2012 (6) TMI 828 - AT - Income Tax

Estimation of income at 5% of the gross receipts - Addition made towards the income of the assessee, who is engaged in supply of vehicles for goods transportation - deduction of interest and remuneration to partners claimed by the appellant in view of the provisions of Sec.40(b) - Held that - The estimation of income of the assessee made by the assessing officer adopting a rate of 5% is on higher side, and it would meet the ends of justice if the income is estimated applying a rate of 3%. In deciding the issue as above, we considered the fact that the assessee does not own trucks used in the business and is incurring huge incidental expenditure. From such income estimated applying rate of 3%, deduction towards interest and remuneration to partners in terms of S.40(b) of the Act may be allowed. Impugned order of the CIT(A) is set aside, and the assessing officer is directed to recompute the income of the assessee. Accordingly, assessee s ground No.2 is partly allowed and ground No3 is allowed.

Summary

Issues Involved:
Dispute over estimated addition towards the income of the assessee engaged in supply of vehicles for goods transportation.

Analysis:
The appeal was against the order of the Commissioner of Income-tax(Appeals) for the assessment year 2008-09. The main contentions of the assessee were regarding the estimation of income at 5% of the gross receipts, claiming it to be on the higher side and seeking a reduction in the percentage adopted by the Assessing officer. Additionally, the assessee argued for the deduction of interest and remuneration to partners under Sec.40(b) of the Income Tax Act. The assessing officer had estimated the income at 5% of the total turnover, which was upheld by the CIT(A). However, upon review, the ITAT Hyderabad found the estimation to be on the higher side and reduced it to 3%. The ITAT considered the fact that the assessee did not own trucks used in the business and had significant incidental expenditure. Citing a precedent, the ITAT directed the assessing officer to allow deductions towards interest and remuneration to partners from the estimated income. Consequently, the impugned order of the CIT(A) was set aside, and the assessing officer was instructed to recompute the income of the assessee, partially allowing the assessee's grounds.

Conclusion:
The ITAT Hyderabad, comprising of Shri D.Karunakara Rao, Accountant Member, and Shri Saktijit Dey, Judicial Member, partially allowed the appeal of the assessee, emphasizing the need for a more reasonable estimation of income and the allowance of deductions as per the provisions of the Income Tax Act. The decision highlighted the importance of considering all relevant factors and precedents in determining the income of the assessee engaged in the supply of vehicles for goods transportation.