TMI Blog2015 (10) TMI 2017X X X X Extracts X X X X X X X X Extracts X X X X ..... imated by the Ld CIT(A) for the years under consideration also appears to be high, when we consider the rate of net profit declared by the assessee. At the time of hearing, the Ld Counsel submitted that the deficiencies, if any, is automatically made good by the assessee by offering additional income in AY 2008-09 to 2010-11. Accordingly he submitted that the net profit rate declared by the assessee should have been accepted for the earlier years. However, the said contentions cannot be accepted, since we have upheld the rejection of book results and hence the net profit is required to be estimated. However, in view of the foregoing discussions, we are of the view that the rate of net profit should be determined by considering the net profit rate declared by the assessee for the earlier years, which shall be modified to take care of or to cover up the deficiencies. From the chart furnished by the assessee, we notice that the rate of net profit declared by the assessee before partners’ remuneration and interest work out to 1.46%, 3%, 3.46% and 6.83% respectively for AY 2004-05, 2005-06, 2006-07 and 2007-08. Accordingly, in our view, the rate of net profit may be adopted @ 2.5%, 3.5% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shri G.Gurusamy, CIT DR ORDER Per Bench: The appeals filed by the Revenue and the Assessee are directed against a common order 30.11.2012 passed by the ld CIT(A)- 1, Hyderabad and they relate to the assessment years 2004-05 to 2010-2011, respectively. 2. Since identical issues are involved in all these appeals, they were heard together and are being disposed of by this common order, for the sake of convenience. 3. The assessee is in appeal in respect of following issues: a) Rejection of books of account; b) Estimation of profit assessment of income surrendered by the assessee separately. c) Rejection of claim for deduction of depreciation. d) Claim for higher rate of depreciation on Vehicles. 4. The department is in appeal in respect of following issues: a) Estimation of profit; b) Allowing deduction of remuneration and interest payable to partners. 5. The facts relating to the case are stated in brief. The assessee is a partnership firm consisting of two partners, namely, Shri P. Babu Rao and his wife Smt. PSVS Eswari, holding equal share in the profit. The assessee is engaged in the business of C F agency, stevedoring, transportatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... However, the assessing officer (a) did not allow depreciation on vehicles/machineries, etc. (b) did not allow deduction towards remuneration and interest payable to partners. Further the assessing officer assessed other income like commission, interest on deposits, chit dividend, interest on income tax refund, etc. separately. 7. Aggrieved by the orders passed by the Assessing Officer, the assessee carried the matters by filing appeal for all the assessment years before the first appellate authority. The ld CIT(A) upheld the rejection of books of account. However, the ld CIT(A) scaled down the percentage of net profit estimated on gross receipts as under: Assessment year % of net profit on gross receipts 2004-05 to 2006-07 5% 2007-08 to 2010-2011 7% The ld CIT(A) sustained the order of the Assessing Officer with regard to rejection of claim for deduction of depreciation and also held that other income declared by the assessee should be assessed separately. However the ld CIT(A) modified the order of the Assessing Officer o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome in all the years. He submitted that the Hon ble Hyderabad bench of Tribunal had an occasion to consider the decision of Rajnik Co. in the case of DADA Prints Vs. ACIT (2014)(42 CCH 0026)(Hyd) and the Tribunal has expressed the view that the theory of extrapolation of the suppression of sales found in the search and seizure proceedings was applied in that case, since there was admission by the partner of that firm that they were resorting to same method in the earlier years also. The Ld A.R submitted that the partner of the assessee firm herein, has given statement with regard to the documents relating to AY 2008-09 to 2010-11 and he did not state anything about the prior years. The statement given with regard to Trade practice also pertained to AY 2008-09 to 2010-11 only. Accordingly, the Ld A.R contended that the tax authorities are not justified in rejecting the book results of AY 2004-05 to 2007-08 without there being any incriminating material warranting the same. 10. The Learned Standing Counsel Shri Narasimha Sharma and Ld D.R, on the contrary, submitted that the partner of the assessee firm Shri Babu rao has confirmed more than once that the vouchers maintained by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned for the years 2008-09 to 2010- 11 were deficient and the same was also accepted by the partner in his statement. Further, he has also stated that the payment of speed money and formality payments are prevalent trade practice and hence there is a possibility to infer that the said trade practice should have existed in the earlier years also. As submitted that the decision rendered in the case of Sunrise Sales Corporation (supra) cannot be taken support of, since the same has been rendered in the context of Chapter XIV-B of the Act, the scope of the same is different. Hence, in the instant case, we are of the view that the trade practice prevailing in this trade and also the manner of maintenance of vouchers regarding payments made towards various expenses would constitute sufficient material to disturb the earlier year s assessments also, which were not pending on the date of initiation of search. Accordingly, we do not find merit in the contentions of the assessee and accordingly, reject the same. 12. The next issue contested by the assessee relates to the validity of rejection of books of account. We heard the parties on this issue. We notice that the Ld CIT(A) has made det ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he net profit worked out to 9.4% of the gross receipts. (vii) that though the assessment for the Assessment Year 2004-05 had been completed u/s.143(3) of the Act earlier, assessing the income at ₹ 15,46,445/-, as against that returned at ₹ 12,88,820/-, the appellant had not preferred any appeal against the same. He noted that even in the said order, there was a clear cut finding that vouchers for certain expenditure were not amenable to verification. (viii) that the appellant had claimed the depreciation on trailers @ 40%/30%, despite transportation not being its principal business. (ix) that the appellant had shown cash loans of ₹ 45,90,000/- from 6 persons in the Assessment Year 2010-11, which were admitted as bogus and the appellant even declared ₹ 35 lakhs on this account for the Assessment Year 2010-11. (x) that the partners of the firm had made unexplained investments in a housing plot and Shri P.Babu Rao even admitted having paid ₹ 25 lakhs by way of cash as consideration, further admitting that the same was not reflected in the regular books. He also admitted having paid ₹ 15 lakhs to Smt. P.Karuna out of his own sources on 23 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ners of the appellant firm could not reckon any other source for such investments, implying that the source of such investments was indeed the unrecorded and undisclosed income from the firm itself. On a conspectus of the above facts, therefore, it clearly emerged that the appellant firm had been generating substantial unaccounted income for past several years, and since such income was not recorded in the books of account, it could be said with reasonable precision that the books of account maintained by the appellant firm were not giving true and correct picture of the profits earned by it. Finding no infirmity in the action of the Assessing Officer in rejecting the books of account so maintained by invoking the provisions of sec.145(3) of the Act, therefore,, the grounds raised in this regard are decided against the appellant . 13. Even though the Ld A.R contended that the search team did not unearth any material relating to AY 2004-05 to 2007-08 and hence the rejection of books was not correct, yet in view of the admission of the partner of the firm that he has been following same practice in the earlier years also, one has to presume that the defects noticed in the maintena ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rn the same or even in the case of a finding of unreliability of accounts, estimated income at a presumptive rate reasonable to the appellant's business on the net receipts i.e. gross receipts less those which are in the nature of reimbursable ones. It was submitted that for the Assessment Years 2004-05, 2005-06, 2006-07, 2007-08, 2008-09, 2009-10 and 2010- 11, about 72.23%, 69.73%, 62.98%, 58.81%, 72.59%, 66.60% and 63.04% respectively, of the gross receipts were in the nature of or meant for reimbursement and therefore including the same in the gross receipts for estimation is not correct. He therefore pleaded that the gross receipts should be recomputed by deducting the matching expenditure for adopting presumptive rate of profit on a reasonable basis. 7.5 The Authorised Representative also argued that the rate of 8%, 8.5%, 9% and 9.5% so adopted, is by no standard is reflective of the average rate of profit specific to the appellant's industry/business. He also submitted a fact sheet from the web site www.capitaline.com , showing that the net profit in the shipping industry averages to 5.94%, while in respect of transport industry, it is 5.83%. Accordingly, it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the rate of profit declared in AY 2009-10 worked out to 9.4% after including the additional income offered by the assessee. The main contention of the assessee was that he is, in fact, a service provider and acting as agents of his clients, i.e., major part of the expenses incurred by the assessee are reimbursed by the clients and hence there will not be any margin on such reimbursements, since they are received mostly on actual basis. It is noticed that the assessee has followed the accounting practice of routing such expenses also through the Profit and Loss account. The details furnished by the assessee before Ld CIT(A) would show that about 60% of the Gross receipts consists of reimbursed items. Even though the assessee contends that there is no profit element on such reimbursements, yet it was not substantiated through evidences. However, there is some merit in such contentions. The profit element on such kind of reimbursable expenses is usually less and hence we agree with the contentions of the assessee that the profit rate adopted for other receipts should not be applied for reimbursement portion of receipts. Hence on weighted average principles, the average net profit ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the years, yet the fact remains that the search officials have stumbled with incriminating materials relating to the AY 2008-09 to 2010-11 only and no specific material relating to the earlier years were found during the course of search or brought on record subsequently. The rejection of the books of earlier years is entirely based upon the statement given by the partner to the effect that such practice is generally followed in the trade. We have also noticed that the assessee is, in effect, acting as agent of its clients and hence, even if such kind of payments is made, the same was actually paid on behalf of its clients only. Despite this fact, the assessee has come forward to offer additional income in AY 2008-09 to 2010-11 for the reasons best known to it. One of the reasons, we could visualize is that the assessee, having routed all his receipts and payments through the Profit and loss account, should have owned up the responsibility, apparently to protect the interests of its client and most importantly to protect its own business interests. Further, we have noticed that the assessment for AY 2004-05 was earlier completed u/s 143(3) of the Act by making addition of less tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to cover up the deficiencies only and the book results are also rejected with the objective of arriving at correct amount of profit. Thus, according to the assessee, both the methods discussed above are only two different methods of arriving at correct amount of profits. Accordingly, it was submitted that the Ld CIT(A) was not justified in directing the AO to assess the additional income separately over and above the net profit estimated by him and the same defeats the very purpose of estimation. Though the Ld D.R strongly supported the order of Ld CIT(A), yet he could not contradict the reasoning given by the Ld A.R. 22. We find merit in the contentions of Ld A.R. Since the objective of offering additional income and estimation of profit by rejecting the book results is the same, they constitute two different methods of arriving at the total income. Hence, adoption of both the methodologies might result in double assessment of same income. Accordingly, we are of the view that the Ld CIT(A) was not justified in directing the AO to assess the additional income surrendered by the assessee over and above the income estimated by him. Accordingly, we set aside the order of Ld CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the preceding paragraphs. 25. The next contention of the assessee is that it was using its vehicles for transport purposes and hence the vehicles are entitled for higher rate of depreciation. Since the contentions urged by the assessee require factual verification, we set aside this issue to the file of the AO, who shall examine the claim of the assessee afresh and shall take appropriate decision in accordance with the law. 26. The revenue has objected to the decision of Ld CIT(A) in allowing the deduction for remuneration and interest payable to the partners by drawing support from the decision rendered by Hon ble A.P. High Court in the case of Indwell Constructions Vs. CIT (232 ITR 776). We notice that the Ld CIT(A) has followed the decision rendered by the Tribunal in the following cases, wherein the Tribunal, by duly considering the decision rendered in the case of Indwell Constructions (supra), has come to the conclusion that the remuneration and interest payable to the partners shall be allowed against the income estimated:- (a) ACIT Vs. M/s K.Satyanarayana (ITA Nos. 1150 1151/Hyd/2012 dated 7.11.2012 (b) M/s C. Easwar Reddy (ITA No.668/Hyd/2009). Further, fr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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