ITA No. 52/Jodh/2016; Asst. yr. 2012-13

B.P. Jain, A.M. & Partha Sarathi Chaudhury, J.M.

N.R. Mertia, for the Appellant :
A.K. Das, for the Respondent

ORDER

B.P. JAIN, A.M. :- This appeal of the assessee arises from the order of learned CIT(A)-II, Jodhpur, dt. 30th Dec., 2015 for the asst. yr. 2012-13. The assessee has raised the following grounds of appeal :

"1. The impugned order under s. 250 under appeal passed by learned CIT(A)-2, Jodhpur, dt. 30th Dec., 2015 in Appeal No. 25 of 2015-16 is bad in law and bad in facts. It is also a result of ignoring and improper appreciating the submissions made orally, and in writing.

2. Thai, in the facts and in the circumstances of the case, and in view of the submissions, materials and copy of decisions and other reliance placed before him, the learned CIT(A) has erred in law and in facts in maintaining the application of s. 145(3) of the Act, as well as the income assessed by learned AO.

3. That, in the facts and in the circumstances of the case and also in view of the nature of business of appellant, the learned CIT(A) erred in law and facts in maintaining the additions and variations made by learned AO, and upholding the assessed income at Rs. 74,34,519 from transport business of appellant.

4. That, in the facts and in the circumstances and in view of the material available on record, the learned CIT(A) was wholly unjust in upholding the action of applying s. 44AE of the Act by the learned AO in assessing the income of appellant from own truck plying.

5. That, the learned CIT(A) was unjust and wrong in maintaining the assessed income by learned AO at Rs. 3,41,000 of the appellant from his own truck plying.

6. That, the learned CIT(A) has also erred in facts and giving the finding in the end of the appellate order as "In the result, the appeal is dismissed", whereas, he has given some finding for relief and directed the learned AO to correct the figure of Rs. 5,500 per month to Rs. 5,000 per month under s. 44AE to determine the increase.

7. Hence, the decisions of the learned CIT(A) is contrary to the finding given by him in para 6.7. That, learned CIT(A) has also erred in ignoring the fact as regards to the calculation of income even by applying s. 44AE of the Act, for the months when the new trucks were even not purchased and put to use by appellant.

8. That, in the facts and in the circumstances of the case, the learned CIT(A) also erred in not deciding the plea taken during the course of appellate hearing before him in the written submissions relating to treatment of interest income which otherwise, if treated as business income, affected the overall assessed income of the appellant from business. In not doing so the learned CIT(A) erred in law and in facts.

9. That, in view of the nature of appellant’s business, the learned CIT(A) has also erred in not appreciating and judging the submission of the appellant judicially that the impugned AO’s order under appeal was a result of assumptions and presumptions, without having been verified the details and information submitted by appellant regarding payment to various truck owners (Drivers) by direct enquiry from RTO Office, and/or by summoning truck owner, etc. on getting information from RTO’s office by the learned AO.

10. The appellant craves leave to add, alter, amend or delete the grounds on or before the date of hearing of appeal."

2. In fact, there are three issues which have to be addressed upon in the present appeal before us. Firstly, on the rejection of books of account by invoking the provision of s. 145(3) of the IT Act. Secondly, estimation of net profit. Thirdly, treatment of the income under s. 44AE of the Act of the trucks owned by assessee.

3. The brief facts of the case as regards the first issue and second issue are that the assessee firm filed his return of income for the year under consideration on 25th Sept., 2012, declaring total income of Rs. 11,05,040. The assessee firm is engaged in the business of providing transport service mainly to M/s Binani Cement Ltd. and Dhaneshwar Solutions (P) Ltd. at three places, i.e., Makrana (Head Office), at Neem Ka Thana and Midnapur (West Bengal), which are its branch offices. For providing transportation services to these companies, the assessee firm hired trucks from other persons and also engaged/deployed its own trucks. The AO noticed that the assessee maintained separate books of account for all three offices. The results declared by the assessee depicting freight received by the assessee in the three offices and against plying of own trucks are illustrated in chart below :

4. The AO noticed that the net profit of the two branch offices had been worked out by way of separate P&L a/c and consolidated P&L a/c wherein the net profit was declared at Rs. 11,03,940. The AO further noticed that the major portion of the receipts had been utilized in payment of freight. Accordingly, the AO requested the assessee to provide the details, name and address of the persons to whom payments were made. In response, the assessee expressed his inability to produce these details by stating that these truck owners belonged to different parts of country and as such it is not possible to ascertain their whereabouts. After considering the reply of the assessee, the AO mentioned that the assessee did not maintain proper details of the freight expenses and in absence of which, payment to the tune of Rs. 11,42,73,095 being 60.60 per cent of the gross receipts remained unverifiable. In absence of these details, the AO further could not ascertain certain vital facts, discussed as below :

(i) The amount of payment paid to recipient.
(ii) The mode of payment and applicability of provisions of s. 40A(3) of the Act.
(iii) Whether the said payments were covered under the TDS provisions and consequent disallowances under s. 40(a)(ia) of the Act ?
(iv) The genuineness of sundry creditors remained to be proved.
(v) Commission income received on each truck remained to be verified in absence of proper details.

(vi). The expenses claimed under the head driver’s salary and driver Bhatta expenses, were through self made vouchers and expenses incurred under other heads were mostly in cash mode.

Considering the aforesaid defects, the AO mentioned that the books of account do not reflect the true and correct picture of the assessee’s business and there is every possibility of revenue leakages. Thus, the AO held that the assessee’s books of account cannot be relied upon, hence, rejected the books of account by resorting to s. 145(3) of the Act.

6.1.2. After rejecting the books of account of the assessee, the AO proceeded to look into the trading results of the assessee’s business. The results are further illustrated in the chart below :

5. From the above table, the AO noted that there was a great variance in the GP and NP rates of the three offices of the assessee though the same activity was carried out in all the offices. The AO further mentioned that the assessee could not provide any plausible explanation in respect of these variations. The results declared for head office were found to be lower as compared to branch offices. As regards the profit of the head office, the AO stated that being an old and reputed set up directly controlled by the assessee, it was expected to be at par with branch office if not better.
6. As regards the trucks owned by the assessee, the AO observed as under :

"Regarding the own trucks, there is one thing which invites attention. The assessee has not cast separate P&L a/c for the head office and the own trucks but has given a consolidated P&L a/c. In this P&L a/c, interest and depreciation attributable to the own trucks has been claimed.

The interest on own trucks is Rs. 5,15,640 and depreciation on the trucks is Rs. 20,65,200. If we leave aside the component of other expenses debited to the P&L a/c which may be attributable to the own trucks and consider interest and depreciation only, then there is a net loss of Rs. (-)12,62,607. Thus, from the activity of plying its own trucks, the assessee has declared net loss but by his accounts in a consolidated manner, a distorted picture has been presented."

7. In the light of the facts discussed above and in view of the discrepancies as pointed out above, the AO applied the GP rate of 4.1 per cent being average GP rate of assessee’s three office’s GP (2.19 per cent + 4 per cent + 5.79 per cent) to the total freight receipts of Rs. 18,58,62,992 (excluding own trucks). Consequently, the net profit was worked out at Rs. 74,34,519. As regards its own trucks, the AO computed the income as per the provisions of s. 44AE as the number of trucks owned by the assessee was less than ten. Hence, profit from own trucks was calculated at Rs. 3,41,000. Accordingly, an addition of Rs. 77,75,516 was made to the total income of the assessee on this account. Besides, the AO further added Rs. 2,18,593 and Rs. 7,486 being interest on income-tax refund and interest received from Binani Security respectively to the total income of the assessee under the head income from other sources.

8. As regards the additions under s. 44AE of the Act, the brief facts of the case are that the AO worked out the total income of the owned trucks at Rs. 3,41,000 for the reasons mentioned in his order.

9. As regards ground No. l, the AO has pointed out some defects mainly that the assessee has not submitted the name and addressed of the owner of the trucks and their PAN which in fact could have been submitted and are part of the record. The assessee has submitted the truck number and their registration number as well. All the details of the expenses have been submitted is a matter of record. Books of account are maintained in which no defect as such has been pointed out except as above. The details of the driver salary, Bhatta expenses though were on the self made vouchers, but all the details were submitted before both the parties below and the amount paid to the recipient was also submitted. In the circumstances and facts of the case, the AO was not justified in invoking the provision of s. 145(3) of the Act and accordingly the order of the learned CIT(A) is reversed.

10. As regards the estimation of income, once books of account are not found to be rejected, no estimation of the net profit can be made. However, during the impugned year the assessee has declared a net profit @ 0.58 per cent as compared to the preceding year @ 0.34 per cent and @ 0.29 per cent in the year before the preceding year. It is the assessee had declared the better results and it is a settled law that even the books of account are rejected no addition can be made on such account. Accordingly, on all counts, no additions can be made to the income of the assessee and additions so sustained is directed to be deleted. Accordingly, grounds of the assessee on the issues are allowed.

11. As regards the last issue the assessee has maintained the separate books of account and therefore the provisions of s. 44AE cannot be made applicable, therefore, the addition so made is directed to be deleted. Hence, all the grounds of the assessee are allowed.

12. In the result, the appeal of the assessee in ITA No. 52/Jodh/2016 is allowed.