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2015 (6) TMI 388 - ITAT HYDERABAD

2015 (6) TMI 388 - ITAT HYDERABAD - TMI - Disallowance of freight expenditure - Held that:- Income of assessee has not been estimated by rejecting the books of account, rather a particular item of expenditure claimed by assessee was found to be not allowable due to lack of supporting evidence and also for violation of provisions contained u/s 194C read with section 40A(3) and 40(a)(ia) of the Act. In these circumstances, assessee’s contention that once books of account are rejected, net income h .....

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reight charges is believable. However, since the expenditure is not supported by bills and vouchers and since possibility of inflating the expenditure cannot be totally ruled out, it will be reasonable to allow 80% of the freight expenditure in respect of which assessee could not produce any evidence, subject to condition that such expenditure is not hit by section 40(a)(ia) and 40A(3) of the Act. As far as balance freight expenditure of ₹ 52,86,145 is concerned, though, it is supported by .....

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sessee before the Departmental authorities. However, keeping in view the principle laid down by the ITAT Special Bench in case of Merlyn Shipping Transport and others (2012 (4) TMI 290 - ITAT VISAKHAPATNAM ), we direct Assessing Officer to verify this aspect and if it is found that the entire payment was made during the relevant PY and nothing remained payable at the end of PY, no disallowance u/s 40(a)(ia) can be made. As far as violation of section 40A(3) is concerned, we remit this issue back .....

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ld. CIT(A)-V, Hyderabad for AY 2008-09. 2. Though assessee has raised six grounds, the only issue arising for consideration is confined to disallowance of an amount of ₹ 87,89,666 out of the freight expenditure claimed of ₹ 1,06,45,936. 3. Briefly the facts are, assessee is a company engaged in the business of transportation of goods. For the AY under consideration, assessee filed its return of income on 30/09/2008 declaring total income of ₹ 12,610. As mentioned by AO in asse .....

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AO and the AO also handed over copies of the notices issued u/s 142(1). The directors submitted before AO that books of account are maintained and they will be submitted before AO and requested for fixing another date for that purpose. At their request the date of hearing was fixed on 14/12/2010, but, on the date of hearing no one appeared on behalf of assessee. It is also stated by AO, in spite of reminders issued by AO none appeared on behalf of assessee till 22/12/2010. Assessment being a ti .....

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isallowed the entire freight expenditure claimed at ₹ 1,06,45,936 and added back to the income returned. As a result, total income was determined at ₹ 1,06,58,548. Being aggrieved of the addition made, assessee preferred appeal before ld. CIT(A). 4. In course of hearing before ld. CIT(A), assessee while challenging the disallowance of freight expenditure submitted cash book and ledger in support of the expenditure claimed. On the basis of the submissions made and evidences filed, ld. .....

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ded amounts paid/credited exceeding ₹ 20,000 which attract the provisions of section 194C. However, she stated that assessee s explanation that there is no element of contract for such payments is acceptable. AO also observed that assessee has made cash payments above the prescribed limit which attracts the provisions of section 40A(3). In addition to the remand report submitted by AO, Addl. CIT of the range submitted a separate report commenting that out of the total freight expenditure c .....

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isions of section 40A(3) of the Act. Thus, addl. CIT observed that the expenditure to the extent of ₹ 18,56,270 could be allowed to assessee. On the basis of the remand report of Addl. CIT, ld. CIT(A) allowed expenditure of ₹ 18,56,270 while disallowing the balance amount of ₹ 87,89,666. The finding of the ld. CIT(A) are extracted hereunder for the sake of convenience: 5. I have carefully considered the submissions of the appellant, remand reports of the AO and the comments of .....

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ove ₹ 20,000 were made in a single transaction and though the AO stated that the appellant s explanation was acceptable, the Addl. CIT stated that even for a single hire transaction of a truck, TDS had to be deducted u/s 194 and issues like rate, period or quantity are immaterial in a single transaction truck hiring of payment above ₹ 20,000. The Addl. CIT further stated that for an amount of ₹ 14,92,500, payments were made above ₹ 20,000 in cash in violation of section 4 .....

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29,875 is sustained for failure to deduct TDS u/s 194C and for violation of section 40A(3) of the Act. Finally, out of total freight expenditure of ₹ 1,05,45,936, the appellant is entitled for freight expenditure of only ₹ 18,56,270 and the balance amount of ₹ 87,89,666 is confirmed. 5. Ld. AR submitted before us, before AO assessee did not produce any books of account, but, only before ld. CIT(A) cash book and ledger were produced. Ld. AR submitted, when the books of accounts .....

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rejected, hence, no separate disallowance u/s 40(a)(ia) and 40A(3) could be made apart from estimating the income of assessee. In this context, he relied upon a decision of ITAT, Hyderabad Bench in case of M/s Hycons Infrastructure (India) Ltd. vs. DCIT, ITA No. 1787/Hyd/2011, dated 23/10/2011. As far as the disallowance u/s 40(a)(ia) is concerned, ld. AR submitted, since the entire expenditure was paid during the relevant PY and nothing remained payable, no disallowance could be made u/s 40(a) .....

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d, submitted, assessee s books of account were never rejected but the expenditure incurred by assessee on account of freight was disallowed due to lack of supporting evidence as well as violation of section 40(a)(ia) and 40A(3) of the Act, hence, assessee s contention that no separate disallowance can be made u/s 40(a)(ia) and 40A(3) once books of account are rejected, is not acceptable. 7. We have considered the submissions of the parties and perused the materials on record as well as the order .....

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ecord. While verifying the material on record, Assessing Officer noticed that assessee has claimed freight expenditure of ₹ 1,06,45,936, which constituted the major expenditure claimed by assessee. Therefore, in absence of any supporting evidence to prove the expenditure claimed and also due to the fact that TDS provisions are applicable on such expenditure, Assessing Officer disallowed the same while accepting profit declared by assessee. Thus, it is clear from the assessment order, Asses .....

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of ₹ 56,86,145, payments of ₹ 34,29,875 have been made in violation of section 40A(3) and 40(a)(ia) of the Act. Accordingly, expenditure to the extent of ₹ 18,56,270 was found allowable to assessee. From the aforesaid facts, it is apparent and obvious that income of assessee has not been estimated by rejecting the books of account, rather a particular item of expenditure claimed by assessee was found to be not allowable due to lack of supporting evidence and also for violation .....

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that assessee in course of proceeding before the departmental authorities could produce evidence for an amount of ₹ 52,86,145 and as far as the balance amount is concerned, admittedly assessee could not furnish any evidence. It was explained by assessee due to discontinuance of business and dispute between the directors, bills and vouchers for the balance amount could not be produced. The department, however, straightaway disallowed freight expenditure for which no supporting bills and vou .....

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