2 Expenditure related to goods carriage taken on hire is allowed even if receipts taxed u/s 44AE

Case Law Details

Case Name : Shakir Ahmad Vs ITO (ITAT Delhi)
Appeal Number : ITA No. 1715/Del/2015
Date of Judgement/Order : 12/10/2022
Related Assessment Year : 2008-09

Shakir Ahmad Vs ITO (ITAT Delhi)

ITAT Delhi held that expenditure related to the goods carriages taken on hire from the open market for carrying out the transportation activities is available to the assessee even if the receipts are subjected to taxation under provisions of section 44AE of the Income Tax Act.

Facts- After considering the submissions, CIT(A) sustained the additions in respect of disallowance of expenses on account of truck maintenance charges of Rs. 1,59,580/-, driver and conductors salary of Rs. 18,750/-, labour charges of Rs.30,650/-, truck hire charges of Rs.73,410/-, labour charges of Rs.2,41,570/- in respect of loading and unloading of goods. Aggrieved against the order of Ld. CIT(A), the assessee is in appeal before this Tribunal.

Conclusion- However, in the present case, the assessee has taken certain goods carriages on hire which is not owned by the assessee and the assessee claimed certain expenses related to such carriages which is disallowed by the lower authorities. Ld. CIT(A) has not appreciated this aspect. Therefore, the AO is directed to give deduction of expenditure which related to the goods carriages which were not owned by the assessee but taken on hire from the open market for carrying out the transportation activities.

FULL TEXT OF THE ORDER OF ITAT DELHI

The present appeal filed by the assessee for the assessment year 2008- 09 is directed against the order of Ld. CIT(A), Meerut dated 10.02.2015. The assessee has raised following grounds of appeal:-

1. “That on facts and in the circumstances of the case, the expenditure on Truck maintenance for the period 1.5.2007 to 15.11.2007 being fully vouched and verifiable constituted admissible deduction. The disallowance of Rs. 159580/- made by Assessing Officer and sustained by the Ld. CIT (Appeals) being illegal, erroneous and untenable on facts and in law deserves to be deleted.

2. That the salary paid to the Driver and Conductor for the period 1.11 2007 to 15.11.2007 constituted admissible deduction. There was no legal warrant to make any disallowance. The disallowance of Rs. 18750/- made by Assessing Officer and sustained by the Ld. CIT (Appeals) being illegal, erroneous and untenable on facts and in law deserves to be deleted.

3. That the labour charges for the period 1.5.2007 to 15.11.2007 constituted admissible deduction. There was no legal warrant to make any disallowance. The impugned disallowance of Rs.30650/- made by Assessing Officer and sustained by the Ld. CIT (Appeals) being illegal, erroneous and untenable on facts and in law deserves to be deleted.

4. That on facts and in the circumstances, there was no legal warrant to make any addition out of Truck Hire charges. The impugned addition of Rs 73,410/- made by Assessing Officer and sustained by the Ld. CIT( Appeals) being illegal, erroneous and untenable on facts and in law deserves to be deleted.

5. That on facts and in the circumstances, there was no legal warrant to make any addition out of Labour charges. The impugned addition of Rs 241570/- made by the Assessing Officer and sustained by the Ld. CIT (Appeals) being illegal, erroneous and untenable on facts and in law, deserves to be deleted.

6. That on facts and in law interest u/s 234A, 234B, 234D and 244(A)(3)& 220(2) of I.T. Act was not leviable. Levy of interest under the said provisions deserves to be quashed and cancelled being void, without jurisdiction and untenable on facts and in law.

Ground Nos.2, 3, 4 & 5

3. This is second round of litigation. In earlier round, the matter travelled to the stage of the Hon’ble Allahabad High Court vide order dated 29.10.2014 and restored the grounds of appeal to Ld. CIT(A). Ld. CIT(A) after considering the submissions, sustained the additions in respect of disallowance of expenses on account of truck maintenance charges of Rs. 1,59,580/-, driver and conductors salary of Rs. 18,750/-, labour charges of Rs.30,650/-, truck hire charges of Rs.73,410/-, labour charges of Rs.2,41,570/- in respect of loading and unloading of goods.

4. Aggrieved against the order of Ld. CIT(A), the assessee is in appeal before this Tribunal.

5. Ld. Counsel for the assessee, Shri P. C. Yadav, reiterated the submissions as made vide synopsis dated 20.08.20 18. For the sake of clarity, the submissions of the assessee are reproduced as under:-

Ground No. before CIT (A) Particulars/Disallow exps by CIT (Appeals) Amount Para No. of the CIT(A) Order Finding in Para of Order
2 Truck Maintenance (Refer page no. 5 to 12 of paper book filed dated 5.12.15) AO’s observation in its Remand Report (Refer page no. 39 of paper book filed dated 15.12.15) 159580.00 5.5 (Refer page no. 49 of paper book filed dated 15.12.15) I have considered the facts of the case and submissions of the AR carefully. The AO in his remand report has accepted the facts that details with supporting bills and vouchers were filed by the AR during the course of assessment proceedings and were on record of file. He further submitted that addition to the extent of Rs. 50000/- may be deleted. However, The AO has not given any satisfactory comments for disallowance of Rs. 109580/-whereas AR has submitted details and explained the reasonableness of the expenditure. Thus, the addition made amounting to Rs. 159580/- stands deleted. In its remand report AO also contended that addition of Rs. 50000/- may be deleted.
3 Driver & Conductor Salary (Salary paid is for full month of November and the work was done in part of the month) (Refer page no. 13 of paper book – Ledger account filed dated 15.12.15) 18750.00 6.5 (Refer page no. 51 of paper book filed dated (15.12.15) I have gone through the facts of the case and as per submissions based on record it is noticed that in month of November on 32 trips were done by the assessee, thus I delete the addition of Rs. 18750/- made by the AO.
4 & 6 Labour Charges (Refer page no. 14 & 15 of paper book filed dated 15.12.15) – Ledger account 30650.00 & 241570.00 7.5 (Refer page no. 53 of paper book filed dated 15.12.15) I have considered the facts of the case, submissions of the AR, AO’s remand report and AR’s rejoinder carefully. The facts of the case show that the assessee had rendered contractual work in month of May. There was a contract and labour charges were to be rendered by the assessee is also correct. Labour charges
Para 7.2 is read as under:

Facts: – Labour charges is to be paid by the assessee as apparent in the clause of contract. The assessee has to provide driver and cleaner for the truck and further had to pay labour charges which is Rs. 1 per quintal as wages has been paid by assessee on sugarcane purchase center, for loading charges. The mill installed machine only for loading but labour charges is paid by the assessee, it is necessary for setting the sugarcane on truck.

The AO has disputed the expenditure without sufficient reasoning and presumed that labour charges is paid by mill. The facts have been given above and also been explained.

Thus labour charges paid amounting to Rs. 241570/- is business expenditure and need to be allowed in totality. The AO has made double addition thus, both the addition amounting to Rs. 30650/-and Rs. 241570/- may be deleted.

7.2

(Refer page no. 51 & 52 of paper book filed dated 15.12.15)

paid are business expenditure and has been incurred by assessee as per details furnished. Thus both the addition made by the AO amounting to Rs. 30650/- and 241570/-are deleted.
5 Truck Hire Charges (Refer page no. 16 to 25 of paper book filed dated 15.12.15) 73410.00 8.5 (Refer page no. 54 of paper book filed dated I have considered the facts carefully. The facts of the case show that the assessee had rendered contractual works in the month of May. The payment of truck hire charges amounting to Rs. 146821/- seems to be correctly accounted for and
Ledger Account Para 8.2 Page No.53 Facts:-The AO presuming that no work was done in May disallowed 50% of payment made in May amounting to Rs.146821/- and disallowed Rs. 73410/- which was wrong and was against the facts of the case. Hence, it is prayed that such disallowance may be deleted. 15.12.15) 8.2 (Refer Page No.53 of Paper Book filed dated 15.12.15) Disallowance of 50% by the AO amounting to Rs.73410/- is not correct on the facts of the case. Thus, addition is deleted.

6. On the other hand, Ld. Sr. DR opposed the submissions and submitted that the claim of the assessee is not tenable under the law and Ld.CIT(A) has rightly rejected the same. He submitted that the assessee cannot compute it as per section 44AE of the Income Tax Act, 1961 [“the Act”] for the part of the year and the remaining part under normal provisions thereby, claiming deduction of business expenditure against the business receipts.

7. In rejoinder, Ld. Counsel for the assessee submitted that section 44AE of the Act operates in different fields and during the part of the year if the receipts fall outside the purview of section 44AE of the Act. In that event, there would not be embargo under law for offering such receipts under the normal provisions of law. He submitted that Ld. CIT(A) has therefore, committed an error for not allowing deduction of expenditure to the assessee.

8. I have heard Ld. Authorized representatives of the parties and perused the material available on record and gone through the orders of the authorities below. I find that Ld. CIT(A) sustained the additions by observing as under:-

5.3 “I have gone through the assessment order, orders of my ld. Predecessor, order dated 23.09.2013 of the ITAT Delhi and order of the Hon’ble Allahabad High Court dated 29.10.2014. I have also gone through remand reports submitted by the AO. I have also carefully perused the various written submissions made by the AR. From the facts of the case, it is seen that the assessee had computed its income for the part period between 01.05.2007 to 15.11.2007 under the provision of section 44AE. In this situation, no expenditure would be allowable in the computation of income for the part period because as per the provision of section 44AE, the income is on presumptive basis and already accounts for any expenditure incurred for earning the income. Based on above discussion, grounds of appeal No.2,3,4,5&6 are dismissed and additions of Rs. 1,59,580/-, Rs. 18,750/-, Rs. 30,650/-, Rs. 73,410/- & Rs. 2,41,570/- are confirmed.”

9. From the above finding, it is clear that Ld. CIT(A) was of the view that the assessee cannot compute the provision u/s 44AE of the Act for part of the year only. For the sake of clarity, section 44AE of the Act is reproduced as under:-

44AE. (1) “Notwithstanding anything to the contrary contained in sections 28 to 43C, in the case of an assessee, who owns not more than ten goods carriages at any time during the previous year] and who is engaged in the business of plying, hiring or leasing such goods carriages, the income of such business chargeable to tax under the head “Profits and gains of business or profession” shall be deemed to be the aggregate of the profits and gains, from all the goods carriages owned by him in the previous year, computed in accordance with the provisions of sub-section (2).

(2) For the purposes of sub-section (1), the profits and gains from each goods carriage,—

(i) being a heavy goods vehicle, shall be an amount equal to one thousand rupees per ton of gross vehicle weight or unladen weight, as the case may be, for every month or part of a month during which the heavy goods vehicle is owned by the assessee in the previous year or an amount claimed to have been actually earned from such vehicle, whichever is higher;

(ii) other than heavy goods vehicle, shall be an amount equal to seven thousand five hundred rupees for every month or part of a month during which the goods carriage is owned by the assessee in the previous year or an amount claimed to have been actually earned from such goods carriage, whichever is higher.

(3) Any deduction allowable under the provisions of sections 30 to 38 shall, for the purposes of sub-section (1), be deemed to have been already given full effect to and no further deduction under those sections shall be allowed :

Provided that where the assessee is a firm, the salary and interest paid to its partners shall be deducted from the income computed under sub­section (1) subject to the conditions and limits specified in clause (b) of section 40.

(4) The written down value of any asset used for the purpose of the business referred to in sub-section (1) shall be deemed to have been calculated as if the assessee had claimed and had been actually allowed the deduction in respect of the depreciation for each of the relevant assessment years.

(5) The provisions of sections 44AA and 44AB shall not apply in so far as they relate to the business referred to in sub-section (1) and in computing the monetary limits under those sections, the gross receipts or, as the case may be, the income from the said business shall be excluded.

(6) Nothing contained in the foregoing provisions of this section shall apply, where the assessee claims and produces evidence to prove that the profits and gains from the aforesaid business during the previous year relevant to the assessment year commencing on the 1st day of April, 1997 or any earlier assessment year, are lower than the profits and gains specified in sub-sections (1) and (2), and thereupon the Assessing Officer shall proceed to make an assessment of the total income or loss of the assessee and determine the sum payable by the assessee on the basis of assessment made under sub-section (3) of section 143.

(7) Notwithstanding anything contained in the foregoing provisions of this section, an assessee may claim lower profits and gains than the profits and gains specified in sub-sections (1) and (2), if he keeps and maintains such books of account and other documents as required under sub-section (2) of section 44AA and gets his accounts audited and furnishes a report of such audit as required under section 44AB.

Explanation.—For the purposes of this section,—

(a) the expressions “goods carriage”, “gross vehicle weight” and “un laden weight” shall have the respective meanings assigned to them in section 2 of the Motor Vehicles Act, 1988 (59 of 1988);

(aa) the expression “heavy goods vehicle” means any goods carriage, the gross vehicle weight of which exceeds 12000 kilograms;

(b) an assessee, who is in possession of a goods carriage, whether taken on hire purchase or on installments and for which the whole or part of the amount payable is still due, shall be deemed to be the owner of such goods carriage.”

10. The above provision of law in my considered view would be applicable in the following conditions:-

(a) The assessee who owns not more than ten carriages at any time during the previous year, and

(b) He is engaged in the business of plying, hiring or leasing of such goods carriages.

11. In the case in hand that there is no dispute that the assessee fulfilled the aforesaid conditions, he owned not more than ten carriages at any time during the previous year and he was also engaged in the business of plying, hiring or leasing of such goods carriages. Therefore, the receipts related to such goods carriages which owned by the assessee, would be subjected to provisions of section 44AE of the Act. However, in the present case, the assessee has taken certain goods carriages on hire which is not owned by the assessee and the assessee claimed certain expenses related to such carriages which is disallowed by the lower authorities. Ld. CIT(A) has not appreciated this aspect. Therefore, the AO is directed to give deduction of expenditure which related to the goods carriages which were not owned by the assessee but taken on hire from the open market for carrying out the transportation activities. Hence, Ground Nos. 2, 3, 4 & 5 raised by the assessee in this appeal are allowed in terms indicated herein above.

12. Ground No.1 raised by the assessee is general in nature and Ground 6 is against the levy of interest being consequential in nature, do not need separate adjudication. Hence, Ground Nos. 1 & 6 raised by the assessee are dismissed.

13. In the result, the appeal of the assessee is partly allowed.

Order pronounced in the open Court on 12th October, 2022.

Download Judgment/Order

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