Books rejection for unreconciled TDS receipts justified; profit estimate reduced to 3.5% on transport business facts.

Where tax-deducted receipts were not properly reconciled with the books, the accounts were treated as not correct and complete, so rejection under section 145(3) was justified. The assessee was found to be independently engaged in transportation activity by taking trucks on hire and giving them on hire, rather than acting as a transport contractor or mere commission agent. On profit estimation, an 8% rate on gross receipts was not sustained on the facts, and the income was directed to be computed at 3.5% of gross receipts on a reasonable basis.

---

---

Issues: (i) Whether the assessee was a transport contractor or a transport commission agent carrying on independent transportation business; (ii) whether rejection of the books of account under section 145(3) was justified; (iii) whether estimation of profit at 8% of gross receipts was sustainable and what rate should be applied.

Issue (i): Whether the assessee was a transport contractor or a transport commission agent carrying on independent transportation business.

Analysis: The assessee was found to be engaged in taking trucks on hire and giving them on hire. The relationship between the assessee and the parties from whom trucks were hired, as well as the parties to whom they were given on hire, did not establish a principal-agent relationship or the role of a transport contractor executing work for others. The income was derived from the difference between hire charges paid and received in the course of transportation activity.

Conclusion: The assessee was neither a transport contractor nor a mere commission agent in the sense urged by the Revenue, but was independently engaged in transportation business.

Issue (ii): Whether rejection of the books of account under section 145(3) was justified.

Analysis: The assessee claimed credit of tax deducted at source without properly reconciling the corresponding receipts in the books of account. The books did not reflect the underlying receipts against which tax had been deducted, and therefore the accounts were not shown to be correct and complete. On these facts, the statutory conditions for rejection of book results were satisfied.

Conclusion: Rejection of the books of account under section 145(3) was justified.

Issue (iii): Whether estimation of profit at 8% of gross receipts was sustainable and what rate should be applied.

Analysis: Although the Assessing Officer had given no specific basis for adopting 8%, the assessee also failed to establish the correct reflection of the receipts in the books. In these circumstances, a lower estimated profit rate was considered appropriate to meet the ends of justice.

Conclusion: Estimation at 8% was not sustained and the profit rate was directed to be applied at 3.5% of gross receipts.

Final Conclusion: The departmental appeals succeeded only to the extent of upholding rejection of the books, while the estimated profit was reduced, resulting in partial relief to the Revenue.

Ratio Decidendi: Where the assessee fails to reconcile tax-deducted receipts with the books of account, the accounts may be rejected under section 145(3), and income may be estimated on a reasonable basis having regard to the facts and fairness of the assessment.

---