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आदेश/Order
Per R.L. Negi, Judicial Member:
The assessee has filed the present appeal against the order dated 18.10.2019 passed by Commissioner of Income Tax (Appeals), Patiala [for short ’the CIT(A)’] pertaining to assessment year 2016-17 vide which the Ld. CIT(A) has partly allowed the appeal of the assessee filed against the assessment order passed u/s 143(3) of the Income Tax Act, 1961 (for short 'the Act').
Brief facts of the case are that the assessee is a Truck Union, being Association of Persons (AOP) filed its return of income for the assessment year under consideration declaring total income of Rs. -Chd-2020- Sri Guru Teg Bahadaur Truck Operators Association, Sangrur 2 6,11,207/- under the head “income from business and profession and Long-Term Capital Gains”. The Assessing Officer rejected the books of account u/s 145(3) of the Act and estimated the net profit @ 2% of the gross receipts holding that the assessee had not accounted for the receipts appearing in Form 26AS. Accordingly, the Assessing Officer made the addition of Rs. 11,01,308/-. In the first appeal, the Ld. CIT(A) restricted the addition to 1.5% of the gross receipts and upheld the addition to the extent of Rs. 8,70,633/-.Still aggrieved, the assessee is in appeal before this Tribunal. The assessee has raised the following grounds of appeal: -
1. That the Ld. Commissioner of Income Tax (Appeals) has erred in confirming the action of the Assessing Officer with regard to rejection of books of accounts and which is against the facts and circumstances of the case.
2. Notwithstanding the above said ground of appeal, the Ld. CIT(A) has erred estimating the net profit rate of 1.5% on the gross receipts against 2% applied by the Assessing Officer without pin pointing any defect in the records.
3. That all the relevant records were produced before the Assessing Officer as per para 5 of the order of Assessing Officer and the reply reproduced in para-6 of the order of Assessing Officer has not been considered by the Worthy Assessing Officer/CIT(A).
Notwithstanding the aforesaid grounds of appeal, the net profit of 1.5% on gross receipts as confirmed by the Worthy CIT(A) is on the higher side, particularly when the assessee did not own any trucks of its own.
-Chd-2020- Sri Guru Teg Bahadaur Truck Operators Association, Sangrur 3 5. That the Appellant craves leave to add or amend the grounds of appeal before the Appeal is finally heard or disposed off.
3. Before us, the Ld. Counsel for the assessee submitted that the assessee is a truck union, formed to facilitate the truck owners / members to procure contracts for transportation of goods from different agencies and the entire work is performed by the truck owners and the assessee does not own even a single truck. The amount received by the union is distributed amongst its and only a nominal amount is retained by the appellant to meet the day-to-day expenses. The Ld. Counsel further submitted that the Ld. CIT(A) has wrongly upheld the action of the Assessing Officer in rejecting the books of account without pointing out any specific defect in the books of the appellant except for non- production of vouchers. The Ld. Counsel further contended that the Ld. CIT(A) has wrongly sustained the addition of 1.5% of the Gross receipts on estimated basis. The Ld. counsel placing reliance on the decision of the Amritsar Bench of the ITAT in the case of The Truck Operator Union, Jaitu vs ITO, Faridkot submitted that in the said case, the books of the assessee were rejected u/s 145(3) due to non-production of vouchers by the assessee. However, the ITAT deleted the addition holding that the rejection of books of account without pointing out any specific defect is not sustainable. Alternatively, the Ld. counsel submitted that the Ld. CIT(A) has estimated the net profit @ 1.5 of the gross receipts of the assessee which is unreasonable and on higher -Chd-2020- Sri Guru Teg Bahadaur Truck Operators Association, Sangrur 4 side. The Ld. Counsel placing reliance on the judgments of the Hon’ble Supreme Court in the case of CIT vs. Laxminarain Badridas 5 ITR170 (SC) and the Hon’ble Rajasthan High Court in the case of CIT vs. Gupta KN Construction Company, 371 ITR 291(Raj) submitted that in view of the ratio laid down in the aforesaid cases the Ld. CIT(A) ought to have considered the past history of net profit rate of the assessee while determining the net profit on estimate basis. The Ld. Counsel further submitted that in the light of the law laid down in the aforesaid cases, estimation of net profit @ 1.5% of the gross profit is unreasonable. The Ld. Counsel invited our attention to the page 1 of the paper book showing the past history of net profit ratio of the appellant. As per chart furnished by the assessee, the percentage of gross commission income of detailed receipts as per form 26AS are as under; -
Assessment Year. 2014-15 - 0.14% Assessment. Year. 2015-16 - 0.17% Assessment. Year. 2016-17 -0.79%
4. On the basis of the aforesaid facts and the ratio laid down in the aforesaid cases, the Ld. counsel submitted that the percentage of profits estimated by the Ld. CIT(A) is unreasonable and not sustainable.
On the other hand, the Ld. Departmental Representative (DR) submitted that the Ld. CIT(A) has sustained the addition @ 1.5% gross profits on the basis of facts and circumstances of the case and on the -Chd-2020- Sri Guru Teg Bahadaur Truck Operators Association, Sangrur 5 basis of past history, the estimation of net profit @1.5% determined by the Ld. CIT(A) is reasonable, therefore, no interference is warranted.
We have heard the rival contentions of parties and also perused the material on record including the cases relied upon by the authorities below and the Ld. counsel for the assessee. The grievance of the assessee is that the Ld. CIT(A) has wrongly sustained the addition @ 1.5% without taking into consideration the past history of the case of the assessee and that the Ld. CIT(A) has wrongly affirmed the action of the Assessing Officer in rejecting the books of account of the assessee without assigning any reasons. As pointed out by the Ld. counsel, in the past three years, the gross commission of the total receipts remained below 1% and the Ld. CIT(A) has determined the addition @ 1.5% and as per settled law when the books of account are rejected, the profit is determined on estimation basis and in determining the profit on estimation basis, the past history plays a vital role. As contended by the Ld. Counsel, the net profit rate of 1.5% sustained by the Ld. CIT(A) is on higher side in view of the past history. Hence, we find merit in the contention of the Ld. counsel that 1.5% profit rate estimated by the Ld. CIT(A) is on higher side. Therefore, in the interest of justice, we partly allow the appeal of the assessee and modify the order passed by the Ld. CIT(A) and restrict the net profit rate to 1% of the gross receipts, which is more than the percentage in the last 3 years. Accordingly, we direct -Chd-2020- Sri Guru Teg Bahadaur Truck Operators Association, Sangrur 6 the Assessing Officer to compute the addition @ 1% of the gross receipts. In the result, the appeal filed by the assessee is partly allowed. Order pronounced on 16.02.2021.