THE COMMISSIONER OF INCOME-TAX Vs. RAJMAHAL SILKS

JUDGEMENT

(1.) This appeal under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as the Act for short) has been preferred by the revenue. The subject matter of the appeal pertains to the Assessment year 2005-06. The appeal was admitted by a bench of this Court vide order dated 26.09.2011 on the following substantial questions of law:

(2.) Facts giving rise to filing of this appeal in nutshell are that the assessee is a partnership firm carrying on the business of export of silk waste and sale of iron ore fines. A search was conducted under Section 132 of the Act on 14.12.2005 in the office as well as the residential premises of M/s Rajmahal Silks Group and its partners respectively. The assessing officer issued a notice under Section 153A of the Act. The assessee filed the return of income on 21.07.2006 in response to the notice under Section 153A of the Act for the Assessment Year 2005-06 declaring a total income of Rs.99,15,140/-. The Assessing Officer thereafter issued a notice under Section 143(2) of the Act on 13.07.2007. In response to the aforesaid notice, the assessee produced book of accounts and other necessary documents. The assessing officer determined the total income of the assessee as Rs.2,55,15,140/- by disallowing the business expenditure under Section 37(1) of the Act and passed an order under Section 153A read with Section 143(3) of the Act on 31.12.2007.

(3.) The assessee filed an appeal before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) by an order dated 30.03.2010 held that transportation expenses to the extent of Rs.1,58,01,494/- was not genuine and therefore, the same was not incurred for the purpose of business carried on by the assessee. It was further held that transportation expenses to the extent of Rs.1,47,52,025/- and Rs.35,31,185/- paid to M/s M.M.Transport and S.Abdul Munaf were contrary to Section 40(a)(ia) of the Act. It was further held that payments were made in cash above the prescribed limit and therefore, there was violation of Section 40A(3) of the Act. Thus, total enhancement to the income on account of transportation expenses was made to the tune of Rs.2,15,84,704/- and the appeal was dismissed. The assessee thereupon approached the Income Tax Appellate Tribunal (hereinafter referred to as 'the Tribunal', for short). The Tribunal by impugned order dated 21.10.2010 confirmed the addition of Rs.31 Lakhs made in respect of payment to M/s IBL Enterprises. However, remaining additions made by the Assessing Authority as well as Commissioner of Income Tax (Appeals) were deleted and the appeal preferred by the assessee was partly allowed. In the aforesaid factual background, the revenue has filed this appeal.