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2015 (9) TMI 809 - HIMACHAL PRADESH HIGH COURT

2015 (9) TMI 809 - HIMACHAL PRADESH HIGH COURT - TMI - Rejection of books of accounts - Whether the accounts maintained by the Assessee were incorrect and incomplete in terms of section 145(3) when it was not possible to verify from such accounts whether any unvouched expenses relating to one business, profits from which are declared on estimate basis, have actually been debited in the accounts of another business? - ITAT reversed AO order - whether while assessing the income of the assessee fro .....

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re debited were not segreable from unvouched expenses for plying of other nine trucks for which profit had been shown under Section 44AE of the Act. Admittedly, the assessee had failed to segregate expenses of the contract business from other nine trucks. Therefore, in such circumstances, no credence whatsoever could have been given to the books of accounts.

We are not satisfied that the reasoning given by the ITAT to reverse such findings only on the ground that the A.O. ought to hav .....

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nd truck hiring to conclude that the accounts were properly maintained. Merely because no one had earlier cared to scrutinize the accounts furnished by the assessee could not be a ground to dislodge the order passed by the A.O. Even otherwise, there is no presumption in law attaching presumption of correctness to the continuity of income tax returns. The assessments of each year have to be viewed and scrutinized independently as these are separate and distinct assessments.

A.O. had ev .....

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r of the revenue - ITA No. 55 of 2009, ITA No. 38 of 2010 - Dated:- 9-9-2015 - Mansoor Ahmad Mir, CJ And Tarlok Singh Chauhan, JJ. For the Appellant : Mr. Vinay Kuthiala, Senior Adv. with Mr Diwan Singh Negi, Adv For the Respondent : Mr Vishal Mohan, and Mr.Aditya Sood, Advs JUDGMENT Tarlok Singh Chauhan, Judge Since common questions of law arise for determination, therefore, both the appeals were taken up together for disposal. ITA No. 55 of 2009 The facts, in brief, may be noticed. 2. The asse .....

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he truck hire business, the assessee declared estimated receipts of ₹ 15,03, 466/- which were stated to be net of expenses on diesel and salaries to drivers and conductors. Against these estimated net receipts, the assessee claimed expenses on tyres and spares, interest and deprecation etc. and finally declared net income of ₹ 5,95,813/-. It was stated in the return that the assessee owned 15 trucks out of which 9 trucks were run on hire and the income therefrom had been declared on .....

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expenses on diesel and fuel had been shown in respect of the trucks run on hire on the ground that net receipts from the trucks were declared on estimate basis under Section 44AE. On the other hand, huge expenses of ₹ 1,18,82,601/- were debited against the contract income on account of freight and carriage and no details could be furnished by the assessee to show the break-up of these expenses in respect of each of the six trucks stated to be used in the contract business. The A.O. observ .....

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t the accounts were incorrect and incomplete and that the net income from contracts had been suppressed by inflating the expenses on freight. The A.O., therefore, rejected the books of accounts under Section 145(3) and estimated net profit from contract at 8% of gross receipts which came to ₹ 96.73/- lacs. After giving credit for income already declared from contract as well as from running of trucks, the A.O. made an addition of ₹ 28,10,914/- to the contract income declared and furt .....

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ore the Commissioner of Income Tax (Appeals) ('CIT (A)') who vide order dated 11.11.2008 passed in appeal No.IT/358/07- 08/SML dismissed the same and held that the freight expenses of ₹ 1.18 crores debited in respect of the six trucks used in the contract business were clearly excessive and since there was no evidence to show that such expenses were only in respect of these six trucks to the exclusion of the other nine trucks run on hire, the accounts had been correctly rejected an .....

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out to show that any expenses on trucks used in the hiring business had been debited in the accounts of the contract business. It was further observed that details of expenses of ₹ 1.18 crores had been furnished by the assessee and these included payment of hire charges for which partywise details were furnished and on which tax had been deducted at source. Thus, the freight expenses could not be considered to be excessive or incorrect and no specific reason had been brought out by the A. .....

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ers that the present appeal has been filed and vide order dated 13.11.2009 was admitted on the following substantial questions of law as taken in the memorandum of appeal. "1. Whether the accounts maintained by the Assessee were incorrect and incomplete in terms of section 145(3) of the Income Tax Act, when it was not possible to verify from such accounts whether any unvouched expenses relating to one business, profits from which were declared on estimate basis, have actually been debited i .....

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ire. In respect of the contract work, gross receipts were declared at ₹ 14.56 crores on which net income was shown at ₹ 58,22,845/- which came to just about 4% of the gross receipts. The expenses debited against the contract receipts included expenses on freight and carriage amounted to ₹ 1,46,39,970/-. 9. Whereas, in respect of the truck hire business, the assessee declared estimated receipts of ₹ 11,00,922/- which were stated to be net of expenses on diesel and salaries .....

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ure incurred on the same was included in the freight expenses of ₹ 1,46,39,970/-. 10. As against the returned income of ₹ 65,33,790/-, the A.O. completed the assessment on 31.12.2008 assessing total income at ₹ 1,19,87,466/-. In the course of assessment proceedings, the A.O. noted that no expenses on diesel and fuel had been shown in respect of the trucks run on hire on the ground that net receipts from the trucks were declared on estimate basis under Section 44AE. On the other .....

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was unable to provide truck-wise details of such expenses, it was entirely possible that these expenses of ₹ 1.46 crores included expenses incurred on the trucks run on hire. Since it was not possible to verify the actual expenses on freight incurred in the contract business, the A.O. held that the accounts were incorrect and incomplete and that the net income from contracts had been suppressed by inflating the expenses on freight and he, therefore, rejected the books of accounts under Se .....

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s own case for the Assessment Year 2005-06 in ITA No.1076/Chandi/2008 (Para 6 supra). 12. The Department filed further appeal before the Income Tax Appellate Tribunal, who vide impugned order dated 20.04.2010 dismissed the revenue's appeal following its own order in assessee's own case for Assessment Year 2005-06 ( Para 6 supra). It was observed that books of account in respect of the contract business had been found by the A.O. to be properly maintained and that no instance had been bro .....

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ould lead to the rejection of the books of account. Following the order for Assessment Year 2005-06, it was held that the A.O. was not justified in rejecting the accounts and in estimating the contract profits to be higher than that declared. 13. It is against the aforesaid orders that the present appeal has been filed and vide order dated 21.06.2011 was admitted on the following substantial questions of law as taken in the memorandum of appeal. "1. Whether the accounts maintained by the As .....

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ed Senior Counsel for the revenue that the decision of the ITAT on the issue of rejection of books of accounts and estimation of income from contract business is absolutely erroneous as it has failed to appreciate the provisions of Section 145(3) readwith Section 144 of the Act. It is further contended that while assessing the income of the assessee from running of the trucks on hire, the provisions of Section 44AE have been completely ignored. 15. On the other hand, learned counsel for the asse .....

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ores and insofar as the business in respect of trucks stated to be run on hire, the following account was furnished in the return:- Tyres and spares 4,84,601/- Receipts 15,03,466/- Bank interest 58,571/- Insurance claim 20,813/- Bank charges 1,369/- Depreciation 3,83,925/- Net profit 5,95,813/- 18. No separate accounts were maintained in respect of gross hiring receipts, diesel expenses and salaries of the drivers and helpers. Therefore, we are, prime facie, of the considered view that looking i .....

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ticularly, when the books of accounts have been rejected mainly on the ground that the assessee was unable to convince the A.O. that freight and expenditure of ₹ 1,18,82,600/- debited in the contract account do not pertain to the expenditures on balance nine trucks. As per the A.O., the books of accounts had been written in such a way that the assessee could show net profit from hiring of trucks on higher side while, on the other side, he could reduce the profits from contract business by .....

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Having gone through the records of the case, we are unable to agree with the aforesaid contention of the assessee for the reason that not only were the accounts properly maintained, but even the freight and carriage expenses debited in the profit and loss account at ₹ 1,18,82,600/- are far too excessive, particularly keeping in view the fact that only six trucks were used for contract business. Further, the freight and carriage expenses that were debited were not segreable from unvouched e .....

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incorrect or incomplete or the method of accounting followed was such as would not lead to correct estimation of income. We are further failed to understand how the burden to establish that the books of accounts maintained were incomplete or incorrect would rest upon the A.O. The CIT (A) could not have un-necessarily been influenced by the fact that the assessee had been filing his return regularly and was continuing the business of contract and truck hiring to conclude that the accounts were pr .....

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1,18,82,600/-, but the same was only qua six trucks being used for the contract business being carried out by the assessee which apparently was an impossibility, more particularly, when the assessment relates to the Assessment Year 2005-06, when the value of rupee was far more higher than today. 24. Likewise, in ITA No.38 of 2010, the assessee had maintained accounts in respect of contract business which showed a huge turn over of ₹ 14.56/- crores. Whereas, in respect of trucks which were .....

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of such expenses or any other evidence to show that these expenses were only incurred on the six trucks stated to be used in the contract business. Running accounts have been maintained in the books in respect of diesel, repair and spares etc. without any indication as to which item of expenses was incurred for which particular truck. A mere assertion on the part of the assessee that the entire expenses related to the six trucks used in the contract business cannot at all be accepted without the .....

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closed, then the same ought not to be ordinarily disturbed. In such circumstances, the Department is bound by the assessee's choice of method regularly employed, but then in case by this method, the true income or profit of accounts cannot be arrived at, then the A.O. had every reason to invoke Section 145 of the Act in order to work out the real income and thereby deduce the profit and gain therefrom. As already observed earlier, the A.O. had given cogent reasons for not accepting the accou .....

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ts, then income must be computed upon such basis and in such a manner as the ITO may determine. This infact is the underlying principle enshrined under Section 145(3) which directs the A.O. to compute the income according to his best judgment in case where the accounts are found by him to be incorrect or incomplete. 27. Similarly, in Commissioner of Income Tax versus British Paints India Ltd. (1991) 188 ITR 44, the Hon'ble Supreme Court has further held that it is not only a right but duty o .....

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orrect profit could not be deduced therefrom and the AO was justified in rejecting the accounts and determining profits. 29. The aforesaid judgment squarely applies to the instant case of the assessee, where the AO has found that it was impossible to verify the correctness of the expenses on freight debited in the contract account, and hence impossible to deduce the correct income from the accounts. 30. Thus, on the basis of the aforesaid exposition of law, it can safely be concluded that the in .....

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learned counsel for the respondent, at this stage, would rely upon a judgment of this Bench in ITA No.24 of 2009, titled Commissioner of Income Tax versus M/s Swastik Food Products, decided on 25th June, 2014, to canvass that until or unless the findings recorded by the ITAT were perverse, the same cannot be interfered with. He in particular relied upon the following observations:- "15. The findings recorded by the CIT (A) and the ITAT are based on true appreciation of facts and correct ap .....

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