2015 (2) TMI 277 - AT - Income Tax

Disallowance of 15% of driver s bhatta expenses - Held that - Only basis for disallowance is that expenses have been incurred in cash. The assessee had explained that in the nature of transport business the cash payment to the drivers is inevitable as they are not ready to accept account payee cheques for small amounts ranging from ₹ 200 to ₹ 500. It has been brought on record that in A.Y. 2005-06, 10% of bhatta charges was disallowed, whereas in the A.Y. 2006-07 and 2007-08, lump sum disallowance was made, which comes to 3.05% and 4.61%. Thus looking to the background and the precedence of the earlier and subsequent years, we reflecting the disallowance to 10% of the total expenditure debited.- Decided partly in favour of assessee. Disallowance of 40% of trip expenses and road expenses - Held that - In the earlier year and in subsequent years, the disallowances under these heads were much less than 10%. The basis given by AO to work out the average expenses is not based on proper analysis as in the transportation business, average diesel expenses, average fare expenses etc. cannot be fixed on standard basis. Thus looking to the past and subsequent history and the present facts of the case, we restrict the disallowance @ 10% which would be quite reasonable.- Decided partly in favour of assessee. Addition being transportation charges which was salary paid by the directors to the drivers engaged by them - Held that - To prove that there is siphoning of profits of the assessee company by the related persons, it has to be brought on record with some tangible material that the assesse was actually paying the driver s salary. The entire analysis and exercise done by the AO is based on presumption and that to be mainly on the premise that the sub-contract agreement does not specify, who will make the payment of salary. The source of the payment by these persons has been demonstrated along with the other documents as mentioned above. It is not the case of the department that the hire charges paid by the assessee to the relatives is either excessive or sham. The only case of the department is that the drivers salary of the trucks belonging or hired by the related persons must have been paid by the assessee. Thus, we do not find any reason to upheld such a premise, unless the entire hire charges agreement and hire charges paid to the directors is bogus or proved to be excessive. Accordingly the addition sustained by the Ld. CIT(A) is deleted - Decided in favour of revenue.

Summary

Issues Involved:
1. Disallowance of 15% of driver's bhatta expenses.
2. Disallowance of 40% of trip expenses and road expenses.
3. Addition of Rs. 12,81,000 being transportation charges which was salary paid by the directors to the drivers engaged by them.

Analysis:
1. *Issue 1 - Disallowance of 15% of driver's bhatta expenses:*
The assessee challenged the disallowance of 15% of driver's bhatta expenses. The AO disallowed 25% of the claimed amount, which was reduced to 15% by the Ld.CIT(A). The ITAT observed that the disallowance was based solely on expenses being incurred in cash. Considering the nature of the transport business and past years' disallowances, the ITAT restricted the disallowance to 10% of the total expenditure debited, partially allowing Ground No. 1.

2. *Issue 2 - Disallowance of 40% of trip expenses and road expenses:*
The assessee contested the disallowance of 40% of trip and road expenses. The AO disallowed 50%, which was reduced to 40% by the Ld.CIT(A). The ITAT noted discrepancies in the recording of expenses without proper vouchers. After considering the past and subsequent years' disallowances and the nature of the expenses, the ITAT restricted the disallowance to 10%, partially allowing Ground No. 2.

3. *Issue 3 - Addition of Rs. 12,81,000 as transportation charges for drivers' salary:*
The AO added Rs. 12,81,000 as drivers' salary paid by directors under transportation charges. The Ld.CIT(A) upheld the addition, questioning the genuineness of the payments. The ITAT analyzed the agreement, lack of evidence of driver salary payments, and source of payment. It concluded that unless there is direct evidence of the assessee paying driver salaries, the addition was not justified. The ITAT deleted the addition, allowing Ground No. 3.

In conclusion, the ITAT partly allowed the appeal filed by the Assessee, addressing each issue of disallowances and additions with detailed analysis and reasoning based on the facts and legal considerations presented during the proceedings.