assessing authority as well as Commissioner of Income Tax (Appeals) except confirming the addition of 31 Lakhs made by the assessing authority. It is also pertinent to mention here that the Tribunal has not assigned any reasons on the issues raised before it and has not given any reasons in support of its conclusion. The order passed by the Tribunal is cryptic and suffers from the vice of non application of mind. Whether Tribunal was correct in holding that the disallowance was not justified even though the same was contrary to Section 40a(ia)? - Second substantial question of law framed by a bench of this court is no longer respondent integra and is covered by a decision of the Supreme Court in Calcutta Exports Company 2018 (5) TMI 356 - SUPREME COURT and the same does not require any adjudication. Therefore the same is answered in favour of the assessee and against the revenue. Though we are conscious of the legal principle that finality has to be attached to all legal proceedings but in the peculiar facts of the case since factual adjudication is required so far as substantial question of law Nos.1 and 3 are concerned which has not been done by the Income Tax Appellate Tribunal which is the final fact finding authority we are left with no option but to set aside the order passed by the Income Tax Appellate Tribunal insofar as it pertains to substantial questions of law No.1 and 3 and remit the matter to the Tribunal for decision afresh on issues covered by substantial question of law Nos.1 and 3. Therefore it is not necessary for us to answer the substantial questions of law No.1 and 3.

Issues Involved:

1. Allowability of transportation charges despite evidence suggesting non-execution of transactions.
2. Justification of disallowance under Section 40(a)(ia) of the Income Tax Act.
3. Allowability of expenses disallowed under Section 40A(3) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Allowability of Transportation Charges:

The Tribunal held that the expenses of ?1,53,32,679/- and ?35,68,815/- claimed towards transportation charges were not allowable. The Tribunal found that the transporters did not execute these transactions, and the payments were only book entries. The Tribunal's decision was challenged for recording a perverse finding by not considering the evidence properly.

The assessee's business involved export of silk waste and sale of iron ore fines. A search was conducted, and the assessing officer issued notices under Section 153A and 143(2) of the Act. The assessing officer disallowed business expenditures under Section 37(1) of the Act, determining the total income as ?2,55,15,140/-. The Commissioner of Income Tax (Appeals) upheld this, finding the transportation expenses not genuine and thus not incurred for business purposes. The Tribunal, however, deleted most additions except ?31 Lakhs, leading to the revenue's appeal.

2. Justification of Disallowance under Section 40(a)(ia):

The Tribunal's decision to disallow ?1,82,83,210/- under Section 40(a)(ia) was contested. The revenue argued that the Tribunal did not assign reasons for its decision, making it perverse. The assessee countered that tax was deducted at source and the return was filed accordingly. They cited the Supreme Court's decision in 'CIT vs. Calcutta Export Company' to argue that Section 40(a)(ia) was remedial and curative, thus favoring the assessee.

The Tribunal found that the transporters had admitted to rendering services but denied receiving payments, creating a contradiction. The Tribunal criticized the lower authorities for relying on unreliable witnesses and failing to provide a basis for preferring the transporters' statements over the assessee's.

3. Allowability of Expenses under Section 40A(3):

The Tribunal held that ?36,56,642/- disallowed under Section 40A(3) was allowable. The revenue argued that payments were made in cash above the prescribed limit, violating Section 40A(3). The assessee contended that all payments were made through account payee crossed cheques, and disallowance under Section 40A(3) should be restricted to 20% of the amount expended in excess of ?20,000/-.

The Commissioner of Income Tax (Appeals) enhanced the income by ?2,15,84,704/-, finding that payments made to transporters were in cash and not reflected in the return of income. The Tribunal, however, deleted these additions, except for ?31 Lakhs, without assigning reasons, leading to the revenue's appeal.

Judgment:

The High Court observed that the Tribunal, being the final fact-finding authority, failed to assign reasons or disclose any basis for its conclusions. The Tribunal's order was deemed cryptic and suffering from non-application of mind. The second substantial question of law, covered by the Supreme Court's decision in 'Calcutta Exports Company', was answered in favor of the assessee.

The High Court set aside the Tribunal's order regarding substantial questions of law Nos. 1 and 3 and remitted the matter to the Tribunal for fresh decision. The appeal was disposed of accordingly.

← Previous Next →