TMI Blog2017 (10) TMI 51X X X X Extracts X X X X X X X X Extracts X X X X ..... applying the net profit rate of 2% on the, total freight receipts of ₹ 246.71 lacs. Disallowance of expenses and depreciation - Held that:- When the books of account are rejected and income is computed by applying the net profit rate, the same books of accounts cannot be made the basis for making disallowance of specific expenses and the claim of various expenses including depreciation stand allowed. Hence, the addition to the extent of ₹ 5,90,411/- was rightly confirmed and the balance additions made by the AO under specific heads was rightly deleted - ITA Nos. 2827 & 2828/Del/2011, ITA Nos. 3021 & 3022/Del/2011 - - - Dated:- 28-9-2017 - Shri H. S. Sidhu, Judicial Member And Shri Prashant Maharishi, Accountant Member Assessee by : None Department by : Sh. Kaushlendra Tiwari, Sr. DR ORDER Per H. S. Sidhu, JM The Assessee and Department has filed Cross Appeals which are emanate from the respective orders both dated 25.3.2011 of the Ld. CIT(A), Faridabad pertaining to A.Yrs. 2003-04 2004-05. Since the issues involved in these appeals are common and identical, hence, the appeals were heard together and are being disposed of by this common ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing income of ₹ 1,42,700/- was filed by the assessee on 01.12.2003, which was processed u/s. 143(1) of the Income Tax Act, 1961 (hereinafter referred as the Act) on 05.08.2004. The return was accompanied by the Audit Report in Form No. 3CB/3CD. The assessee is a partnership firm constituted on 24.08.2000 having two partners namely Shri Narinder Gandhi and Shri Vijay Gandhi sharing 50% profit/loss each; and engaged in the business of plying of trucks and trading of tyres. The case of the assessee was selected in scrutiny and a notice u/s. 143(2) of the Act was issued on 08.10.2004 and served upon the assessee. In response to this notice, the counsel of the assessee, attended and requested for adjournment, which was accordingly granted. In response to further notice u/s 142(1) of the Act and questionnaire dated 11.08.2005, the A.R. of the assessee again sought adjournment and the hearing was adjourned to 06.09.2005. On the adjourned date, the AR of the assessee attended and sought further adjournment, which was granted for 22.09.2005. Again adjournment was sought on the ground that the details as per questionnaire were under preparation. The assessee did not make any further co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt and copies of account with Cholamandalam Finance Ltd., Ashoka Leyland Finance Ltd. etc. were filed. The AO again requested for production of books of account on 01.3.2006 but the assessee did not produce the same. Before passing the order, the AO issued another notice dated 03.03.2006 requiring compliance on 10.03.2006 in response to which Shri Bhushan Chaudhary, Advocate, attended but no books of account or any further details were produced stating that the same are not traceable. Keeping in view the repeated non compliance to various statutory notices, the AO finalized the assessment ex-parte. The AO concluded that since the return of income was filed on 01.12.2003 much after the time when Shri Narinder Gandhi expired in May 2003, the assessee was. in possession of books of account but did not produce deliberately. Since the assessment order has been passed ujs 144 of the Act, the AO disregarded the status of assessee as firm and assessed in the status of AOP in view of the provision of section 184(5) of the Act. Consequently, the claim of salary of ₹ 1,68,000/- paid to two partners has been disallowed. On verification of depreciation schedule attached with the return o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Against the salary expenditure of ₹ 19,45,600/-, an amount of ₹ 4,96,200/- was shown outstanding as liability in the balance sheet. The assessee submitted that the drivers could not collect their salary due to being out of station. The AO, however, did not consider the explanation as plausible and made adhoc disallowance of ₹ 5,00,000/- out of various expenses claimed in the P L account for want of details and evidences. The sundry creditors of ₹ 10,85,564/- were outstanding as on 31.03.2003 and in absence of any details on this issue, the entire amount has been added to the income since the genuineness of the same was not proved. The assessee was also engaged in the business of trading of tyres from which gross sales were shown at ₹ 32,32,590/- against purchases of ₹ 28,05,817/- with the resultant GP of 7.72%. There was observation in the audit report that no details of closing stock were maintained. The AO obtained copy of account of purchases from Good Year India Ltd. which revealed purchases at ₹ 17,36,425/ - only, against which the assessee had shown total purchases of ₹ 28,05,817/-. Though, the assessee submitted the details o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.2002 and the additions made during the year under appeal were to the extent of ₹ 1,08,17,215/-. Thus, considering the opening WDV at ₹ 99,22,209/- and additions made during the year, the total eligible amount for depreciation works out to ₹ 2,07,39424/-, which is certainly far less than the amount of ₹ 2,50,15,600/- shown in the depreciation schedule as on 31.03.2003. The books of accounts of the assessee are audited u/s. 44AB of the Act. These facts lead to the inference that either the amount of ₹ 2,50,15,600/- is hypothetically adopted or the assessee has not furnished the correct position of the trucks purchased during the year. This appears to be the only reason for production of books of accounts. Irrespective of the situation where the books of accounts are not produced or produced but found to be defective, the AO is well empowered to make the provisions of section 145(3) of the Act and make best judgement assessment. While making the best judgment assessment, the AO is required to compare the result declared by the appellant in earlier years or the result shown by the other assessees in the similar line of business. Though there is no bar in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of CIT Vs. Ranicherra Tea Company Ltd. (207 ITR 979), the Hon'ble Calcutta High Court has held that in disposing of an appeal from an assessment u/s 144, the first appellate authority need not confine itself only to the material on record at the assessment. The appellate authority is vested with all the plenary powers, which the subordinate authority has in the matter. The CBDT, in the Circular No. 14(XI-35) of 1955 dated April 01, 1955 has conveyed as under: Officers of the Department must not take advantage of ignorance of an assessee as to his rights. It is one of their duties to assist a taxpayer in every reasonable way particularly in the matter of claiming and securing reliefs and in this regard the officer should take the initiative in guiding a taxpayers where proceeding or other particulars before them indicate that some refund or relief is due to him. This attitude in the long run would benefit the Department; for it would inspire confidence in him that he be sure of getting square deal from the Department. 7.2 We further find that in the business of trading in tyres, the AO has applied net profit rate of 3% on sales. In the A.Y. 2001-02, the AO has e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (j), could be made. The Hon 'ble Punjab and Haryana High Court in the case of CIT vs. Aggarwal Engineering Co. (156 Taxman 40) has held that once net profit rate was applied on contract receipts of assessee for estimating income from contract work, no further addition was called for in respect of purchases and introduction of cash etc. Therefore, when the books of account are rejected and income is computed by applying the net profit rate, the same books of accounts cannot be made the basis for making disallowance of specific expenses and the claim of various expenses including depreciation stand allowed. Hence, the addition to the extent ofRs.5,90,411/- was rightly confirmed and the balance additions made by the AO under specific heads was rightly deleted. We further find that Ld. CIT(A) has rightly reiterated that the ITAT, Delhi Bench D New Delhi in appeal ITA Nos.119, 3378 to 3381/Del/2007 in the case of Smt. Kaushalya Gandhi for A.Y.1999-2000 to 2003-04 as per order dated 31.07.2009 and ITAT, Delhi Bench F , New Delhi in appeal ITA Nos.3211 to 3214/Del/2007 in the case of Smt. Renu Mukherjee for A.Y.2000-01 to 2003-04 as per order dated 29.08.2008 have upheld the appell ..... X X X X Extracts X X X X X X X X Extracts X X X X
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