2020 (7) TMI 126 - AT - Income Tax

Disallowance of miscellaneous expenses - non business expenses - HELD THAT - As noticed that due to the bad conditions of the road and since it is hilly terrain due to the incessant rain and bad weather the conditions of the road are bad and, therefore, the truck drivers incurred expenses for repairs of the trucks, (frequent tyre burst etc.) for which the local repair shops insist on cash and were reluctant to give any bills/vouchers. The truck drivers claimed the refund from the assessee the expenses through self made vouchers and since the assessee s central office is at Kolkata it was not possible to collect all the vouchers. These expenses in cash duly shown in the ledgers and books regularly maintained in the course of business and later are put cumulatively under the head Miscellaneous Expenses for which only self made vouchers could be produced. Assessee s accounts are audited and the auditor has not found any mistakes or short-comings. The AO as well as the CIT(A) has made the disallowance without rejecting the books of accounts. It is noted that the expenses claimed by the assessee as miscellaneous expenses while plying the trucks in remote areas of Assam, Meghalaya and Mizoram cannot be said to be an unreasonable expense when the assessee has a turnover of ₹ 10.63 cr. and it returns gross profit of ₹ 2.75 cr. which comes to G.P of 25.80%. Therefore disallowance was not warranted. Puja expenses - disallowance as expenses are incurred in cash and since no supporting documents could be produced - DR contended that at least 50% of the claim should be disallowed - HELD THAT - assessee is into the business of truck plying in North-East States and it is common knowledge that the drivers and cleaners before they start their journey on their trucks conduct puja of the God they believe and they incur expenses for buying garlands, bhog etc. for safe and smooth running of the vehicle while they go to the pre-destined location which are located in the remote areas of Assam, Meghalaya and Mizoram to deliver/collect goods. The expenses thus it is noted are incurred by the assessee for puja is for the smooth functioning of the business of transport as discussed cannot be disallowed. Since it has been found that the expenses incurred are for the smooth functioning of the business of plying trucks, the expenses need to be allowed. However, taking into consideration the peculiar facts and circumstances of the case, 10% of the expenses may be disallowed for plugging the revenue loss if any and the balance amount is directed to be deleted. Appeal of assessee is partly allowed.

Summary

Issues:
1. Disallowance of miscellaneous expenses
2. Disallowance of puja expenses

Issue 1: Disallowance of Miscellaneous Expenses
The appellant appealed against the Ld. CIT(A)'s order confirming the disallowance of miscellaneous expenses amounting to ?2,80,900. The AO disallowed the amount as the expenses were incurred in cash without documentary evidence. The Ld. CIT(A) partially allowed ?3,482 and confirmed ?2,77,418. The appellant contended that due to challenging conditions in North East States, drivers faced practical difficulties in keeping vouchers for expenses. The appellant argued that with a GP of 25.80% from a turnover of ?10.63 cr, the disallowance would increase the gross profit. The Tribunal noted the practical difficulties faced by the appellant in maintaining vouchers for expenses incurred in remote areas of Assam, Meghalaya, and Mizoram. The Tribunal observed that the disallowance was unwarranted considering the reasonable expenses incurred and directed the AO to delete the disallowance of ?2,77,418.

Issue 2: Disallowance of Puja Expenses
The AO disallowed puja expenses of ?1,65,308 as the expenses were in cash without supporting documents. The Ld. CIT(A) confirmed the disallowance, stating uncertainty regarding the purpose of the expenses. The appellant argued that puja expenses were integral to the business, ensuring safe journeys for drivers and cleaners. Citing a Calcutta High Court case, the appellant sought deletion of the addition. The Tribunal noted that puja expenses were essential for the smooth running of the transport business, especially in remote areas. While acknowledging the absence of vouchers, the Tribunal allowed 90% of the expenses, directing 10% to be disallowed for revenue loss prevention. Consequently, the appeal was partly allowed.

The judgment was pronounced on 30 June 2020 by Shri A. T. Varkey, JM.