In Late Shri Shankarbhai Udhavdas Jetwani v. ITO, the Ahmedabad bench of the ITAT ruled that assessment based on mere assumption is illegal.
The division bench made it clear that the assessee should not be burdened with tax liability merely on assumption basis.
The factual settings of the case are that the assesee, while filing returns, claimed transportation expenses of Rs.1,53,27,061/-. The AO observed that the assessee was working as a middleman for arranging transportation to certain concerns and has earned net supervision charge of Rs.12,30,184/- which was offered as income. The AO found that the assessee has received transportation charges from the persons for whom he has ultimately transported the goods. The assessee has paid transportation charges to the truck owners for transporting goods. Thus, in the opinion of the AO, the assessee ought to have deducted TDS under section 194C of the Income Tax Act on the transportation charges paid by him.however, the AO could not verify whether transportation charges were required to be paid after deduction of TDS or not since the books were not produced before him. He concluded that some of the payments must have been subjected to TDS and therefore, 20% of the total transportation expenses were disallowed.
On appeal, the assessee contended that the transportation expenditure was not the expenditure of the assessee and he pays transportation charges to the transporters on behalf of his clients, which is a facility provided by the assessee to his client. It was contended that for such charges, the assessee gets supervision charges and the assessee has shown net amount of Rs.12,30,184/- as net supervisions charges.
Allowing the appeal, the bench observed that the Revenue authorities have assumed existence of a contractor-ship between transporters and the assessee. “They assumed that the assessee has taken contract from factory owners for supply of lignite and coal, and it has carried out this activity with the help of truck owners. Therefore, there is subcontractor- ship between him and the truck owners, he was required to deduct TDS on the payment made to truck owners. In our opinion, there is no evidence with the AO for harping on such a belief. The AO has not collected evidence of transportation. He has not examined ultimate suppliers of lignite and coal. Nor he has examined truck operators. When the assessee has been alleging that he was only extending facility to his client for delivery of lignite and coal, he has not acted as an agent between client and truck owners. Therefore, in our opinion, merely on assumption basis, the assessee should not be burdened with tax liability.”
Read the full text of the order below.