2013 (1) TMI 836 - AT - Income Tax

Summary

Issues Involved:
1. Classification of the assessee as a commission agent or transport contractor.
2. Rejection of books of account u/s 145(3) of the IT Act.
3. Reasonableness of net profit rate applied by the Assessing Officer (AO).

Summary:

1. Classification of the Assessee:
The primary issue was whether the assessee was a commission agent or a transport contractor. The assessee claimed to be a commission agent, arranging trucks for consignors and earning commission, while the AO considered the assessee as a transport contractor. The Tribunal held that the assessee was neither a contractor nor an agent but was independently engaged in the transportation business. The difference between the hire charges paid and received represented the assessee's income.

2. Rejection of Books of Account u/s 145(3):
The AO rejected the assessee's books of account u/s 145(3) due to the failure to show gross receipts and reconcile the tax deducted at source (TDS) with the corresponding income. The Tribunal confirmed the AO's action, stating that the books of account were not correct and complete, and the assessee was obliged to reflect the income corresponding to the TDS claimed.

3. Reasonableness of Net Profit Rate:
The AO estimated the net profit at 8% of gross receipts after rejecting the book results. The Tribunal found no justification for the 8% rate and directed the AO to apply a net profit rate of 3.5% (exclusive of all expenses/allowances/deductions under Chapter IV-D of the IT Act) of gross receipts for both assessment years under appeal. This direction was specific to the assessment years under appeal and not a precedent for other years.

Conclusion:
The Tribunal partly allowed the Department's appeals, confirming the rejection of books of account but modifying the net profit rate to 3.5%. The decision emphasized that the principles from cited cases were considered but the ruling was based on the specific facts of the case.