Ad hoc addition for freight costs is restricted by ITAT to 5%
Facts and Issue of the Case
The assessee is an individual stated to be engaged in the business of wholesale trading in sugar and grains. The assessee filed its return of income for AY 2014-15 on 29.11.2014 declaring a total income of Rs.6,18,270/-. The case was selected for scrutiny and thereafter assessment was framed u/s 143(3) of the Income Tax Act, 1961 (in short “Act”) on 14.12.2016 and the total income was determined at Rs. 10,95,470/-. Aggrieved by the order of Assessing Officer, the assesse carried the matter before the CIT(A) who vide order dated 26.06.2018 granted partial relief to the assessee. Aggrieved by the order of CIT(A), assessee is in appeal before us and has raised following ground:-
“On the facts and in the circumstances of the case, and in law the Lower Authorities erred in confirming a sum of Rs.2,38,599/- being 10% of freight expenses of Rs.23,85,992/- disregarding the appellant’s contention and without bringing on record any evidence for the disallowance in this regard.”
During the course of assessment proceedings, the assessee was asked to produce supporting such as bills/vouchers/receipt of expense of Rs.23,85,992/- claimed under the head “freight”. The assessee filed copies of vouchers of sample basis. On perusing the vouchers, it was noted by the Assessing Officer that the vouchers were self made vouchers and the payments were in cash and it did not bear the name of payee or the vehicle No. in which goods were transported. He accordingly disallowed 20% of such expenses amounting to Rs.4,77,200/-. Aggrieved by the order of AO, assessee carried the matter before CIT(A) who granted partial relief to the assessee by restricting the disallowance to 10% as against 20% made by the Assessing Officer. Aggrieved by the order of CIT(A), assessee is in appeal before us.
Before us, Ld.AR reiterated the submissions made before the Assessing Officer & CIT(A) and submitted that the payments were made to drivers and transporters. It was further submitted that the books of the assessee are audited and no discrepancies have been pointed out by the auditor. He therefore submitted that no disallowance on adhoc basis is called for. However, in the alternate, he submitted that disallowance if made at 5% would be acceptable to the assessee. Ld.DR on the other hand, supported the order of Assessing Officer.
Observation by the Court
The court have heard rival submissions and perused the material available on record. The issue in the present case is with respect to disallowance of freight for expenses. The Assessing Officer had disallowed the expenses at 20% on adhoc basis which was restricted to 10% by CIT(A). Before us, it is assessee’s submissions that if the addition is restricted to 5% freight expenses, it would be acceptable to the assessee. Considering the totality of the facts and in view of the alternate submission of the Ld.AR, the court direct that the disallowance be restricted to 5% of freight expenses. The court thus, direct accordingly.
The appeal of the assesse is partly allowed by the court.Latish-Chandar-Samnani-Vs-ITO-ITAT-Pune