2016 (3) TMI 1395 - AT - Income Tax

Tribunal allows appeal based on additional ground, deems rejection of books unjustified.

The Tribunal allowed the appeal, finding merit in the additional ground raised by the appellant. The rejection of books of account was deemed unjustified, ... Estimation of income - Rejection of books of accounts - net profit rate of 2% on the gross receipts - assessee did not produce all the vouchers for the expenses, nor any evidence was led to establish the payments made to the truck operators - HELD THAT:- All the expenses incurred by the Union are small expenses, for which, it is not possible to maintain vouchers. The payments were made through cheques, the details whereof were maintained and presented before the Taxing Authorities. The factum of the assessee having made the payments could not be doubted, since the respective accounts would be credited and debited accordingly. The cheque payments render any other evidence of the payments irrelevant and the Taxing Authorities have erred in rejecting the assessee’s books on this score also. Finding merit in the additional ground raised by the assessee, the same is accepted. It is held that the AO went wrong in rejecting the assessee’s books of account for non-maintenance of vouchers of expenses and absence of evidence regarding payments made to the truck operators. The ld. CIT(A) erred in confirming the action of the AO. To reiterate, no defects were pointed out by either of the Authorities below in the books of account maintained by the assessee. On the additional ground, the addition made by applying net profit rate on the gross receipts of the assessee is deleted. Accordingly, none of the original grounds raised survives for adjudication, having been rendered academic in nature. Decided in favour of assessee. Issues:1. Rejection of books of account under section 145(3) of the Income Tax Act, 1961.2. Application of net profit rate on gross receipts and addition to declared income.3. Claim of income exemption on the principle of mutuality.4. Additional ground of appeal regarding rejection of books of account for non-production of vouchers and evidence of payments to Truck Operators.Issue 1: Rejection of Books of Account under Section 145(3):The Assessing Officer (AO) rejected the books of account as the appellant did not provide all vouchers for expenses or evidence of payments to Truck Operators. The AO invoked section 145(3) based on the judgment of the Income Tax Appellate Tribunal, Amritsar Bench. The CIT(A) upheld this decision, stating that the appellant failed to substantiate expenses and payments. The appellant argued that complete books were produced, but the AO disagreed. The appellant maintained truck-wise accounts and distributed receipts among members without deductions. The AO and CIT(A) did not dispute these submissions.Issue 2: Application of Net Profit Rate and Addition to Declared Income:The AO applied a net profit rate of 2% on gross receipts, adding Rs. 6,05,790 to the declared income of Rs. 13,130. The CIT(A) supported this action, citing lack of evidence for expenses and payments. The appellant contended that the AO's decision was unjustified, as complete books and some expenditure vouchers were provided. The appellant referenced various judgments to support their case, but the CIT(A) upheld the AO's decision based on the absence of evidence for payments to Truck Operators.Issue 3: Claim of Income Exemption on Principle of Mutuality:The appellant claimed income exemption based on the principle of mutuality, arguing that the union was a mutual association. However, the authorities rejected this claim, leading to a dispute over the taxability of the income generated by the union.Issue 4: Additional Ground of Appeal - Rejection of Books of Account:The additional ground raised by the appellant focused on the rejection of books of account for not producing all vouchers and evidence of payments to Truck Operators. The AO and CIT(A) based their decisions on the lack of supporting documentation. The appellant provided explanations regarding the distribution of receipts and expenses incurred, emphasizing the use of cheques for payments and maintaining bank statements.In conclusion, the Tribunal allowed the appeal, finding merit in the additional ground raised by the appellant. The rejection of books of account was deemed unjustified, leading to the deletion of the addition made based on the net profit rate applied to gross receipts. The original grounds raised became irrelevant due to this decision, resulting in the overall success of the appellant's appeal.