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IN THE INCOME TAX APPELLATE TRIBUNAL, JODHPUR BENCHES, “SMC” JODHPUR BEFORE: SHRI. N.K.SAINI, VICE PRESIDENT ITA No.15/Jodh/2019 Assessment Year : 2015-16 Shri. Jagjeet Singh Arora Vs. The ITO D-34, Transport Nagar Ward-1(1), Udaipur Udaipur (Rajasthan) PAN NO: ASSPS0091D Appellant Respondent
Shri Rajendra Jain, Advocate Assessee by : Revenue by : Shri Girish Mehta, JCIT DR Date of Hearing : 28/11/2019 Date of Pronouncement : 28 /11/2019 आदेश/Order PER N.K. SAINI, VICE PRESIDENT
This is an appeal by the Assessee against the order dt. 29/11/2018 of Ld. CIT(A)-1, Udaipur.
Following grounds have been raised in this appeal:
1) Under the facts and circumstances of the case the Ld. CIT (A)-i, Udaipur has erred in restricting the ad-hoc addition upto 5.50% as against accepted by Id AO at 8.00%, not considering the declared income without any basis and on arbitratory basis in the given facts and circumstances of the case particularly when all documents and details produced.
2) The Appellant reserves its right to add. amend, alter or substitute any of the grounds of appeal on or before hearing of appeal
3) Necessary cost be allowed to the appellant.
From the above grounds it is gathered that only grievance of the assessee relates to the sustenance of addition on account of Gross Profit Rate (GPR).
Facts of the case in brief are that the assessee filed the return of income on 30/03/2016 declaring an income of Rs. 6,04,570/- which was processed on 27/05/2016 under section 143(1) of the Income Tax Act, 1961 (hereinafter referred to as ‘Act’). Later on the case was selected for scrutiny.
During the course of assessment proceedings the Assessing Officer noticed that the assessee had shown total receipt at Rs. 5,96,713/- as compared to the receipts shown in Form No. 26AS at Rs. 1,50,61,240/- and that no books of accounts were furnished. the Assessing Officer asked the assessee to explain as to why Net Profit Rate (NPR) of 8% be not applied on the total turnover mentioned in Form No. 26AS. The assessee submitted to the Assessing Officer that he was simply an agent and the gross payments received were not the gross receipt of the assessee and on account of his commission agency business the turnover was only the commission received by him which was duly depicted in the Income Tax Return. However the Assessing Officer was not satisfied from the explanation of the assessee and observed that the receipt of Rs. 1,50,61,240/- shown in 26AS Form were the receipt of the assessee as the same were credited to the assessee by various persons under section 194 C of the Act, out of which the assessee might have made further payment so as to arrive at net income or profit. The Assessing Officer applied the NPR of 8% on the receipts as per 26AS Form of i.e; 1,50,61,240/- and worked out the Net Profit at Rs. 12,04,899/-. Since the assessee had also declared income from business at Rs. 5,96,713/- the Assessing Officer made the addition of Rs. 6,08,186/- ( Rs. 12,04,899/- (-) Rs. 5,96,713/-).
Being aggrieved the assessee carried the matter to the Ld. CIT(A) and submitted as under:
4.1. The appellant has vehemently contested the disallowance made by the AO. The written submissions of the appellant regarding this issue are reproduced as under: “ Ground No.1 is regarding 'turnover' of the appellant-asses see. In this connection, it is respectfully submitted that: 01. The assessee is carrying on business of transport booking agent and is not having his own trucks/commercial vehicles and arranges the same from the open market for carrying goods. He is merely a transport booking agent and not in his business of own transportation. On demand, the trucks are being arranged by him from the open market for carriage of goods of various parties for different places. Therefore, his turnover is only the gross commission received by him and not the total amount received by him, which he is simply receiving on behalf of the principals and after deducting his commission the same is being paid by the assessee to those parties. He is simply an intermediary or negotiator, especially between prospective parties. For arranging the aforesaid services, the assessee earns merely freight difference as commission. It is reiterated that he is simply an agent and the gross payments received are not the gross receipts of the assessee and on account of his commission agency business, the turnover is only the commission received by him, which is duly depicted in the ITR. 02. It is respectfully stated that when the transportation of goods for customers is done by the assessee by arranging/hiring outside trucks, his role is that of agent for his customers. He collects the agreed freight charges from his customers and in turn, pays or reimburses the freight charges to truck- owners/drivers/brokers towards transporting goods of the customers. In this relationship of agent and principal, he gets is difference of freight paid to truck party
and charged from the customer. Thus the fact remains is that in respect of engaging outside trucks the assessee gets freight difference in the nature of commission for hiring/arranging trucks for the customers.
In this connection, a reference is also invited to the CBDT Circular No. 452 dated 17-3-1986. Vide Para 5 of the said Circular, the Board has further clarified that in the case of agent, - whose position is similar to that of kuchha arhatia, the turnover is only the commission and does not include the sales on behalf of the Principals. It is stated that such commission earned by the assessee has been shown in the Profit & Loss Account. The amount received from customers for payment to truck owners is reimbursement and as such, the same does not form part of turnover.
It is further stated that the term ''sales”, ''turnover” or "gross receipts” are not defined in the Act and therefore, the meaning of the aforesaid terms has to be considered for the applicability of the section. The term "Turnover" has been defined u/s 2(91) of the Companies Act, 2013 as follows:
"2(91) "turnover" means the aggregate value of the realization of amount made from the sale, supply or distribution of goods or on account of services rendered, or both, by the company during a financial year. ”
In the "Guidance Note on Terms used in Financial Statements" published by ICAI, "the expression "Sales Turnover" has been defined as: "The aggregate amount for which sales are effected or services rendered by an enterprises. In the statement issued by ICAI on the Companies (Auditors' Report) Order, 2003, the word 'Turnover' has been defined as: "The term 'Turnover' for the purposes of this clause may be interpreted to mean the aggregate amount for which sales are effected or services rendered by an enterprises" 05. Thus, the term ‘turnover’ for the purposes of this clause be interpreted to mean the aggregate amount for which sales are effected or services rendered by an enterprise. It is further stated that the word "Turnover" are commercial terms and they should be construed in accordance with the method of accounting regularly employed by the assessee. In commercial terms, for transport booking agent, the commission earned is the turnover for the services rendered by him. It is also stated that the property in the goods or all significant risks, reward of ownership of goods does not belong to the commission agent and the property in the goods or all significant risks and rewards of ownership of goods continue to belong to the principal and/or the consignee as the case may be and thus, only the service charges by way of commission form part of his turnover. In this context, it would be useful to refer to the CBDT Circular No.452 dated 1 ’' March, 1986. where the Board has clarified the question of applicability of section 44AB in the cases of Commission Arhalias, etc. Thus, the principle to be applied is that if the assessee is merely reimbursed for certain expenses incurred, the same will not form part of his gross receipts.
In the case of Anoop Kumar Beri vs. Asstt CIT (2005) 97 TTJ (Del) 275, it is held that the assessee's business is of a transport booking agent. It is also a position that trucks and other commercial vehicles are arranged from the market for carrying the goods to different places and in lieu of services the assessee was charging commission from such truck owners. The amount of freight charged by the assessee from the different parties and paid by it to the individual truck owner was not the assessees own sales. It was the commission income alone that could partake the character of the assessees turnover.
In the case of ITO vs. Bindra Ban Bansi Lail (2001) 78 ITD 228 (Asr), it is held that the CBDT, in its Circular No. 452, dated 17-3-1986, has clarified that in the case of agent, whose position was similar to that of Kuchha Arhatia, the turnover is only the commission and will not include the sales on behalf of the principals. From the facts of the instant case, it was clear that the assessee was a transport booking agent and the turnover was only the commission received from truck owners and suppliers of goods and. therefore, it co uld be safely held that the assessee'sposition was similar to that of Kuchha Arhatia.
In the case of Paras Transport Co. vs. ITO (2005) 92 TTJ (Agra) 607, wherein the Tribunal
concluded that the assessee carrying on the business of transportation using both own trucks as well as trucks belonging to others, only the receipts from the plying of own trucks are to be considered for determining turnover and the receipts from assessees own trucks being less than Rs. 40 lakhs, there was no contravention of section 44AB of the Act.
The 1TAT, Delhi in Delhi U.P. Golden Transport vs. Department of Income Tax in ITA No. 5957 and 5958/Del/2012I vide judgement dated 31st October, 2014 it was inter-alia held that the parties to whom the assessee arranges trucks, make part payment to the operators drivers as advance and the balance amount is routed through the assessee. that the assessee gets is only commission. Under these circumstances, to hold that whatever amount passes through the assessee, is its turnover, is against the facts of the case. The amount is received by the assessee as a Trustee. The assessee is only a pass through entity. The amount is received on capital account and payment also is made on capital account. The assessee never had the right to receive this amount as its income. Merely because tax has been deducted at source on the amounts received by the assessee, it does not lead to an automatic conclusion that the entire amount is the income of the assessee. The amount is never
claimed by the assessee as its income nor was paid by the truck owners as an expense. The amount in question is the income of the lorry’ owners.
In the instant case, the Id. AO merely relying on Form 26AS has held that the receipts of Rs. 15061240/- shown in Form 26AS amounts to turnover of the assessee. It is respectfully submitted that the contention of the Id. AO is not correct. The remuneration for the services rendered by the assessee consists of solely of commission and he has no interest in the profit or loss made by his constituents. He also does not have any dominion over goods. His interest is limited to commission agent charges, ,4 s held by I TAT, Delhi in Delhi U.P. Golden Transport vs. Department of Income Tax in ITA No. 5957 and 5958/Del/2012J vide judgement dated 3lst October, 2014, merely because tax has been deducted at source on the amounts received by the assessee, it does not lead to an automatic conclusion that the entire amount is the income of the assessee.
Under these facts and circumstances, it is prayed that the commission receipts only need to be considered as income of the assessee and the entire amount shown in Form 26AS cannot be treated as gross receipts of the assessee on revenue account.
Ground No.2 is regarding estimating higher NP rate. Without prejudice to our submissions as given in Ground No.l, we humbly submit as under:
At the very outset, it is stated that this is a trite law that the profit has to be estimated on the basis of proper material available. The Id. AO is not entitled to make a pure guess and make an assessment on surmises and conjecture at all. There must be something more than mere suspicion to support an assessment u/s 143(3) of the Act. It is respectfully stated that in the present case, the Id. AO without pointing out any basis has adopted an ad-hoc rate of NP.
That the rule of law on this subject has been fairly and elaborately stated by various Tribunals and Courts that in any case past history in the assessee’s own case is relevant in order to arrive at any finding but the Id. AO has not given any cognizance to the same for no valid reason. It is just an assumption on the part of the Id. AO without substantiating the same even on the basis of comparable cases.
It is respectfully and humbly stated that in estimating the higher NP rate, the Id. AO did not adopt any basis or justification and has taken an ad-hoc NP rate of 8% on the receipts as per Form 26AS. The Id. AO has not considered past history of the assessee or any comparable case on the basis of which it can be said that declared NP rate is low. It is stated that the estimate and fixation of net profit rate is important parameter which affect the assessment and if this is fixed or calculated in such a way that it adversely affects the assessee s case, then he is entitled to know the basis. The Courts have held that if the profit shown by the assessee in the return is not accepted, it is for the taxing authorities to show that the assessee
made more profits. 04. It is humbly submitted that the past history of the case as also material collected should be considered for estimation of income. The past history is the best guide where provisions of section 145(3) of the Act are invoked as held in Ajay Goyal vs. ITO (2006) 99 TTJ (Jd) 164, Madan Lal vs. ITO (2006) 99 TTJ (Jd) 538 and CITvs. Popular Electric Co. (P) Ltd. (1993) 203 ITR 630(Cal). 05. In view of the aforesaid factual matrix of the case and various case laws relied upon, it may kindly be observed that though not agreed but even on the basis adopted by the Id. AO, the business results declared in the year under consideration are comparable to the earlier years: (Amount in Rs.) AY NP G/Receipts as NP(%) per 26AS 2013-14 558400 10148711 5.50% 2014-15 574700 11934260 4.82% 2015-16 596713 15061240 3.96%
It may kindly be appreciated that the profit declared by the assessee is comparable in all the years and a marginal decline in NP rate is due to higher receipts. In the year under consideration, the receipts have substantially increased by more than 26%. 06. In view of aforesaid submissions and no comparable case, the addition by application of NP rate needs to be deleted. There is no basis for adopting arbitrary NP rate. The aforesaid facts cannot be brushed aside for estimation of income. There should have been a reasonable nexus to the available material and the circumstances of each case. Without prejudice, it is stated that the estimation of NP rate made by the Id. AO needs to be fair and reasonable. There is no material on record based on which a different estimation can be made. It is stated that it is on higher side and keeping in view the facts and circumstances of the present case, it may be reduced as originally returned by the assessee. Under these facts and circumstances, it is humbly prayed that the appeal may kindly be allowed." 6. The Ld. CIT(A) after considering the submissions of the assessee observed that trading account declared by the assessee revealed that his NPR had been reducing from 5.50%, 4.82% and 3.96% for the A.Y's. 2013-14, 2014-15 and 2015-16 respectively and that the assessee had not advanced any convincing reason for this fall in NPR. Therefore by considering the nature of assessee's business the Ld. CIT(A) directed the Assessing Officer to apply NPR to 5.5% on the total turnover of Rs. 1,50,61,240/-.
Now the assessee is in appeal.
The Ld. Counsel for the Assessee reiterated the submissions made before the authorities below and submitted that the decrease in NPR was due to the increase in the turnover and this fact has not been appreciated in right perspective either by the Assessing Officer or by the Ld. CIT(A). He submitted that the NPR applied by the Ld. CIT(A) was highly excessive.
In his rival submissions the Ld. DR strongly supported the orders of the authorities below.
I have considered the submissions of both the parties and perused the material available on the record. In the present case it appears that the assessee could not produce the proper books of account to justify his claim of lower NPR declared for the year under consideration. At the same time it is noticed that the Ld. CIT(A) applied the NPR of 5.50% by keeping in view the NPR declared by the assessee in the A.Y. 2013-14 which was on the turnover of Rs. 1.01 Crores while the NPR at 4.82% declared by the assessee for the A.Y. 2014-15 on the turnover of Rs. 1.19 Crores was not considered. In the present case, turnover of the assessee for the year under consideration was at Rs. 1.50 Crores i.e; 1.5 time of the turnover for the A.Y. 2013-14. In my opinion the increase in turnover may be a reason for fall in NPR, therefore the NPR applied at 5.50% on the basis of results for the A.Y. 2013-14 by the Ld. CIT(A) was not justified. At the same time the assessee had not maintained or produced the proper books of accounts before the Assessing Officer, therefore in such type of cases the income can be determined by applying the NPR by considering the past history of the assessee. In the instant case the assessee had declared NPR of 4.52% in the preceding year and the NPR declared for the year under consideration was at 3.96%, I therefore to meet the ends of justice deem it appropriate to apply the average NPR declared by the Assessee for the A.Y. 2014-15 and 2015-16 which comes to 4.4%, accordingly the order of the Ld. CIT(A) is modified and the Assessing Officer is directed to apply the NPR of 4.4%.
In the result, appeal of the assessee is partly allowed.
(Order pronounced in the open Court on 28/11/2019)
Sd/- ( N.K. SAINI) VICE PRESIDENT AG Date: 28/11/2019 Copy of the order forwarded to : 1. The Appellant 2. The Respondent 3. CIT 4. The CIT(A), 5. DR, ITAT, Jodhpur, 6. Guard File