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2015 (7) TMI 596 - ITAT BANGALORE

2015 (7) TMI 596 - ITAT BANGALORE - TMI - 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 an .....

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ble 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.

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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 .....

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ke 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. - ITA No.16/Bang/2013 - Dated:- 10-7-2015 - SHRI N.V. VASUDEVAN AND SHRI JASON P. BOAZ, JJ. For The Appellant : Shri V. Srinivasan, CA For The Respondent : Shri P. Dhivahar, Jt. CIT(DR) ORDER Per N.V. Vasudevan, Judicial Member This appeal by the assessee is against the order dated 30.11.2012 of t .....

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d which is comparable with the past history of profits declared in its case. 3. The facts and circumstances under which the appeal arises are as follows. The assessee is a company. It is a fleet owner and transport contractor. For the AY 2009-10, assessee filed its return of income on 29.9.2009 declaring income of ₹ 70,64,490. The freight collection and sales figures were as follows:- Freight Collection : Rs.52,45,46,476 Sales : ₹ 39,99,554 Total Rs.52,55,46,030 The assessee also dec .....

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er expenses include travelling, commission, rent, etc. 4. There was a survey carried out in the business premises of the assessee u/s. 133A of the Income-tax Act, 1961 [ the Act ] on 14.7.2011. In the course of survey, the survey team could not find any bills/vouchers with regard to various expenses claimed in the P&L account. Only four files of daily returns of transactions pertaining to Bangalore Head Office for the periods 1.4.08 to 30.6.08, 1.7.08 to 30.9.08, 1.10.08 to 31.1.09 & 1.2 .....

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in the course of survey and the expenses recorded in those documents were directed to be substantiated. 5. In the course of assessment proceedings, Mr. Kushal Chand Dharamshi, M.D. of the company, appeared in response to the notice of the AO to substantiate the expenses debited in the P&L account with supporting documents like vouchers, bills, etc. The assessee was also directed to produce books of account. The assessee did not comply with the directions of the AO in this regard. Hence a pr .....

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ture claimed. On the basis of above sequence of events and failure on the part of assessee to produce documents called for, the AO came to the following conclusion:- From the foregoing, I arrive at the conclusion that either the assessee is not having/maintaining books of account and supporting vouchers/bills towards various expenditure claim or the same are not produced in spite of several opportunities and sufficient time offered to the assessee. In view of the above, I am not satisfied about .....

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; 4,22,83,682 which is 8% of the turnover under the head income from business . 7. Before the CIT(Appeals), the assessee submitted that, it derives income from transportation of goods and owns about 100 heavy goods vehicle and Light Commercial Vehicles. Sometimes, the Assessee also engaged third party vehicles by paying hire charges for transportation of goods. Apart from the transportation business the Assessee also operated a petrol bunk. This in short was his business activity. As far as tran .....

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etrol bunk, the Assessee submitted that, the turnover of the Assessee for the year under appeal from the petrol bunk business was only ₹ 39,99,554/-. In other words, there was almost no business of operating the petrol bunk carried on by the Assessee during the year under appeal. 8. The Assessee submitted before CIT(A) that it is in the above background of the nature of business carried on by the Assessee that the extent of income shown by the Assessee has to be looked at. The Assessee sub .....

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ommission received in respect of engaging third party vehicles and almost negligible income in the petrol bunk business, it was submitted that the income of ₹ 70,64,490/- shown by the Assessee was reasonable and in accordance with the ground realities obtaining in the facts of the Assessee s case. 9. The assessee also submitted that income declared by it is in tune with the past history in its own case and therefore addition made by the AO should be deleted. 10. The CIT(Appeals) firstly up .....

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which was as follows:- Year Ending Turnover (Rs.) Profit (Rs.) Percentage 31/3/2004 38,39,12,686 36,40,150 0.95 31/3/2005 50,25,74,388 48,54,614 0.97 31/3/2006 58,97,06,091 11,88,594 0.20 31/3/2007 53,22,23,311 21,38,784 0.40 31/3/2008 55,93,97,896 52,86,974 0.95 12. The ld. CIT(Appeals) found that profit percentage declared by the assessee in this year was 1.03%. He was therefore of the view that estimation of 8% of turnover as done by the AO was highly excessive and unreasonable. He was, howev .....

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im of profit at 1.03% of the turnover, except for placing reliance on the returns of income filed in the earlier years. The Tribunal held that those returns are not conclusive in the matter because those returns for AYs 2004-05 to 2008-09 had been accepted u/s. 143(1) of the Act and acceptance of a return u/s. 143(1) of the Act will not be conclusive as there was no scrutiny assessment. The Tribunal therefore came to the conclusion that the CIT(A) was reasonable in restricting the determination .....

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ppeal before the Hon ble High Court of Karnataka in ITA No.213/2014. The following substantial question of law was admitted by the Hon ble High Court:- Whether the tribunal is justified in law in estimating the appellant s business profit at 2.5% of the total turnover without any basis and contrary to income accepted in the earlier years and recorded a perverse finding on the facts and circumstances of the case? 16. The Hon ble High Court referred to the decision of the Hon ble Supreme Court in .....

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s and all other matters, which the AO thinks will assist him in arriving at a fair and proper estimate. Thereafter, the Hon ble High Court held as follows:- 7. Therefore, in the instant case, when the assessee did not produce the books of accounts, the assessing officer was not helpless. The assessee has been filing returns every year. In fact, he has produced five years returns. It is from that they took the turnover because the turnover offered by the assessee for the year 2009-10 was comparab .....

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.5%. In coming to the said finding, all the three authorities have declined to take note off the evidence by way of earlier returns. In that view of the matter, what the authorities have done is a mere guess work and without any basis. That is not permissible in law as held by the Apex Court in the aforesaid judgment. 8. In that view of the matter, the impugned orders are unsustainable. Hence, the order passed by the tribunal is hereby set-aside. Matter is remitted back to the tribunal for fresh .....

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ording to him, therefore, the assessee s profit declared in the return of income for AY 2009-10 was more than the past history in its own case and therefore the same ought to be accepted. 18. The ld. DR, on the other hand, submitted that the Hon ble High Court has observed that no reasons were given for not relying on the profits declared by the assessee in the past and also that the revenue authorities have not taken into consideration comparable cases in similar business to support its conclus .....

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ofits of comparable cases in similar line of business to that of the assessee. 19. We have given a very careful consideration to the rival submissions. In our view, the directions of the Hon ble High Court in para 7 & 8 of its judgment dated 14.8.2014 are to the following effect :- (1) In accepting the turnover of assessee declared in the Profit & Loss account, the revenue has relied on the past history of assessee s own case. (2) The revenue authorities have, however, not applied the sa .....

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eturns 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 vou .....

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ooks of account by the AO is no longer an issue, as the assessee has accepted the rejection of books of account. 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 as .....

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it 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 India, the scheme of summary assessment being in force since 1st day of June, 1999 does not contain any provision allowing for prima facie adjustment. The scope of the present scheme is limited only to checking as to whether taxes have been correctly paid on the income returned. Under the existing provisions of section 143(1), there is no provisi .....

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