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2015 (7) TMI 653 - ITAT LUCKNOW

2015 (7) TMI 653 - ITAT LUCKNOW - TMI - Net profit rate of 7.5% on the gross receipts - CIT(A) allowing the relief of ₹ 32,59,715/- out of the additions made on account of disallowance of lorry hire charges, salary to drivers, administrative expenses and lorry fuel Running and maintenance expenses - assessee submission that action of the learned CIT (A) in adopting profit rate of 7.5% of gross receipts is excessive - Held that:- CIT(A) has referred to various Tribunal decisions wherein the .....

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of his order that if the disallowance made by the A.O. is taken into account, the net profit rate of the assessee will go up to 44.77% which is unrealistically higher in the case of a transport contractor. He has also referred to the provisions of section 44AD, which are applicable in case of a transport contractor whose turnover is less than ₹ 40 lac and in those cases, net profit rate of 8% is prescribed. In the present case, the turnover of the assessee exceeds ₹ 2 crore and there .....

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at:- We fail to understand that how the provision for income tax and audit fees payable can be added by invoking the provisions of section 68 of the Act. In this regard, it is observed by learned CIT(A) in Para 10.2 of his order that the recklessness of the Assessing Officer can be seen that even he has not verified the break-up of sundry creditors which included auditorís liability and provision for income tax and he has concluded that this shows that no application of mind has been made by the .....

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unpaid liability of lorry hire charges is not called for. The remaining two additions u/s 68 of ₹ 13,788/- on account of audit fees payable and ₹ 2,18,787/- on account of provision for income tax is without any basis and therefore, on this entire issue, we do not find any reason to interfere in the order of learned CIT(A).- Decided against revenue.

Addition on account of difference between the expenses of salary claimed and actual payment made - CIT(A) deleted the addition .....

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.- Decided against revenue.

Addition in contravention of provisions contained in section 40A(3) - cash payment above ₹ 20.000/- which was in contravention of provisions - CIT(A) deleted the addition - Held that:- CIT(A) has referred to a judgment of CIT vs. Banwari Lal Banshidhar [1997 (5) TMI 37 - ALLAHABAD High Court] wherein it was held that if the income of the assessee is estimated by applying net profit rate, no disallowance can be made with regard to lorry hire charges u/ .....

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014 for assessment year 2010-2011. 2. Ground No. 1 of Revenue s appeal and the only ground raised by the assessee in its Cross Objection are inter-connected, which are as under: Ground No. 1 of Revenue s appeal: 1. The Commissioner of Income-tax (Appeal) has erred in law and on facts of the case by applying the net profit rate of 7.5% on the gross receipts thereby allowing the relief of ₹ 32,59,715/- out of the additions made on account of disallowance of lorry hire charges, salary to driv .....

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d CIT(A) to the extent relief allowed by him and also submitted that the action of the learned CIT (A) in adopting profit rate of 7.5% of gross receipts is excessive. 4. We have considered the rival submissions. We find that the Assessing Officer has made addition of entire lorry hire charges remaining unpaid as on 31/03/2010 of ₹ 44,28,717/- but when the assessee carried the matter in appeal before CIT(A), he held that in the facts of the present case, the net profit of the assessee shoul .....

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ment to lorry hire charges aggregating to ₹ 83,66,682/- in the profit and loss account out of which amount of ₹ 44,14,929/- has remained outstanding at the end of the year. The entire outstanding liability has been paid in the months of April & May, 2010 in the subsequent financial year. It is seen that the A.O. has not conducted any enquiries from the alleged lorry suppliers and has proceeded to disallow entire lorry hire charges payable of ₹ 44,14,929/-. 8.1 Now if the di .....

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hat he is not required to verify the addresses of the lorry suppliers as it was not practically possible to do so. This argument of the appellant is not fully tenable in view of the fact that the transport contracts are being done for top corporate clientele. The law requires that in respect of expenses claimed in the profit and loss account the primary onus is on the appellant to prove the genuineness of the expenses. In the case of the appellant a large portion of lorry hire charges has been s .....

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on of mind to the facts of the case. Further net profit rate of 44.77% assessed by the AO is also very high in the case of a transport contractor, where the norms have been fixed under the ACT when turnover is below ₹ 40 lakh. In view of the discussions made above it is held that the best option available to the AO was to reject the book results, since he could not have satisfied himself about the correctness and completeness of the books of accounts maintained by the assessee and the only .....

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d invoking of said power. 8.3 After considering all facts of this case, I find that the provisions of section 44AD of the Act estimating the profit of contractor @ 8% of the turnover are applicable for transport contractor adopting the presumptive scheme of taxation and the scope of the section is limited to transport contractors whose turnover does not exceed ₹ 40Lakh. In the case of the appellant the gross receipts exceeds ₹ 2.01 Crore. Hence, provisions of 44AD are not applicable .....

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ure of assessment, and for this purpose he must, their Lordships think, be able to take into consideration local knowledge and repute in regard to the assessee's circumstances, and his own knowledge of previous returns by and assessments of the assessee, and all other matters which he think; will assist him in arriving at a fair and proper estimate; and though there must necessarily be guesswork in the matter, it must be honest guesswork In that sense too, the assessment must be to some exte .....

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stimate must, be related some evidence or material and it must be something more than mere suspicion." Again in State of Kerala v. c. velukutty [1966] to ITR 239 (sc), which was a case under the Travancore-cochin General Sales Tax Act, the court observed: "The limits of the power are implicit in the expression 'best of his judgment'. Judgment is a faculty to decide matters with wisdom truly and legally. Judgment does not depend upon the arbitrary-caprice of a judge, but on sett .....

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xus to the available material, circumstances of the case and business of the appellant The appellant in the impugned assessment year has declared net profit rate of 2.84% whereas in the preceding year it was 2.60% only. However, past history of the case of the appellant cannot be relied upon as returns filed for the preceding year has not been subject matter of scrutiny. The Hon'ble ITAT, Lucknow SMC bench in ITA No. 574/Luc/05 dated 10.03.2006 in the case of M/s Gupta Constructions has conf .....

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re. In view of the above discussions and considering the fact that the turnover of the appellant is ₹ 20074600/-, I am of the considered opinion that it would be reasonable to estimate the profits of the appellant at ₹ 15,05,595/- @7.5%of gross receipts of ₹ 2,00,74,600/-, Accordingly, out of additions made of ₹ 15,05,595/- addition to the extent of ₹ 9,33,716/- is confirmed after giving effect of ₹ 571879/- net profit declared in Return of income is hereby co .....

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e in the facts of the present case and also in the light of these Tribunal decisions referred to by learned CIT(A). In this regard, it is also very relevant to notice that it is noted by the learned CIT(A) in Para 8.1 of his order that if the disallowance made by the A.O. is taken into account, the net profit rate of the assessee will go up to 44.77% which is unrealistically higher in the case of a transport contractor. He has also referred to the provisions of section 44AD, which are applicable .....

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y 2010 and this amount is ₹ 44.14 lac. Hence, after considering the facts of the present case in its totality and various Tribunal decisions referred to by learned CIT(A) in his order, we are of the considered opinion that this issue has been decided in proper perspective by learned CIT(A) after considering all aspects of the matter and therefore, we do not find any infirmity in the order of learned CIT(A). Accordingly, ground No. 1 of the Revenue s appeal and ground No. 1 of Cross Objecti .....

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-, the major amount is regarding lorry hire charges payable of ₹ 44,14,929/-. For such high amount of unpaid lorry hire charges, learned CIT(A) has already directed the Assessing Officer to adopt 7.5% of net profit rate and in this manner, he has already upheld addition of ₹ 9,33,716/-. Moreover, the addition made by the Assessing Officer of ₹ 46,47,454/- includes provision for income tax ₹ 2,18,737/- and ₹ 13,788/- on account of audit fees payable. We fail to under .....

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d addition has been made without any substance. We are of the considered opinion that it is very rightly observed by learned CIT(A) in the facts of the present case that the action of the Assessing Officer is reckless and he has not applied his mind before making this addition. In our considered opinion, when CIT(A) has directed the Assessing Officer to adopt net profit rate of 7.5% and we have approved the same, separate addition made by the Assessing Officer on account of unpaid liability of l .....

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e addition of ₹ 85,700/- made on account of difference between the expenses of salary claimed and actual payment made. 9. Learned D. R. of the Revenue supported the assessment order whereas learned A. R. of the assessee supported the order of learned CIT(A). 10. We have considered the rival submissions. We find that this disallowance was made by the Assessing Officer by making ad hoc 20% disallowance out of salary to staff of ₹ 3,81,400/-. The same was deleted by learned CIT(A) on th .....

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