2013 (8) TMI 108 - AT - Income Tax

Unproved freight and route expenses payable - CIT(A) deleted the addition - assessee is engaged in the business of transportation on contract basis - Held that - A.O. did not appreciate the system of accounting and the entries passed in the books of account. The procedure available for accounting freight payable in the books of account explained to A.O. vide assessee letter dated 18.11.2010 which stated that the assessee has submitted the desired details of freight payable with Freight memo number, date, amount etc. before your good self for your verification. AR in support of the procedure of making entries in books of account demonstrated by referring various pages of the paper book where copies of relevant challans and builty, copies of freight memo for engaging the truck, consignment note, consignment receipt note etc. He has also demonstrated that the assessee has followed such practice and such amounts were shown payable in past years. In the past years the revenue has accepted the system of accounting followed by the assessee and did not make such addition. Thus AR has demonstrated that the outstanding freight payable were paid in subsequent years and in subsequent year the payment to this outstanding freight has been accepted by the A.O. while making the assessment under Section 143(3). The list showing freight payable with date of its payment has been placed. In the light of above admitted facts and as per the detailed dissections made by the CIT(A) CIT(A) has rightly appreciated the system of accounting maintained by the assessee & has rightly deleted the addition - appeal of the Revenue is dismissed.

Summary

Issues Involved:
1. Deletion of addition of Rs.3,21,58,268/- made by the AO on account of unproved freight and route expenses payable.

Issue-Wise Detailed Analysis:

1. Deletion of Addition of Rs.3,21,58,268/- on Account of Unproved Freight and Route Expenses Payable:

The Revenue appealed against the order of the CIT(A) which deleted the addition of Rs.3,21,58,268/- made by the AO. The AO had disallowed this amount, claiming it represented unproved sundry creditors for freight and route expenses payable. The AO's decision was based on the fact that the letters sent to the creditors under Section 133(6) were returned unattended, and one creditor denied any transactions with the assessee.

The CIT(A) examined the appellant's submission and assessment records, noting that the appellant produced audited books of accounts and provided explanations and documentary evidence, including freight memos, consignment notes, and consignment receipts. The CIT(A) found no adverse findings from the AO or the auditor regarding the mercantile system of accounting employed by the appellant. The CIT(A) emphasized that the AO did not invoke Section 145 and accepted the appellant's books of accounts, which were maintained regularly and reflected the transactions accurately.

The CIT(A) further noted that the amount represented sundry creditors for expenses payable and did not fall under Section 68 of the I.T. Act. The expenses were shown in the balance sheet and paid in the subsequent year. The CIT(A) highlighted that the AO's conclusion of bogus creditors was based solely on the non-receipt of replies under Section 133(6), without any adverse material. The CIT(A) also addressed the specific case of Shri Sunil Kulshreshtra, where the appellant provided supporting documentary evidence, but the AO did not accept it without jurisdiction and did not afford the appellant the opportunity to cross-examine Shri Sunil Kulshreshtra, violating the principle of natural justice.

The Tribunal, after hearing both parties, referred to Section 145 of the Act, which mandates that income must be computed based on the method of accounting regularly employed by the assessee unless the AO finds defects in the accounts. The Tribunal cited judicial precedents, including the Hon'ble Rajasthan High Court's ruling in CIT vs. Gotanlime Khanij Udyog and the Hon'ble Delhi High Court's ruling in CIT vs. Smt. Poonam Rani, which emphasized that accounts maintained regularly and without defects must be accepted for computing income.

The Tribunal noted that the AO did not appreciate the accounting system and entries in the books of account. The assessee explained the procedure for accounting freight payable, demonstrating with relevant documents that the system was consistent with past years, where such amounts were accepted by the Revenue. The Tribunal found that the outstanding freight payable was paid in subsequent years and accepted by the AO in assessments under Section 143(3).

In conclusion, the Tribunal found no infirmity in the CIT(A)'s order, which rightly appreciated the accounting system and deleted the addition of Rs.3,21,58,268/-. The appeal by the Revenue was dismissed, and the order was pronounced in the open Court.