ITO, NEW DELHI vs. MR. RAJINDER KUMAR GUPTA, NEW DELHI

On the facts and circumstances of the case and in law CIT(A) has erred in: 1. deleting the disallowance of expenses to the extent not audited by the assessee amounting to Rs.43,82,013/-; 2. not giving opportunity to the Assessing Officer to verify the expenses; 3. allowing the expenses without verifying the same at the appellate stage;

The facts in brief are that during the relevant year, assessee was engaged in plying trucks in the name of proprietary concern M/s. Achin Road Carriers. The assessee filed return of income on 28/09/2008, declaring income of Rs.2,26,810/- alongwith audit report in forms No. 3CB & 3CD prescribed under Income Tax Rules, 1962. The case of the assessee was selected for scrutiny and notice under section 143(2) and 142 (1) of the Income-tax Act, 1961 (in short ‘the Act’) were issued and served within the stipulated period. During the scrutiny proceedings, the Assessing Officer noticed that the assessee declared gross receipt from six trucks at Rs.54,34,763/- and after claiming expenses of Rs.43,82,013/-, net receipt of Rs.10,52,750/- was shown by the assessee. The assessee submitted details and expenses of each of the six trucks. The Assessing Officer observed that the audit was done with reference to net receipt of Rs.10,52,750/- and not in respect of the gross receipt from the trucks. According to the Assessing Officer, no detail of Truck-wise expenses was furnished. Whereas, the assessee submitted that the profit shown by the assessee was more than the profit as required under section 44AE of the Act. The Assessing Officer initiated penalty under section 271B for non-compliance of the audit provisions and also disallowed the entire expenses of Rs.43,82,013/- claimed against the receipt from the activity of plying trucks on the ground that no books of accounts along with bills/vouchers were produced for verification before him. The learned Commissioner of Income Tax (Appeals) observed that no truck can be plied without expenditure on diesel/oil and divers salary and an income of Rs.46,08,820/- assessed by the Assessing Officer, which is almost 85% of the receipt cannot be earned from the activity of the plying of trucks, therefore, he held that the addition made by the Assessing Officer was in absurdity, and accordingly, he allowed the appeal of the assessee.

In the grounds of appeal raised, the effective ground is in respect of deleting the disallowance of Rs.43,82,013/-, toward truck expenses. 3.1 Before us, the learned Sr. Departmental Representative, relying on the order of the Assessing Officer, submitted that the assessee did not produce books of accounts and vouchers before the Assessing Officer and, therefore, the action of the Assessing Officer in disallowing the expenses was in accordance to law and, therefore, same might be upheld. 3.2 On the other hand, learned Authorized Representative of the assessee submitted that profit shown by the assessee from the activity of plying trucks was more than the amount estimated under the presumptive scheme under section 44AE of the Act in respect of business of plying trucks. The learned Authorized Representative, further submitted that in the case of the assessee in subsequent assessment year i.e. 2009-10, the Assessing Officer has accepted the profit declared by the assessee being more than the income of Rs. 3500 per vehicle provided under the presumptive taxation under section 44AE of the Act. Accordingly, he prayed that the result declared by the assessee might be accepted and the disallowance made by the Assessing Officer, might be deleted. 3.3 We have heard the rival submissions and perused the material on record. We find that in the year under consideration, the assessee had engaged six trucks and as per the provisions of section 44AE(2) of the Act the income from trucks should have been taken at Rs.3,500/- per month for each truck, which works out to Rs.2,52,000/- for the entire year. We find that against this amount of income of Rs.2,52,000/- under section 44AE of the Act, the assessee has declared income of Rs.3,15,614/- in the return of income. Thus, we find that the income declared by the assessee is more than the income which should have been declared under the presumptive taxation scheme under section 44 AE of the Act. Further, as regard to the non-compliance of audit provisions, the Assessing Officer has already initiated the penal proceedings under the Act and, therefore, in the circumstances, the disallowance of entire expenses incurred by the assessee for flying trucks cannot be justified. The learned Commissioner of Income Tax (Appeals) on the issue in dispute has observed as under: “4.4 I have given careful consideration to the arguments put forth by both sides. I have also considered the facts of the case and have carefully gone through the audit report of the assessee u/s.44AB of the Act. On perusal of the Income & Expenditure Account of the assessee for the year ended 31st March, 2008, it is seen that the auditor has shown “Income from Tankers” at Rs. 10,52,750.48 on the income side, giving truck wise breakup of the income. The auditor has been careful, not to mention “Gross receipts” but has carefully mentioned “Income from Tankers”. This narration itself goes on to indicate that the auditor has taken into consideration both the gross receipts as well as the direct expenses and has thereafter arrived at the net figure of income. The Assessing Officer has clearly misunderstood the narration given by the auditor and has arrived at a mistaken belief that the direct expenses have not been audited at all. Furthermore, it is my considered opinion that a proposition which arrives at an absurd conclusion, cannot be accepted. The assessee is correct when he says that no truck can be plied without expenditure on diesel/oil and driver’s salary. Moreover, to arrive at a conclusion that on a gross receipt from plying of trucks of Rs.54,34,763/-, an income of Rs.46,08,820/- can be earned during one year, i.e., approx. 85% of the receipt, is nothing but an absurdity.”

In the result, appeal of the Revenue is dismissed. The decision is pronounced in the open court on 21st October, 2016.