TMI Blog2010 (5) TMI 513X X X X Extracts X X X X X X X X Extracts X X X X ..... annot be made applicable by artificially holding that the said payments are debitable to profit and loss a/c. In view of the above, after considering the totality of the facts and circumstances of the case, the disallowance made under section 40A(3) of the Act for the assessment year under consideration cannot be sustained. Hence the addition made on this account is to be deleted. Turnover for the purpose of Sec. 44AB - Income on the basis of TDS certificate - where the receipts consisted on two accounts on account of assessee’s own trucks as well as on account of trucks owned by others but hired by the assessee, the whole of the receipts computed on the basis of TDS certificates could not be attributed as receipt on account of plying of trucks on assessee’s own account and the total receipts computed on the basis of TDS certificates could not be considered as assessee’s own receipts for the purpose of section 44AB of the Income-tax Act. The other issue raised in this appeal is with regard to disallowance of telephone expenses of Rs. 25,840 - this issue was not considered by the CIT(A) in his order - matter remanded back for this issue. - 1019 AND 1020 (HYD.) OF 2007 & 185 (HYD ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cash book, ledger and a few Lorry Receipts ( LRs in short). The Assessing Officer had noticed from the LRs that each payment has made is more than Rs. 20,000 in cash in violation of provisions of section 40A(3) of the Act. It is also noticed by the Assessing Officer that the material discrepancies in the documents furnished and the arguments put forth before his predecessor were also continuing in this assessment year also. Accordingly, the Assessing Officer has disallowed 20 per cent of the total freight amount paid at Rs. 3,40,24,164 which works out to Rs. 68,04,832 and brought the same to tax. Besides, the Assessing Officer has also disallowed 10 per cent of the telephone expenditure working out to Rs. 25,840 towards personal usage. The Assessing Officer held that the assessee failed to furnish any information/details with regard to commission declared except producing cash book, ledger and few LRs. It was observed by the Assessing Officer that the LRs that each payment was made is more than Rs. 20,000 in cash which is against the provision under section 40A(3) of the Act. After taking into account the submissions of the assessee and information available on record, he computed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tained day-to-day records in respect of the above transactions which contained exact details of Lorry Number, freight, source and destination etc. The accounting of the transaction between the assessee-firm and the lorry owners on one hand and on the other hand between the assessee-firm and the manufacturing company are carried out contemporaneously on day-to-day basis. All the details are supported by documents and the same are fully verifiable. Hence, the payments made by the assessee-firm to the lorry owners could not be treated as expenditure and no disallowance under section 40A(3) is attracted since the relationship between the manufacturer and the assessee-firm is that of a principal to an agent. The Addl. CIT under section 144A of the Act directed the Assessing Officer to invoke the provisions of section 40A(3) in respect of the payments made to the lorry owners and disallow 20 per cent of the same. The particulars of payment made to a person specified under section 40A(2)( b ) of the Act were furnished in Form 3CD for all earlier assessment as well as for the present assessment years under consideration. He relied on catena of decisions in respect of the method of accounti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d during the appellate proceedings that the alleged commission slip purportedly used for deduction of commission from the freight charges paid to the drivers is found not to be signed by the lorry drivers. In the absence of signatures of the lorry drivers on the commission slip is a vital lapse to prove the fallacy of the entire claim and existence of principal agent relationship. Hence, the lower authorities are right in invoking the provisions of section 40A(3) for disallowance payments to lorry owners at 20 per cent. 7. We have considered the submissions of the rival parties and perused the material available on record. We find that the assessee-firm consistently following the method of accounting for more than two decades. The assessee-firm accounted the fixed percentage of commission out of the freight income earned by the vehicle owners indicates that neither the freight payments made to the lorry drivers nor the reimbursement of the freight charges from the customers constitutes any business expenses or turnover in the assessee s books of account. It appears that the assessee-firm did not carry on any kind of business of transport operator but its business is primarily o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceived from the consignors and paid to the vehicle owners from its profit and loss account, the only other issue that remains to be adjudicated upon is whether the amount mentioned in the TDS certificates, the deduction of TDS by consignor from the gross freight charges paid to the assessee-firm, would become assessee s gross business receipts or not. Similar issue has been considered by this Tribunal in the case of Paras Transport Co. v. ITO [2006] 151 Taxman 7 (Agra) (Mag.). In that case, it was held that where the receipts consisted on two accounts on account of assessee s own trucks as well as on account of trucks owned by others but hired by the assessee, the whole of the receipts computed on the basis of TDS certificates could not be attributed as receipt on account of plying of trucks on assessee s own account and the total receipts computed on the basis of TDS certificates could not be considered as assessee s own receipts for the purpose of section 44AB of the Income-tax Act. The ratio laid down in this case supports the contentions of the assessee. Whereas no case relied on by the learned Departmental Representative is directly applicable to the facts of the case. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The deduction of tax at source by the consi-gnors from the freight charges paid to the assessee-firm by it cannot lead to the conclusion that the freight charges constituted the assessee-firm s gross business receipts or trading turnover. Similarly, the routing of freight charges paid by the consignors and payments made by the assessee-firm to the vehicle owners through its bank account would not constitute the receipts and expenses as part of any trading transaction of the assessee-firm. The payments made to the vehicle owners therefore would not constitute assessee s business expenditure for the purpose of computation of profit and gains of any business carried on by the assessee-firm in accordance with the provision of Income-tax Act. The CIT(A) is wrong in observing that the Assessing Officer found that the statutory audit report is not disclosing the full facts specially on section 40A(2)( b ) and section 40A(3) whereas the learned counsel for the assessee clearly demonstrated before us that the audit report under section 44AB, the auditor disclosed the details with regard to section 40A(2)( b ) of the Act. It is pertinent to note that fixing of rate between the beedi manufac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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