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2014 (3) TMI 1062 - AT - Income TaxRejection of books on accounts - application of N.P. rate - disallowance on account of hire charges, transportation charges and slurry removable charges by invoking the provisions of section 40(a)(ia) - Whether the AO can disallow the expenses which are directly related to gross receipt of the assessee on which the AO has estimated net profit by applying the rate of 8% - Held that:- It is a fact that the assessee has not produced books of account, it means that the AO has not relied on books of account for estimation of profits. This fact is accepted by assessee as well as by revenue. We are of the view that once the net profit rate is estimated the AO cannot base his disallowance on the same books of account for the purpose of disallowance by invoking the provisions of section 40(a)(ia) of the Act or general disallowances u/s 37 of the Act. The estimation made by AO of net profit will take care of every addition related to business income or business receipts and no further disallowance can be made. We see force in the argument of the assessee that when the income of the assessee was computed applying gross profit rate and no deduction was allowed in regard to the expenses claimed by the assessee, there was no need to look into the provisions of section 40(a)(ia) of the Act or section 37 of the Act. Accordingly, no disallowance could have been made in view of the above facts that once the profit is estimated by applying net profit rate. Accordingly, we direct the AO to delete the other disallowances and restrict the addition by applying Net Profit rate @ 8% of gross receipts. - Decided in favour of assessee.
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