Omprakash Bansal , Jaipur vs Assessee

Jh vkj-ih-rksykuh] U;kf;d lnL; ,oa Jh Vh-vkj-ehuk] ys[kk lnL; ds le{k BEFORE: SHRI R.P. TOLANI, JM & SHRI T.R. MEENA, AM

vk;dj vihy la-@ITA No. 734/JP/2012 fu/kZkj.k o"kZ@Assessment Year : 2008-09

Shri Om Prakash Bansal cuke The ITO S/o Shri Ramavtar Vs. Ward- Behror RTM Wale Garh Colony Behror Kotputli Distt. Jaipur

LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AIWPB 8662 R vihykFkhZ@Appellant izR;FkhZ@Respondent

jktLo dh vksj ls@ Revenue by : Shri Rajesh Ojha, JCIT fu/kZkfjrh dh vksj ls@ Assessee by : Shri Mahendra Gargieya

lquokbZ dh rkjh[k@ Date of Hearing : 30/04/2015 ?kks"k.kk dh rkjh[k@ Date of Pronouncement : 5/06/2015

vkns'k@ ORDER

PER R.P. TOLANI, JM

This is an appeal filed by the assessee against the order of the ld.

CIT(A), Alwar dated 27-07-2012 for the assessment year 2008-09

raising following ground.

''The ld. AO has erred in making trading addition of Rs. 7,59,500/- on account of trading addition and ld. CIT(A) has erred in confirming the same.'' 2 ITA No. 734/JP/2012 Om Prakash Bansal vs. ITO, Behror

2.1 During the course of hearing, the ld. Counsel for the assessee

contends that rejection of books of account u/s 145(3) is not under

challenge.

3.1 Brief facts of the case are that the assessee carries on business of

transport booking agent and he did not own any truck but the

transportation is arranged by hiring the trucks from open market for

transportation of cement bags. During the course of assessment

proceedings, the AO observed that :-

''During the year, the assessee has shown receipt of freight of Rs. 22,24,36,643/- and payment of freight of Rs. 2,17,98,232/- thereby declared gross profit of Rs. 6,38,411/-. After claiming expenses of Rs. 5,32,176, net profit of Rs. 1,37,965/- giving net profit rate of 0.61% had been declared.

The assessee has claimed above expenses of Rs.

2,17,98,232/- on account of freight payment for the trucks engaged from sub-contractors. Voluminous details have been obtained and placed on file. After examining the records produced by the assessee during the course of assessment proceedings and books of account following position emerged:-

The assessee's contention that freight received from parties has been passed on to sub-contractors after deducting commission is factually incorrect for the reason that :-

(a) That the assessee has not issued / maintained any receipt / voucher regarding receiving of fixed commission.

Therefore, it is not verifiable from the records maintained by the assessee that commission booked in the books of account is correct.

3 ITA No. 734/JP/2012

Om Prakash Bansal vs. ITO, Behror

(b) At the time of making payment to various sub- contractors / truck drivers assessee does not obtain any receipt vide order sheet entry dated 25-11-2010, assessee's A/R was communicated this fact. The assessee filed affidavits of 3 truck owners namely Shri Ramesh Soni, Ramesh Chand Yadav and Shri Babu Lal Yadav wherein it has been stated that they have provided their truck to the assessee and received freight as per G.R. amount after deducting commission or bilty charges and TDS.

The assessee was asked to furnish his explanation for not obtaining of any receipt at the time of payment of freight to various truck owners and drivers. He was also asked to explain as to why the receipt regarding charging of commission has not been issued.

In compliance, A.R. of the assessee has furnished written reply dated 2-12-2010 which is reproduced as under:-

''As we have already submitted that when goods are dispatched, a G.R. (Bilty) is prepared on which all the information are noted like name of consignor, name of the consignee, name of transporter, number of truck and amount of total freight . One copy of this GR is given to the truck driver. When goods are safely reached at the destination by the truck driver then he returned this Bilty to transporter. On receipt of this Bilty, transporter credit the account of truck owner by the amounts of freight as noted on Billty minus his commission or Bilty charges which vary from Rs. 300/- to Rs. 550/-. After receipt of payment from the company, assessee makes the payment to truck driver/ owners.

Amount of transportation charges is mentioned on the Bilty. Therefore, Bilty itself is an evidence of transportation charges payable to truck operation/ driver. There is no necessity of any further receipt. The only dispute may arise on the amount of Bilty charges or commission of transporter. For verification of this, you can make an enquiry form the truck drivers/ operators who have provided their trucks to the assessee. Further it is most import to mention here that transportation charges paid or payable to truck drivers are subject to TDS, therefore, a prudent truck operator will never accept lesser amount than shown in the TDS certificate. Hence, possibility of manipulation of transportation charges paid 4 ITA No. 734/JP/2012 Om Prakash Bansal vs. ITO, Behror

is totally ruled out. Acknowledgement of Form No. 16 (TDS Certificate) itself is receipt of transportation charges paid to truck owners. Therefore, there is no necessity of any further receipt.

I have considered the details furnished by the assessee. In this case, it is found that the assessee has claimed excessive payment on account of freight. The assessee has tried to justify that the entire freight received has been passed on to the truck owners and he has received commission of Rs. 300/- to Rs. 550/- per truck, which is factually incorrect. This stand is supported with the fact that assessee has not obtained any receipt regarding payment from various truck operators. Assessee himself and various truck drivers/ owners have admitted in their statement recorded during the course of assessment proceedings that their signatures are not obtained by the assessee while paying the payments.

To verify the above facts, A/R was asked to produce the assessee himself. Summon u/s 131 of the I.T. Act, 1961 were issued to various truck owners namely Shri Ramesh Soni, Shri Ramesh Chand and Shri Babu Lal Yadav. Statement of assessee and Shri Ramesh Soni were recorded on 02-12-2010. Shri Ramesh Chand Yadav and Shri Babu Lal did not attend on the given date.

In reply to Q.No. 2 of the statement recorded during the course of assessment proceedings on 02-12-2010, assessee Shri Om Prakash Bansal has replied that as and when the truck owner/ driver produce the receipt of unloading of goods, we pay freight to the concerned truck owner/ driver immediately or after sometime but do not obtain any receipt of payment of freight.

.....On further examination of profit and loss account, it is seen that assessee has claimed various expense which are not vouched. As sub-clause, the claim of these expenses are not subject to proper verification. Details are as under:-

1. 07-11-2007 cash paid for purchase of sweets (not vouched) Rs. 8,000/-.

5 ITA No. 734/JP/2012 Om Prakash Bansal vs. ITO, Behror

2. On various dates cash paid to Shri Babu Lal @ Rs. 6,000/-

per month. Total amount is Rs. 30,000/-. Nature and purpose of payment is not explained.

3. Payment under the head of traveling expenses has been made at Rs. 31,723/- .

Most of the payment has been made to assessee himself and Vishal Bansal, who is specified person. These payments are partly vouched and expenses of personal in nature are also included therein.

Above facts and discussions are clearly indicating that assessee has paid lesser amount to the Sub-Contractor resulting into saving in freight received and paid. Commission is only a symbolic amount. Thus the claim of freight payment shown in the books of account is not verifiable in absence of receipts obtained from the Sub-Contractor / various truck owners/ drivers. The assessee has also not issued any receipt/ vouchers regarding receiving of commission. Since the books maintained by the assessee are not proper and defective in terms of the facts that no records regarding making part payment of freight is maintained and no receipt is issued for charging of fixed commission and claim of various expenses are either unvouched or partly vouched, provisions of Section 145(3) are clearly applicable in this case. Vide Order sheet entry dated 25-11-2010, this fact has been communicated to the assessee to offer to his explanation. No reply has been furnished.

In view of the above detailed discussion, I consider it fair and reasonable to estimate the income of the assessee by applying net profit rate of 4% as held by the Hon'ble ITAT, Jaipur Bench, Jaipur in the case of similar nature and of nearby place of Shri Ramniwas Yadav Prop. Shree Krishna Freight, Bansur (ITA No. 26/JP/2010 dated 3-09-2010) on the declared freight receipt of Rs. 2,24,36,643/- which works out to Rs. 8,97,465/- as against Rs. 1,37,965/- declared by the assessee. Accordingly trading addition of Rs. 7,59,500/- is being made by applying the provisions of Section 145(3) of the I.T. Act, 61. This same is added to the total income of the assessee.'' 6 ITA No. 734/JP/2012 Om Prakash Bansal vs. ITO, Behror

3.2 Aggrieved, the assessee preferred first appeal where the ld. CIT(A)

confirmed the order of the AO and dismissed the appeal of the assessee

by following observations:-.

''(B) I find that the AO has estimated the income of the appellant applying net profit rate of 4% on gross receipts following the decision of Hon'ble I.T. Act Jaipur Bench in the case of similar nature of nearby place of Shri Ram Niwas Yadav Prop. Shree Krishana Freight, Bansur (ITA No. 26/JP/2010 dated 03-09-2010) and has made a trading addition of Rs. 7,59,500/-

The AR submitted that the AO neither discussed the entire facts of the comparable case with the appellant nor he brought this fact to the knowledge of the assessee. A copy of the said order of Hon'ble Income Tax Appellate Tribunal was made available to the A.R. for his comments. It higher side been submitted that in the case of Shri Ram Niwas Yadav only bilty charges was credited in the profit and loss account . In that case party-wise details of receipt and the payments were not maintained. The appellant has credited gross freight receipts inclusive of TDS in the profit and loss account and TDS has also been deducted from the payments made in the most of the cases. It has been submitted that the accounts of the appellant were audited u/s 44AB of the I.T. Act.

It has been further submitted that the net profit rate of 4% applied in the case of appellant is on the higher side because the appellant is merely a transport agent who is arranging the trucks for various customers from the actual truck owners and receives only a small amount as commission/ bilty charges. The appellant has cited cases of certain truck owners where the net profit rate has been shown in the range of 2.05% to 2.8%. It has also been submitted that in the appellant's own case for A.Y. 2009-10, the AO has made a trading addition of Rs. 2 lacs which 7 ITA No. 734/JP/2012 Om Prakash Bansal vs. ITO, Behror

would result in net profit rate of 1.75% of total transportation receipts of Rs. 308.97 lacs....

........I find that in both the cases, what is verifiable with proper evidence is total gross receipts of freight. The actual receipts regarding net payment of freight made to the truck owners or net receipt of bilty charges/ commission by the appellant is not verifiable in both the cases. Therefore, the AO has rightly applied net profit rate at 4% of gross freight receipt to estimate the income of the appellant since the facts of the case and the nature of trade is similar to that of the case of Shri Ram Niwas Yadav cited above. In view of above, the trading addition of Rs. 7,59,500/- is sustained.''

3.3 Aggrieved, the assessee is before us.

3.4 The ld. Counsel for the assessee contends that rejection of books of

account u/s 145(3) of the Act does not confer the power to make arbitrary

assessment and if the past history of the assessee is favorably comparable

then no trading addition can be made. Reliance is placed on the following

case laws.

(i) CIT vs. Gotan Lime Khaniz Udyog, 256 ITR 243 (Raj.)

(ii) Ajay Goyal vs. ITO (2006), 99 TTJ 164 (JP)

(iii) Ishwar Lal Saini (ITA No. 252/JP/2010) dated 5-08- 2011, Jaipur Bench),

To judge the reasonableness of the trading results declared, it is always

that gross profit rate which is normally taken into consideration and not

the net profit rate inasmuch as there were various indirect expenses like 8 ITA No. 734/JP/2012 Om Prakash Bansal vs. ITO, Behror

interest, salary depreciation etc. which keeps on varying and do not have

any nexus with the actual functioning/ operation of the enterprise.

Therefore, in the cases of civil contractors or transporters modified gross

profit is usually considered which is nothing but the net profit rate subject

to the deduction of depreciation, salary to others/ partners and interest. In

the instant case the declared GP rate is 2.85% however, after deducting

indirect expenses of Rs. 5,32,176/- the net profit came to Rs. 0.614%. The

lower authorities instead of considering the gross profit rate wrongly

considered the net profit rate. In the next year i.e. assessment year 2009-

10, the gross profit rate shown by the assessee is at 2.411% as against

2.5% in the impugned year. Therefore, there was no justification in the

estimation of net profit rate. Ld. CIT(A) erred in confirming 4% net

profit rate as if indirect expenses are added back the net profit rate of the

assessee is comparable. Shri Ramesh Chand Soni, Shri Ramesh Chand

Yadav and Shri Babu Lal Yadav are owners of the trucks and are income

tax assessees and the truck owners are not able to earn more than 3% net

profit rate. If 4% net profit rate is adopted then the commission per truck

comes to higher figure of Rs. 1,275/- The assessment for the assessment

year 2009-10 was framed u/s 145(3) by the same AO and a lump sum

addition of Rs. 2.00 lacs was made resulting net profit rate at 1.75% 9 ITA No. 734/JP/2012 Om Prakash Bansal vs. ITO, Behror

which has been further reduced by CIT(A) to Rs. 50,000/-. Thus the net

profit rate of 4% applied by the AO is highly unjustified.

3.5 The ld. DR supported the order of lower authorities and contends

that the assessee by a systematic design do not maintain proper records

and books of account consequently a fair and proper investigation is

rendered impossible and assessment is to be made on estimate basis. The

basis & % of estimate for every year is a question of attendant facts and

circumstances and it cannot be static for ever year. Therefore, the

comparison with subsequent year i.e. 2009-10 has no comparable basis,

ld. DR relied on the orders of the lower authorities.

3.6 We have heard the rival contentions and perused the materials

available on record. The assessee's books have been rejected year after

year and estimate has varied in each year. The ld. Counsel for the

assessee has requested for addition on lump sum basis which in our view

is not a scientific method and cannot be adopted in assessee's case. Thus

looking at the repeated failure of not maintaining proper books, despite a

voluminous business, nature of the business and the transactions, assessee

cannot be allowed to escape the situation created by his own default and

demand a lump sum addition. Assessee cannot claim advantage of lesser

addition by getting the books rejected year after year and avoiding the 10 ITA No. 734/JP/2012 Om Prakash Bansal vs. ITO, Behror

maintenance of proper books of accounts. In the entirety of the facts and

circumstances of the case, we take a lenient view and direct the AO to

adopt estimate of 2.5% (against 4% adopted) of net profit rate on

transportation receipts, which will meet the ends of justice. The AO is

directed to calculate the taxable income accordingly. Thus the appeal of

the assessee is partly allowed.

4.0 In the result, the appeal of the assessee is partly allowed.

Order pronounced in the open court on 5/06/2015.

Sd/- Sd/- ¼Vh-vkj-ehuk½ ¼vkj-ih-rksykuh½ (T.R. Meena) (R.P.Tolani) ys[kk lnL;@ Accountant Member U;kf;d lnL;@Judicial Member

Tk;iqj@Jaipur fnukad@Dated:- 5/06/ 2015 *Mishra

vkns'k dh izfrfyfi vxzfs 'kr@Copy of the order forwarded to:

1. vihykFkhZ@The Appellant- Shri Om Prakash Bansal, Kotputli, Jaipur

2. izR;FkhZ@ The Respondent- The ITO,Ward- Behror

3. vk;dj vk;qDr¼vihy ) @ CIT(A)

4. vk;dj vk;qDr@ CIT

5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur

6. xkMZ QkbZy@ Guard File (ITA No.734/JP/2012)

vkns'kkuqlkj@ By order,

lgk;d iathdkj@ Assistant. Registrar 11 ITA No. 734/JP/2012 Om Prakash Bansal vs. ITO, Behror