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Income Tax Appellate Tribunal, BENGALURU BENCH A, BENGALURU
Before: SHRI. VIJAY PAL RAO
PER S. JAYARAMAN, ACCOUNTANT MEMBER :
This is an appeal filed by the assessee against the order of the CIT (A), Bengaluru -2, dt.07.10.2015, for the assessment year 2011-12.
2. Shri H. C. Nagarajaiah , the asessee, owns a large number of tourist buses and plies them between Bangalore, Goa and other North Karnataka centres in the name of M/s Sea Bird Tourist Centre. While making the assessment for ay 2011-12, the AO noted that the assessee ITA.68/Bang/2016 Page - 2 had made payments in c a s h f o r t h e p u r c h a s e o f d i e s e l a m o u n t i n g t o Rs.4,22,74,886/- in respect of which the AO listed 31 payments made in cash in the months of February and March 2011 each of which exceeded Rs.20,800/-; that each of the payments made in cash, to M/s Diamond Service Station in the month of October 2010 at Rs.12,43,234/-, was restricted to below Rs.20,000/- in order to escape the rigours of the disallowance u/s 40A(3); that the bata payments made to drivers, etc. in cash at Rs.55,10,440/-; that the amounts paid to M/s General New Treads (probably for retreading of tyres) at Rs 4,26,827/- out of the total expenditure of Rs.8,86,794/- were made in cash, each of which exceeded Rs.20,000/-; that the ‘Halting Bata' paid in cash at Rs.1,38,100/-; that the payments to M/s Jamathi Tyres at Rs.3,47,080/- out of the total expenditure of Rs.18,99,133/- were made in cash, each of which exceeded Rs.20,000/-; that payments to M/s Lathangi Auto at Rs.1,99,983/- out of the total payment of Rs.32,50,698/- were made in cash, each of which exceeded Rs.20,000/-; that the expenses incurred for welfare, wages, pooja and also for purchase of vehicles were also made in cash. According to the AO, the assessee cannot blindly incur 40% of the expenditure in cash as it constitutes distortion of the accounting system and it is trying to evade correct computation of its income apart from making s imu ltaneous ly cash sys tem o f pu rchases an d sales .
Accordingly, the AO rejected the books of accounts invoking the ITA.68/Bang/2016 Page - 3 provisions of section 145 and estimated the profit from business at Rs.1,32,74,872/- from which he gave credit for interest payment of Rs.52,89,832/- and computed the income from business at Rs.79,85,040/-. To this, the AO added income of Rs.46,700/- earned from chits. The aggregate of the amounts estimated and brought to tax under business is shown at Rs. 80,25,640/-. Further, the AO found that payments to M/S Nikhil and Company at Rs.12,59,832/- were made in cash, each of which exceeded Rs.20,000/- and hence disallowed it u/s 40A(3) . Aggrieved, the assessee filed an appeal before the CIT (A) and the CIT (A) dismissed the appeal. Against that order, the assessee filed this appeal with following grounds:
1. The order of the learned assessing officer is erroneous on the facts and in the law. On the facts and in the circumstances of the case he ought to have accepted the returned income. The learned CIT (Appeals) erred in dismissing the Appeal by upholding the order of the learned Assessing Officer passed u/s 144 as there is no reason to reject the books of accounts maintained and duly audited u/s 44AB.
The learned Assessing officer has failed to understand the nature of business. The appellant is into business of Bus Operation which is an unorganized sector and involves cash expenditures. Failing to consider the nature of business and rejecting the books of accounts without reason and adopting the estimated net profit at 8% of the Turnover ignoring the audited net profit is against the principles of natural justice. Business situation and conditions will vary year to year and adoption of net profit @ 8% or adopting average net profit is against the principles of natural justice.
Hence, the appellant pleads to delete the additional income of Rs.80,25,640 by adopting net profit @ 8 % of the turnover.
3. The appellant has followed accounting method matching to the requirements of the business. It was operating nearly 50 buses ITA.68/Bang/2016 Page - 4
which plys in different routes and it is inevitable in the bus operation sector that each bus has to refill diesel at various locations when diesel tank gets empty. Such expenditures are reported to accounts section sitting in one location which makes day wise consolidated payment entries for all the buses together as a matter of convenience and control. Disallowing expenditures u/s 40A(3) assuming that payments are made above Rs.20,000 per day to single person is only wrong assumption on the part of the learned assessing officer and is against the principles of natural justice.
Hence, the appellant pleads to delete the addition of Rs. 12,59,832 which was added u/s 40 A(3) of the Income Tax Act, 1961.
The appellant pleads to cancel the corresponding penalty proceedings u/s 274 read with section 271(1)(c) initiated by the learned Assessing Officer.
The appellant craves to add. alter or delete such other grounds as may be deemed necessary during the course of appellate proceedings.
We have heard the rival submissions and gone through the relevant material. The relevant portion of the CIT (A) order is extracted as under :
“5.0 During the course of appeal I have made an attempt to verify the accounts of the appellant, and attempted to test check whether the appellant could explain with at least a sample of expenses whether these could be correlated to the trips or the vehicles even if these were incurred in cash. The appellant stated before me that "Sea Bird uses software naming 'Bitla' for taking the booking from passengers directly or through branches/agencies/brokers. Trip sheet is generated using this software will have details like Coach No(Bus No), date, Origin, Destination, Journey time, Dropping Off, Seat Nos, Passenger Name, Driver's Name, Conductor's Name. Expenses during journey like Toll, Parking Fee, RTO etc are spent by the Conductor using ticket collection amount/advance amount. Sample of Trip sheets with supporting bills are hereby attached. Garrage Bills - We have attached sample of Lathangi Auto Garrage Bills -ForFY 10-11 and Garrage Expenses sheet at Own Garrage for the current FY (i.e.14-15) just for reference". However, no bills for the relevant period were actually produced despite repeated opportunity. In fact, it was stated that these were not available.
Thus, the appellant could not produce any "details or vouchers or evidence" other than that entered in the books. If the appellant's claim that the cash is paid to the bus drivers or conductors who ITA.68/Bang/2016 Page - 5 in turn had made the actual expenditure were to be accepted, then complete details w o u l d b e a v a i l a b l e i n r e s p e c t o f t r i p s h e e t s o f expenditure. The appellant has failed to show any such detail or evidence even during the course of appeal. While the travel/trip bookings are shown to be computerised, no Further details in respect of the expenditure is shown.
As rightly pointed out by the Assessing Officer, large amounts of expenses are in cash, where Section 40A (3) is attracted. Also, even where cash payments are shown to be Rs.19,500/- (i.e. less than Rs.20,000/-), no details or bills or vouchers are available. Substantial payments are for diesel purchase, and to service stations and the appellant is unable to substantiate the same. Mere audited books has no meaning when the corresponding bills/vouchers are neither available to be produced nor the expenses can be correlated to the trips made or shown to be payments to drivers/conductors trip wise, nor any further details available.
5.1 During the course of appeal, the appellant has also furnished a working of declared profits for the earlier years as under:
ITA.68/Bang/2016 Page - 6
This also shows that profits for the year in question at 15.58% is substantially lower than earlier years. This is also not explainable. Under such facts, I am in agreement with the Assessing Officer that the books of accounts are not reliable and have rightly been rejected u/s 145. As regards, non issue of notice u/s 144(1) prior to best judgement assessment, this ground does not survive as the Assessing Officer has issued notice u/s 142(1) prior to the said assessment. The requirement in 2nd provisio to section 144(1) is clearly met and there is no infirmity in the action of the Assessing Officer in this regard. Having rejected the books of accounts, whether working of profits at 8% of Turnover is in order?
A close look at the profits in earlier years shows that profits (before depreciation) was declared at 18.74% for A.Y.2008-89, 22.40% for A.Y.2009-10 and 18.33% for AY.2010-11. At an average of 19.8%, the profit would come to Rs. 3,28,55,308/-. After allowing depreciation of Rs.2,37,31,793/-(as claimed) separately, the same would be assessable at Rs.91,23,515/-, which is very close to the assessment made by the Assessing Officer at Rs.92,85,475/- in adopting flat 8% of turnover as profit taking cue from provisions of section 44AD.
6.0 Under such facts, no interference is called for on assessment made by the AO which is upheld.”
From the above, it is clear that the assessee could not lay any material before the CIT (A) and in the facts circumstances mentioned, supra , CIT (A) has analysed the assessee’s business results of the earlier years and arrived the average GP rate at 19.8% before depreciation and on such rate , on the admitted turnover (on ITA.68/Bang/2016 Page - 7 which there is no dispute), She arrived the gross profit at Rs. 3,28,55,308/-. After allowing depreciation of Rs. 2,37,31,793/- claimed by the assessee , the CIT (A) has arrived the net profit at Rs.91,23,515/-. Since the method adopted by the CIT (A) is one of established methods and the assessee could not produce any material to assail such findings, we confirm the addition at Rs.91,23,515/-only. Once the book results are rejected and the income is estimated, then no disallowance can be made on the basis of such rejected book results. In view of that the addition made u/s 40A (3) at Rs.12,59,832/- and also sustained by the CIT (A) is held as unwarranted and hence it is deleted.
In the result, the assessee’s appeal is partly allowed.
Order pronounced in the open court on 10th day of February, 2017.