2022 (5) TMI 1160 - HC - Income Tax

Addition of transportation charges - As per ITAT materials produced by the Assessee did not sufficiently explain the transaction in question and, therefore, the said addition was not interfered with - HELD THAT - The contention of the Assessee that its books were destroyed in a cyclone ought not to have been brushed aside easily by the ITAT particularly since the Assessee was located in Odisha and the problem during the AY in question was not peculiar to it. In any event, this claim could have easily been verified by the ITAT instead of entirely disbelieving the case of the Appellant. The Court has perused the confirmation letter issued by BDA Ltd. Addressed to the Appellant which states that RDL had issued the credit note of Rs.4,91,350/- out of which Rs.4,02,600/- is towards reimbursement of transportation charges (carriage inward) borne by the Appellant at the time of delivery of stocks. It could have been possible for the AO to have summoned the Area Sales Executive of BDA Limited, who issued the above letter. For some reason, that was not done. ITAT could have also adopted the approach earlier adopted by it in its order dated 2nd September, 2008 viz., sending the matter back to the AO for a fresh verification. Even that was somehow given up when the ITAT again passed the subsequent order after recall of the earlier order. As the Court is of the view that the disallowance claimed by the Appellant towards transportation charges was not justified. The question is accordingly answered in the negative i.e. in favour of the Assessee.

Summary

Issues:
Disallowance of transportation charges amounting to Rs.4,02,600 incurred by the Assessee.

Analysis:
The appeal was filed against an order passed by the Income Tax Appellate Tribunal (ITAT) for the assessment year 1998-99. The Assessing Officer (AO) noted a discrepancy in the Assessee's income from the sale of foreign liquor. The Assessee claimed to have received credit notes and paid transportation charges through a Marketing Agent. The AO added the transportation charges to the taxable income. The Commissioner of Income Tax (Appeals) upheld the addition, leading to the appeal before the ITAT.

The ITAT observed that the Assessee failed to produce an agreement with the supplier to demonstrate the necessity of incurring transportation charges. The materials provided did not satisfactorily explain the transaction. The ITAT upheld the addition of Rs.4,02,600 towards transportation charges. The Assessee argued that the Marketing Agent confirmed the reimbursement of transportation charges in a letter. The Assessee's claim of books being destroyed in a cyclone was also highlighted.

The Court reviewed the confirmation letter from the Marketing Agent, which confirmed the reimbursement of transportation charges. The Court criticized the ITAT for not verifying the claim of destroyed books and not summoning the Area Sales Executive for clarification. The Court concluded that the disallowance of Rs.4,02,600 towards transportation charges was unjustified. The appeal was allowed in favor of the Assessee, setting aside the ITAT's order and those of the AO and CIT(A).

In conclusion, the Court ruled in favor of the Assessee, overturning the disallowance of transportation charges. The judgment highlighted the importance of verifying claims and supporting documentation in tax assessments.