2014 (3) TMI 937 - HC - Income Tax

Allowability of expenses as per mercantile system - Disallowance of diesel expenses and hire charges/ interest Held that - CIT (A) as well as the Tribunal both ruled in favour of the assessee on the ground that eventually there would be no difference in tax rate - the contention of the revenue would have been considered that the expenditure could be allowed only during the year under which liability is crystallized if the assessee is following the mercantile system of accounting. But, in the present case the amount is very meager Decided against Revenue. Disallowance of unpaid carting charges Expenses not verifiable and substantiated Held that - The CIT (A) had given reasons for limiting the disallowance including the portion of the GP rates of the previous year - The Tribunal also while confirming the approach adopted by the CIT(A) might have enhanced the admissible enhancement of Rs. 8 lakhs - The entire issue is based on appreciation of evidence thus as such no question of law arises for consideration in the appeal Decided against Revenue. Deletion made on account of difference in receipts TDS certificate and P&L account not tallying Held that - The CIT(A) as well as the Tribunal both accepted the assessees s explanation that M/s. CFCL would in certain cases instruct the assessee to deliver the goods at the places of various dealers from the Railway godown - However CFCL had deducted at source on completion of the work of carting up to the last destination i.e. till the point of delivery at the respective places of the dealers by making provision for such payments they have not committed any error - The assessee had not carried out the transportation work of the goods in toto - In some cases the principal employer of the truck would instruct the assessee to deliver the goods to the ultimate point of destination after some time depending on the need of the dealers - CFCL would deduct at source on the entire payment by making the provision for the same - The assessee had counted for such income in the immediately preceding year thus explained the discrepancies - The deletion of amount confirmed by the Tribunal is upheld Decided against revenue.

Summary

Issues involved:
1. Disallowance of diesel expenses and hire charges/interest accrued in earlier years.
2. Disallowance of unpaid carting expenses.
3. Addition of difference in receipt as per TDS certificate and P & L account.

Issue 1: The first issue concerns the disallowance of diesel expenses and hire charges/interest accrued in earlier years. The Revenue appealed against the Tribunal's judgment favoring the assessee. The Tribunal and CIT (Appeals) ruled in favor of the assessee, stating that the tax rates would not differ significantly. The Revenue argued that under the mercantile system of accounting, such expenses should only be allowed in the year when the liability crystallizes. However, due to the meager amount involved, the court did not consider this issue in the tax appeal.

Issue 2: The second issue involves the disallowance of unpaid carting expenses. The Assessing Officer doubted the carting charges claimed by the assessee, leading to an addition of Rs.30.97 lakhs. The CIT (Appeals) reduced the addition to Rs.5 lakhs after allowing the assessee to produce additional evidence. The Tribunal later enhanced the disallowance to Rs.8 lakhs, emphasizing the lack of evidence for the unpaid carting expenses. The court upheld the Tribunal's decision, stating that the issue was based on the appreciation of evidence, and no legal question arose.

Issue 3: The third issue pertains to the addition of Rs.90 lakhs, which the Assessing Officer made but was deleted by the CIT (Appeals) and the Tribunal. The Revenue argued that this amount should have been recognized in the year under consideration due to the mercantile system of accounting. However, the CIT (Appeals) and Tribunal accepted the assessee's explanation regarding the difference in receipts as per TDS certificate and the P & L account. They found that the assessee had properly accounted for the income in subsequent years, leading to the deletion of the addition. The court affirmed the decisions of the CIT (Appeals) and Tribunal, dismissing the Tax Appeal.

In conclusion, the court dismissed the Tax Appeal, upholding the decisions of the CIT (Appeals) and Tribunal on all three issues raised by the Revenue.