9911796707
TMI Blog2013 (9) TMI 572X X X X Extracts X X X X X X X X Extracts X X X X ..... nses (Rs.) Disallowance of commission (Rs.) Disallowance of enroute expenses (Rs.) Assessed income (Rs.) 2008-09 39,47,83,300 23,04,086 12,77,50,333 86,08,61,100 2009-10 41,82,67,330 5,48,520 5,66,37,750 88,61,11,530 3. On appeal, the CIT(A) given relief as follows: Relief given by the CIT(A) (in Rs.) A.Y. Freight Commission Enrouteexpenses 2008-09 31,58,26,649 19,58,473 10,85,87,783 2009-10 33,46,13,866 4,66,242 2,83,18,875 Addition sustained by the CIT(A) (in Rs.) A.Y. Freight Commission Enroute expenses 2008-09 7,89,56,651 3,45,613 1,91,62,550 2009-10 8,36,53,464 82,278 2,83,18,875 4. The assessee is in appeal before us in respect of sustaining the addition in respect of the above expenses for the A.Ys. 2008-09 and 2009-10. The Revenue is in appeal before us for deleting the additions by the CIT(A) for the same assessment years. 5. On the disallowance of freight charges for AY 2008-09, the learned AR submitted that the AO made the disallowance on the reasons that the net income declared by the assessee as a percentage of gross receipts is low. The AO made enquiries by addressing notices u/s 133 (6) in 85 cases initially and later in 100 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(A) as additional evidence. Additional evidence filed before the CIT(A) are as under: Particulars 85 cases 100 cases Additional evidence filed along with petition dated 6.7.2011 under Rule 46A. 56 69 Additional evidence filed along with petition dated 1.8.2011 4 2 Additional evidence filed along with petition dated 25.8.2011 - 4 Total 60 75 Confirmations directly received by AO before completion of assessment 13 - 73 75 5.4 The AR submitted that in all 148 confirmations were received of lorry hire payments out of 185 cases selected by the AO. The reasons for filling additional evidence have been explained before the CIT(A) and the reasons given in the petition filed is extracted in para 4.1 of the CIT(A) order. The same are reiterated. The additional evidence was forwarded to the AO by the CIT(A). The AO submitted his remand report which is extracted at para 5 of the CIT(A)'s order. The assessee company furnished reply in response to the remand report. The following events would show that the time given was very short: a) For the first time show cause letter dated 17th December 2010 was sent to the assessee referring to 85 items and stating that conf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... up for verification are 185 100+85) b) Out of the above the assessee could obtain confirmations in respect of 148 items c) In other words the assessee obtained confirmations for 80% of 185 items picked for verification for (80% of 185 = 148). d) Since the AO disallowed 5%, according to the CIT(A) 80% of 5% (=4%) should be treated as proved. Since the assessee could not obtain confirmations for the remaining 37 items, the CIT(A) upheld 1% disallowance. 5.9 The AR submitted that the hire of trucks is transparent and are verifiable. The assessee's records contain all details of trucks hired trips made and payees are all identifiable. Full details are available as stated at point 13 at page 5 of the appellate order. The assessee could not obtain 100% confirmations of all lorry hire payments from the owners for the remaining 37 cases because of the following reasons: (a) The time lag between the date of hiring and the date of enquiry, (b) They could have changed their addresses or sold the truck, or stopped their business (c) The owners of the lorries not having any interest in the matter to reply as it does not relate to them (d) Most of the lorry owners/drivers are either une ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reak-up of the total freight charges during the financial year ended 31st March, 2008 is given as follows: Division Amount (Rs.) Transport Division 548,10,11,052 XPS Division 198,95,82,073 Supply Chain Solutions Division 42,39,84,685 Seaways Division - Shipment Expenses 10,87,386 Total 789,56,65,196 5.11 The learned AR submitted that most of the payment of freight charges at Transport division are made in cash, as the payees in the Transport division are vehicles generally hired from the market and are not regular vendors. However at the XPS and Supply Chains Solutions divisions, most payments for freight charges are paid by cheques, as the payees are regular vendors and carry the consignments of the assessee on regular basis. The assessee has their full addresses and also their PAN Nos., in its record. The AO had made enquiries in respect of payees of freight charges of Transport division only. The 185 cases picked up are relating to Transport division only. No enquiries, whatsoever, were made from the payees of XPS and Supply Solution divisions. There could, therefore, be no justification whatsoever for any disallowance out of freight charges paid to payees at the XP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r's assessment for A.Y. 2008-09 and the issue was pending in appeal before the Commissioner (Appeals) 6.1 The AR submitted that the entire Freight expenses were paid to the Owners/ drivers who's trucks were taken on hire for transporting of goods. The payments were made spread over 1289 branches all over the country with 147 accounting centres. The payments were made for hiring of trucks for 5,60,309 contracts on a trip to trip basis. The net income to gross receipts of the assessee is more than what other transporters have declared. The operating results of the company are much better and comparison to other transporters in the Transport business. That the enquiry in respect of 35 cases which were done gave no reasonable time to the appellant to obtain confirmations of the persons from whom trucks were taken on hire. That all payments made towards Freight charge are genuine .full details are available in the lorry hire contracts for hired vehicles and that if adequate time was given, in all the 35 cases picked by the AO, fresh confirmations could be obtained in addition to the material already on record. Therefore no disallowance is called for. Even if any disallowance is warrant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made in the year December, 2011 for the financial year 2008-09 hence any response from the lorry owners is bound to take time. h) There is always a possibility of change of address, sale of truck or connected reasons which could delay any reply to the AO's enquiry. 6.4 The AR submitted that in the background of the above facts petition was filed to admit the confirmations were subsequently received as additional evidence. The CIT(A) admitted the additional evidence. In admitting the additional evidence the CIT(A) came to the conclusion that: a) adequate time was not given by the AO to obtain confirmations; b) the assessee filed confirmations and proof in respect of all 35 cases; c) the disallowance was made on the basis of additions made in the A.Y. 2008-09. For this assessment year, the CIT(A) accepted the additional evidence; d) the AO did not dispute the genuineness of the information filed and e) these vouchers are important to be considered for the purpose of deciding the issue of disallowance of freight expenses in the appeal to render justice. 6.5 The AR further submitted that in all the 35 cases, copies of RC books for the lorries taken on hire have been produced. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lable, the freight expenses should be disallowed at 1% in the place of 5% as stated by the AO. The reasons for the assessee's inability to produce confirmations in 8 cases have already been explained. In fact, copies of RC books for the lorries taken on hire have been produced and all relevant details are available showing that the trucks were taken on hire, they were put to use and hire charges were paid to them. Hence, the omission to produce confirmation from 8 persons could not have been taken as basis for disallowing 1%. The AR contended that the hire of trucks is transparent and is verifiable. The assessee's record contain all details of trucks hired, trips made and payees are all identifiable. In the facts of the case, the AR submitted that the entire expenditure should have been allowed as expenditure. 6.8 The break-up of the total freight charges during the financial year ended 31st March, 2009 is given below Division Amount (Rs.) Transport Division 572,71,12,473 XPS Division 211,00,43,778 Supply Chain Solutions Division 43,56,36,961 Seaways Division - Shipment expenses 74,05,529 Global Division 8,51,47,697 Total 836,53,46,438 6.9 The AR submitted that most ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oach 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. The expenditure is duly supported by vouchers with full details of expenses and details of trucks and details of goods transported and other details like date of hiring, no. of days hired, rate of hiring, date of payment, number of trucks and the assessee furnished entire details of addresses. When these details are available with the department, it is left to the Department to examine the same. It is needless to mention here that the assessee is a limited company subject to statutory audit and internal audit. There was no material to suggest that the assessee has practiced any irregularities. In the absence of no irregularities noticed by the auditors and minor discrepancies noticed by the AO during random verification by the AO, we are not inclined to sustain the disallowance in its entirety made by the AO. Further, it is also brought on record that for A.Y. 2010-11, the Addl. CIT, Range-2, Hyderabad, minutely checked the freight charges by personal inspection of Hyderabad Branch of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnished without detriment to the business of the assessee. According to the DR the payment is based on "insufficient evidence", and it is based on irrelevant considerations. Allowance or disallowance of a claim under section 37(1) should depend upon existence or otherwise of the four conditions as follows: 1. The expenditure in question should not be of the nature described under the specific provisions of ss. 30 to 36. 2. The expenditure should not be of nature of capital expenditure 3. It should not be a personal expenditure 4. The expenditure have been laid out for expended wholly and exclusively for the purposes business or profession. 6.16 Now, we will examine, whether in this case the assessee has fulfilled the requirement as envisaged by the provisions of the Act. We have carefully gone through the provisions of sections 30 to 36. 6.17 The claim of payment of freight charges by the present assessee is not disqualified for deduction under the Act. Now, coming to next question as to whether the expenditure is capital expenditure or not, we are of the opinion the expenditure is not a capital expenditure since the assessee did not acquire any capital asset. 6.18 As for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in many cases stopped engaging the same lorry and (g) lastly they may not be interested in replying to the income-tax department for their own personal reasons. 6.21 Being so, non-confirmation by them cannot be a reason to find fault with the assessee and to disallow the expenditure incurred by the assessee. 6.22 In CIT v. Sigma Paints Ltd. (1991) 188 ITR 06 (Bom), their Lordships of the Hon'ble Bombay High Court held and observed at pages 7 & 8 of the Reports as under: " ..... Shri Patel, learned counsel for the respondent- assessee, has invited our attention to the fact that the assessee had appeared as an intervener before the Special Bench of the Tribunal when it was considering the appeals relating to French Dyes and Chemicals (I.) (P.) Ltd. He has further invited our attention to paragraphs 24 to 28 of the judgment in that case to show that the assessee had produced various details and the records maintained by the company relating to the secret commission payments. Vouchers for the amounts received by the sales officer or other responsible persons for the payment of secret commission were available. The details of sales transactions entered into with various mill- compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, genuineness of the payments was established by the assessee. 6.25 We may note at the cost of repetition that the decision of the Hon'ble Bombay High Court in CIT vs. Sigma Paints Ltd. (1991) 188 ITR 6 (Born), clearly supports the case of the Assessee Company. In that case there was payment of secret commission. The assessee company, in that case, had produced various details and records maintained by it relating to commission payments. The details of sales transactions entered into with various mill companies, in respect of which secret commission had been paid, were produced before the assessing officer along with payment vouchers. There was a complete reconciliation and tally between the commission paid and the extent of business done by the mill company. The payments were correlated to the transactions which the assessee had with those persons. The only missing link was stated to be the names of the particular parties to whom the payments were made. This, the Tribunal held, could not be supplied without detriment to the business interests of that assessee, considering the very nature of things. 6.26 The initial onus and burden of proof was on the assessee. In the instant c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he above amount the amount paid by crossed account payee cheques is Rs. 76,66,777. Full particulars of the cheque payments were furnished to the AO. These cheque payments were verified by the AO. The remaining sum of Rs. 5,48,520/- was paid in cash and these are all small payments ranging between Rs. 1000 to Rs. 2000. The AO disallowed the entire cash payments. 8.1 The AR submitted that the CIT(A) relied upon the orders of the Tribunal in ITA No. 1214/Hyd/04 & batch, dt. 25/1/2012 for A.Ys. 2000-01 to 2005-06 which also considered the judgement of the A.P. High Court, and directed disallowance of commission at 15%. Being so, out of the disallowance of Rs. 5,48,520 made by the AO the CIT(A) confirmed the disallowance at 15% of cash payments amounting to Rs. 82,278 and ordered relief for the remaining sum of Rs. 4,66,242. The AR contended that the entire amount should have been allowed as a deduction and the disallowance should not have been made of 15% of the cash payments of commission. 8.2 The learned DR relied on the order of the Assessing Officer. 8.3 We have heard both the parties and perused the material on record. Admittedly, this issue came up for consideration before thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pt such cheque payment when the payer is unknown and travelling en-route. It is obvious that the AO has not seen on the reverse of the trip contract voucher which gives the brake up of the en-route expenses. Toll Tax payments are also included in this expenditure and not separately claimed as assumed by the AO. The order of the CIT(A) deals with this issue at pages 32 to 39 of the order. The following expenses falling under fixed en-route are fully supported by external vouchers. Head of expenditure Amount (Rs.) Toll tax payments 4,06,58,417 Payments to Regional Transport Authorities 1,29,71,432 Payments to local vehicle owners' associations 3,23,467 Spares & repair expenses 1,45,489 Total 5,50,98,805 9.2 The AR submitted that on the basis of the findings of the CIT(A) in his order, disallowance is not warranted at all. In fact the CIT(A) should have deleted the entire addition instead of confirming 15% disallowance, as estimated disallowance for a portions of expenses which could be unvouched. In any event the AR contended that the disallowance at 15% is excessive and uncalled for. The inconsistency of disallowance made under this head is as follows: a) Disallowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erroneous impression that the details of expenditure incurred are not available. Since the basic exemption for making a disallowance is erroneous and considering the nature of expenditure that entire expenditure deserves to be deleted. 11. For the above propositions, the learned AR relied on the judgement of the Gujarat High Court in the case of CIT vs. Swaminarayan Vijay Carry Trade (P) Ltd (33 Taxman.com 403). With regard to freight expenses the factual position in this case is identical to the case of the assessee. Like in the above case, even in the case of assessee the Trip Contract Voucher gives full details. The hiring of the trucks is also correlated to the actual trips made. These details are 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. Facts being identical, there cannot be any disallowance for assessment year 2008-09 and 2009-10. The AR submitted that the judgement of Gujarat High court supports the assessee's case that the disallowance of freight ..... X X X X Extracts X X X X X X X X Extracts X X X X
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