AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2015 (9) TMI 809
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....d estimated receipts of Rs. 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 Rs. 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 estimate basis under Section 44AE of the Income Tax Act (for short the 'Act'). The remaining 6 trucks were used in the contract business and expenditure incurred on the same was included in the freight expenses of Rs. 1,18,82,601/-. 4. As against the returned income of Rs. 68,75,230/-, the Assessing Officer (in short 'A.O.') completed the assessment on 31.12.2007 assessing total income at Rs. 98,30,115/-. 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 hand, huge expenses of Rs. 1,18,82,601/- were debited against the con....
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.... Tax Appellate Tribunal ('ITAT'), who vide impugned order dated 15.05.2009 passed in ITA No.1076/Chandi/2008 has allowed the same in its entirety and 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 brought 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 Rs. 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.O. which could lead to the rejection of the books of account and 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. It was also held that since the A.O. had accepted the income declared from hiring of trucks, there was no reason to restrict the depreciation allowable on the trucks run on hire and ....
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....iesel 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 Rs. 1,46,39,970/- 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. observed the freight expenses debited in the contract account were apparently excessive considering that they were stated to be incurred only on six trucks and was of the view that since the assessee was unable to provide truck-wise details of such expenses, it was entirely possible that these expenses of Rs. 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 Section 145(3) and estimated ne....
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....e held as perverse?" 14. It is vehemently contended by learned 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 assessee would contend that the order passed by the ITAT is in accordance with law and, therefore, called for no interference. We have heard learned counsel for the parties and have gone through the records of the case. 16. Since all the questions are inter-related and interconnected, the same are taken up together for consideration. 17. It is not in dispute that the assessee in ITA No.55 of 2009 had maintained accounts in respect of the contract business showing a huge turn over of Rs. 12.09 crores and insofar as the business in respect of trucks stated to be run on hire, the following account was furnished in the return:- Tyres a....
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....e 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. 22. 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 have satisfied that either the accounts maintained were 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 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 o....
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....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 accounts. Though, these findings were set aside by the ITAT, but then even the ITAT did not conclude that the method of accountancy as employed by the assessee was in any manner correct. In absence of such findings, the order passed by the ITAT cannot be sustained. 26. In Commissioner of Income Tax versus M/s. Mcmillan and Co., AIR 1958 SC 207, the Hon'ble Supreme Court has laid down that if true income or profit cannot be ascertained on the basis of the assessee's methods of preparing accounts, 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 ca....