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2013 (9) TMI 572 - AT - Income TaxDisallowance of Freight Charges - hire of trucks - CIT(A) has reduced it to 20% of 5% i.e., 1% which is in proportion to non- confirmation letters to total confirmation letters called for. Being so, the CIT(A) considered the disallowance at 20% of 5% 1%. Admittedly, the Department not carried on detailed enquiry. There was enquiry on random basis. Considering the result of random enquiry, the CIT(A) sustained disallowance of 20% of the disallowance made by the AO. - Held that - this kind of approach to disallow an expenditure cannot be sustained in its entirety. The Department is not disputing incurring of expenditure and, on the other hand, only disputing the quantum of expenditure - in this case the inflating of expenditure by the assessee cannot be ruled out. Considering the entire facts and circumstance of the case and chances of inflating the expenses by the assessee, to meet the ends of justice, we are inclined to sustain disallowance to the extent of non-confirmations from 37 parties in A.Y. 2008-09 and 8 parties in A.Y. 2009-10. - Decided partly in favor of assessee. Decisions in the case of Sassoon J. David & Co. Ltd. Vs. CIT 1979 (5) TMI 3 - SUPREME Court and CIT v. Goodlass Nerolac Paints Ltd. 1990 (8) TMI 72 - BOMBAY High Court followed. Disallowance of Commission Held that - The commission paid for earlier assessment years and the commission paid by similar companies in similar circumstances and reasonableness of the payment can definitely quantify the excessive payment of commission at 15% of the total commission paid by the assessee for these assessments years under consideration before us - This disallowance at 15% of total commission paid by the assessee would meet the ends of justice - the assessing officer to disallow only 15% commission paid the assessee as excessive in these assessment years as inadmissible - the disallowance at 15% on cash payment of the commission and the payments by crossed cheque/DD shall not be considered for disallowance. Disallowance of Fixed En-Route Expenses - Held that - Toll tax payment and payments to RTAs cannot be doubted - The assessee had furnished break up of these expenses - The other expenses like payments to local vehicle owners associations/ local drivers, spares and repairs expenses, there cannot be 100% foolproof evidences to support these payments - It was impossible to expect from the drivers and conductors foolproof supporting evidences and vouchers - it was appropriate to disallow 15% of these two expenses Following CIT vs. Swaminarayan Vijay Carry Trade (P) Ltd 2013 (6) TMI 50 - GUJARAT HIGH COURT - The hiring of the trucks was also correlated to the actual trips made - These details were meticulously given in supporting vouchers - It would be appropriate to point out that disallowance of this expenditure was not made at least in the preceding 10 years prior to assessment year 2008-09 and also in the subsequent assessment years 2010-11 after full enquiry - There cannot be any disallowance for assessment year 2008-09 and 2009-10. The expenditure was incurred while transporting the goods from one place to another place by the drivers - These expenses were incurred in cash - While transporting the goods by road, no one can make payment by cheques, as the same were enroute expenses while transporting the goods by road - These payments include toll tax, payments to different RTAs of the States, payments to local vehicle owners associations, spares and repairs expenses Decided partly in favour of Assessee.
Issues Involved:
1. Disallowance of freight expenses. 2. Disallowance of commission expenses. 3. Disallowance of fixed en-route expenses. Issue-wise Detailed Analysis: 1. Disallowance of Freight Expenses: Assessment Year 2008-09: The Assessing Officer (AO) disallowed 5% of freight charges due to low net income percentage and insufficient confirmations from truck owners. The assessee argued that payments were genuine, spread across numerous branches, and supported by contracts and RC books. The CIT(A) admitted additional evidence and reduced the disallowance to 1%, considering the confirmations received for 148 out of 185 cases. The Tribunal noted that the disallowance approach was flawed as the expenditure was supported by vouchers and statutory audits, and there were no significant irregularities. The Tribunal sustained disallowance only for non-confirmations from 37 parties, amounting to Rs. 6,93,759. Assessment Year 2009-10: The AO disallowed 5% of freight charges due to low net income and unserved notices. The assessee provided confirmations for 28 out of 35 cases. The CIT(A) admitted additional evidence and reduced the disallowance to 1%, considering the confirmations received. The Tribunal found the approach flawed and sustained disallowance only for non-confirmations from 8 parties. 2. Disallowance of Commission Expenses: Assessment Year 2008-09: The AO disallowed Rs. 23,04,086 paid in cash. The CIT(A) reduced the disallowance to 15% of cash payments, amounting to Rs. 3,45,613, based on past Tribunal orders. The Tribunal upheld this approach, considering it reasonable. Assessment Year 2009-10: The AO disallowed Rs. 5,48,520 paid in cash. The CIT(A) reduced the disallowance to 15%, amounting to Rs. 82,278. The Tribunal upheld this approach, considering it reasonable. 3. Disallowance of Fixed En-route Expenses: Assessment Year 2008-09: The AO disallowed the entire Rs. 12,77,15,333 claimed. The CIT(A) allowed 85% of the expenditure, disallowing Rs. 1,91,62,550. The Tribunal found the disallowance excessive, noting that expenses were incurred in cash en-route and supported by vouchers. The Tribunal sustained a 15% disallowance for unvouched expenses. Assessment Year 2009-10: The AO disallowed 30% of Rs. 18,87,92,492 claimed. The CIT(A) allowed 85% of the expenditure, disallowing Rs. 2,83,18,875. The Tribunal found the disallowance excessive, noting that expenses were incurred in cash en-route and supported by vouchers. The Tribunal sustained a 15% disallowance for unvouched expenses. Conclusion: The Tribunal partly allowed the assessee's appeals and dismissed the Revenue's appeals for both assessment years, sustaining disallowances only to the extent of non-confirmations and unvouched expenses.
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