ITAT Upholds CIT(A)’s Order; Presumptive Taxation u/s 44AE and 44AD Allowed for Transport Business

ITAT Upholds CIT(A)’s Order; Presumptive Taxation u/s 44AE and 44AD Allowed for Transport Business

Issue

Whether the assessee, engaged in the business of providing transport services, is entitled to declare income under the presumptive taxation schemes of Section 44AE (for plying goods carriages) and Section 44AD (for other business) simultaneously, especially when receipts are primarily from a related party (ABC Transport Company Pvt. Ltd.), and whether such an arrangement constitutes impermissible tax evasion.

Facts

• Assessee: An HUF engaged in the transport business.

• Return: For AY 2016-17, the assessee declared income under Section 44AE (owning 10 or fewer trucks) and Section 44AD.

• The Transaction: The assessee received Rs. 3.38 Crores from a related party, ABC Transport Company Pvt. Ltd., and Rs. 35.42 Lakhs from non-related parties.

• AO’s Addition:

  • The AO alleged that the entire arrangement with ABC Transport was a “colorable device” to divert profits and evade taxes, as ABC Transport claimed the expense (saving 30% tax) while the assessee offered only presumptive income (approx. 2.41% of receipts).

  • The AO treated 50% of the receipts from ABC Transport as unexplained income (Rs. 1.69 Crores) and taxed the remaining 50% at 8% (Rs. 5.38 Lakhs addition), disregarding the Section 44AE claim.

• CIT(A)’s Decision: The CIT(A) deleted the additions, holding that:

  • The assessee owned 10 trucks and provided evidence of running the business (fuel, insurance expenses).

  • Tax planning to reduce liability is legitimate (A. Raman & Co., Vodafone).

  • A similar arrangement was accepted in the case of a related party (Chhabra Carriers).

  • The Transfer Pricing Officer (TPO) had not drawn any adverse inference in the case of ABC Transport regarding these related party transactions.

Decision

• The Income Tax Appellate Tribunal (ITAT) dismissed the Revenue’s appeal.

• No Interference: The Tribunal found no reason to interfere with the detailed and reasoned order of the Ld. CIT(A).

• Valid Tax Planning: The ITAT upheld the view that arranging commercial affairs to minimize tax liability through statutory provisions like Section 44AE is legitimate tax planning, not evasion.

• Evidence on Record: The assessee had furnished sufficient evidence (list of vehicles, expenses) to prove the genuineness of the truck running business, countering the AO’s allegation of it being a sham.

• Additional Grounds Rejected: The Revenue’s additional grounds (Rule 46A violation) were rejected as they could not point out which specific documents were “additional evidence” not before the AO.

Key Takeaways

• Simultaneous Benefit: An assessee can legally claim the benefit of presumptive taxation under both Section 44AE (for owning up to 10 trucks) and Section 44AD (for other business receipts) if the conditions for each are met.

• Tax Planning vs. Evasion: Using beneficial provisions like 44AE to reduce tax liability is a statutory right. It cannot be labeled as “tax evasion” or a “colorable device” merely because the tax paid is lower than the standard corporate rate.

• Related Party Transactions: Transactions with related parties are not automatically suspect. If the TPO accepts them at arm’s length or if they are genuine business arrangements, the AO cannot disregard the specific tax provisions applicable to the recipient.

• Burden of Proof: The AO cannot make additions based on “surmises and conjectures.” To deny a Section 44AE claim, the AO must prove that the assessee owned more than 10 trucks or did not conduct the business at all.