TaxTMI 
TaxTMI 
2026 (7) TMI 1477
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....tion business. The assessee transport chassis from the manufacturer premises to various dealers across the country. For the year under consideration, the assessee from the transportation service has shown gross receipt of Rs. 22,34,78,203.87/-. Against the impugned receipt the assessee had claimed major expenses under the heads commission expenses of Rs. 67,80,400/-, enroute expenses of Rs. 5,90,66,202/-, sundry expenses of Rs. 16,49,946/-, travelling expenses of Rs. 2,21,07,891/- and transportation charges of Rs. 12,79,96,307/- only. The expenses being enroute expenses, sundry expenses, travelling expenses and transportation charges were claimed to be incurred through the agents namely M/s Unique Trans and Shri Paramjit Singh Sandhu, and later reimbursed by the assessee to them. The assessee furnished ledger accounts and copies of certain bills raised by the agents. However, according to the AO, no proper original bills and vouchers were maintained or produced in support of the expenses claimed. Therefore, the AO proposed to disallow the enroute expenses, sundry expenses, travelling expenses and transportation charges aggregating to Rs. 21,08,20,847/- in the absence of proper supp....
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....mentary evidence. 4.5 The AO further held that merely making payments through banking channels to agents does not establish the genuineness of the final expenditure incurred by them. According to the AO, the agents were only representatives of the assessee and therefore the assessee was duty bound to maintain complete records and vouchers for all expenses claimed in the profit and loss account. 4.6 The AO finally concluded that since proper verification of the expenses was not possible due to non-maintenance of complete bills and vouchers, it could not be accepted that the entire expenditure was incurred wholly and exclusively for business purposes. Therefore, invoking section 145(3) of the Act, the AO disallowed 10% of the total expenses amounting to Rs. 21,08,20,346/- and made an addition of Rs. 2,10,82,034/- under section 37 of the Act. 5. The aggrieved assessee preferred an appeal before the learned CIT(A). Before the learned CIT(A), the assessee submitted that it is engaged in the business of transportation of chassis from manufacturers to dealers situated across the country. Considering the nature and spread of the business operations, it is commercially expedient an....
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....tion industry functions. 6.2 The learned AO has also not disputed the factum of payment, nor has he brought any evidence on record to show that the payments made to the agents have come back to the assessee or were utilized for non-business purposes. In absence of any such adverse material, the expenditure cannot be disallowed merely on suspicion. The AO has accepted that payments were made through account payee banking channels and even the agents have confirmed the transactions. Therefore, without disproving the underlying business purpose or pointing out any specific defect in the supporting documents, the ad hoc disallowance made by the AO is unsustainable in law. 6.3 The assessee further submitted that the AO cannot sit in the armchair of the businessman and decide how much expenditure should have been incurred for business purposes. Once there exists a nexus between the expenditure and business operations, the same is allowable u/s. 37(1) of the Act. Reliance in this regard is placed on the decision of the Hon'ble Supreme Court in the case of S.A. Builders Ltd. v. CIT (A) & Anr reported in 288 ITR 1 and the decision of the Hon'ble Delhi High Court in CIT v. Dalmia Cemen....
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....e decision in R.G. Buildwell Engineers Ltd. is misplaced and distinguishable on facts for the following reasons: • The assessee in that case was engaged in civil construction and had claimed routine site expenses, whereas the present appellant is engaged in transportation services with substantial, route-wise expenses routed through agents by way of high-volume reimbursements. • The expenses in R.G. Buildwell, such as bricks, labour and machinery repairs, had, inter alia, a history of being consistently allowed in past scrutiny assessments, whereas in the appellant's case no such consistent past acceptance of the present pattern of agent level reimbursement expenses has been demonstrated. Here, the major expenses are first incurred by agents and then reimbursed in consolidated amounts, and it has emerged from the record that the agents did not maintain, or at least did not produce, reliable and verifiable primary documents in support of a large portion of these claims, thereby materially weakening the evidentiary value of the reimbursement bills. • Further, while the Supreme Court upheld deletion of ad hoc disallowance in R.G. Buildwell on the....
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....NP ratio declared during the year under consideration at 1.64% was higher than the average NP ratio of 1.51% for all these years. Therefore, according to him, there was no basis for making arbitrary disallowance at 10% or sustaining the same at 8% without any comparable case or supporting material. He further submitted that the Revenue authorities cannot sit in the armchair of the businessman and decide how business operations should be carried out. 9. The learned DR, on the other hand, strongly relied upon the orders of the AO and the learned CIT(A). He submitted that the assessee failed to produce complete original bills and vouchers in support of huge expenditure claimed under enroute expenses, travelling expenses, sundry expenses and transportation charges. According to the learned DR, the reimbursement claims were mainly supported by summary sheets prepared by the agents and not by proper third-party evidences. He submitted that mere payment through banking channels does not automatically establish genuineness of expenditure u/s. 37 of the Act. The learned DR further argued that the assessee was duty bound to maintain proper supporting records for all expenses claimed in th....
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....red opinion, the explanation furnished by the assessee is commercially plausible and consistent with the manner in which transportation business is ordinarily carried on. 10.3 More importantly, we find that neither the AO nor the learned CIT(A) has brought any material on record to demonstrate that the reimbursement made to the agents had returned back to the assessee in cash or in any other form. There is no allegation of inflation of expenditure through accommodation entries, fictitious entities or circular movement of funds. The Revenue has also not doubted the identity of the agents or the genuineness of banking transactions. In absence of any evidence showing that the impugned expenditure was bogus or that the funds were siphoned back to the assessee, mere non-availability of complete vouchers for every petty expense cannot by itself justify substantial ad hoc disallowance. Suspicion, however strong, cannot take the place of evidence. 10.4 We also note that the AO has not brought any comparable material on record to establish that the assessee had declared abnormally low gross profit or net profit as compared to similarly placed concerns engaged in transportation busines....