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Estimation of business income of owning fleet and operating as a transport contractor - @ 3% of the gross receipts as against 8% estimated by the AO - According to the assessee, the profit of assessee ought to have been determined at 1.03% which was the income declared in the return of income and which is comparable with the past history of profits declared in its case - Held that:- the fact that the assessee’s returns in the past was accepted without any scrutiny or verification because those returns were accepted u/s. 143(1) of the Act, was a proper basis not to rely on the past history of profits in assessee’s own case. Therefore, the past history of income in assessee’s own case cannot be the sole basis on which income of the assessee can be determined. Besides the above, as pointed out by the ld. DR in the course of his arguments, at the time of survey u/s. 133A of the Act, no books of account of assessee were found, nor was the assessee able to produce evidence in the form of vouchers in support of expenses debited to the P&L account. As to whether similar state of affairs prevailed in the past for the AYs 2004-05 to 2008-09 in assessee’s case cannot be said with certainty. According to the ld. DR, similar state of affairs would have prevailed in the past assessment years also. The profits earned by the assessees in similar line of business could therefore be considered by the AO in determining the income of assessee.

When books of accounts are rejected and income is estimated, the best yardstick for such estimation is the past history in Assessee’s own case, provided such past history is accepted by the revenue in assessments completed after due enquiry u/s.143(3) of the Act. When assessment is completed u/s.143(1) of the Act, the return filed by the Assessee is accepted as it is. The scheme of assessment under section 143(1) of the Income-tax Act, 1961, is the policy of tax administrations across countries to adopt a two-stage procedure of assessment as part of risk management strategy. In the first stage, all tax returns are processed to correct arithmetical mistakes, internal inconsistencies, tax calculation and verification of tax payment. At this stage, no verification of income is undertaken. In the second stage, a certain percentage of the tax returns are selected for scrutiny/audit on the basis of the probability of detecting tax evasion. At this stage, the tax administration is concerned with the verification of the income

In our view, therefore, the past history in Assessee’s case would not be the appropriate yardstick to estimate income. We are therefore of the view that it would be just and appropriate to set aside the order of the CIT(Appeals) on this issue and remand the question of estimation the income of the assessee to the Assessing Officer for fresh consideration, keeping in view the profits earned by the assessees in similar line of business. The AO will make necessary enquiries in this regard and also afford opportunity of being heard to the assessee and thereafter estimate the income of assessee - Decided in favour of assessee for statistical purposes.





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