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2011 (4) TMI 637 - AT - Income TaxEstimation of net profit - shipping business income - The assessee has not been able to file proper evidence relating to the shipping business along with the entire documentation relation to ownership, hired vessels and other movement details along with the revenue received from each one - The details of slotting business could not be filled - Accordingly, invoking of rule 10 of the Rules, by the Assessing Officer is justified and confirmed - Held that estimation of net profit at 10 per cent against 7.5 per cent profit mentioned in section 44B, the estimation made by the AO appears to be reasonable and confirmed. Interests of justice - If the assessee could not file certificate, documents because of internal disturbances in its country Iran, then at least DRP could have examined the documents which were filed before it - May be one or two documents are identical, but it does not mean that all the documents are same - Therefore, in the interests of justice, set aside the order passed by the DRP and remit the matter back to the file of the Assessing Officer with a direction to examine all the documents filed even before the DRP or assessee may be required to file fresh documents which may prove that assessee was operating ships - Needless to say that assessee should be provided an adequate opportunity before coming to a conclusion. Determination of taxable income u/s 44B - Service tax - Service tax which is a statutory liability, would not involve any element of profits and a service provider is collecting the same from its customers on behalf of the Government and, accordingly, same cannot be included in the total receipts for determining the presumptive income - Therefore, set aside the order of the DRP in this regard and direct the Assessing Officer not to include the amount of service tax in the total receipts for determining the income u/s 44B.
Issues Involved:
1. Assessment of income under Rule 10 versus Section 44B of the Income-tax Act. 2. Inclusion of service tax in the gross receipts for determining taxable income. Issue-wise Detailed Analysis: 1. Assessment of Income under Rule 10 versus Section 44B of the Income-tax Act: In this case, the assessee challenged the assessment of income at 10% of gross receipts under Rule 10 of the Income-tax Rules, 1962, instead of under Section 44B. The assessee filed a return declaring income at 7.5% of total collections as per Section 44B read with Section 172 of the Income-tax Act. The Assessing Officer (AO) required the assessee to substantiate its claim of operating ships by providing ship register certificates. The assessee provided certificates for two owned vessels and three chartered vessels, which the AO found insufficient. The AO noted the lack of independent evidence such as certificates issued by port authorities, Import General Manifest/Export General Manifest, and other documents linking the vessels to India. Consequently, the AO concluded that the assessee did not prove it was deriving income from the operation of ships and estimated the income at 10% of gross receipts under Rule 10. The Dispute Resolution Panel (DRP) upheld the AO's decision, stating that the assessee failed to provide adequate evidence of ownership and operation of vessels. The DRP found the AO's estimation of net profit at 10% reasonable. The assessee argued that internal disturbances in Iran prevented the submission of certain documents and that the DRP failed to consider documents filed before it. The assessee highlighted that in previous and subsequent years, income was accepted under Section 44B. The Tribunal agreed with the assessee, noting that the DRP should have examined the documents filed. The Tribunal set aside the DRP's order and remitted the matter back to the AO for fresh examination, directing the AO to consider all documents and provide the assessee with an adequate opportunity to present its case. 2. Inclusion of Service Tax in Gross Receipts: The second issue involved the inclusion of service tax in gross receipts for determining taxable income. The AO included Rs. 3,12,20,008 of service tax in the gross receipts and applied a 10% profit rate. The DRP confirmed this inclusion, relying on the Tribunal's decision in the case of Technip Offshore Contracting BV. The assessee argued that service tax is a statutory levy collected on behalf of the Government and should not be included in gross receipts, citing the Bombay High Court's decision in CIT v. Sudershan Chemical Industries Ltd. and the Uttarakhand High Court's decision in DIT v. Schlumberger Asia Services Ltd., which held that statutory levies like excise duty and customs duty should not be included in total turnover as they do not involve any profit element. The Tribunal found force in the assessee's submissions, agreeing that service tax, being a statutory liability, does not involve any profit element and should not be included in total receipts for determining presumptive income. The Tribunal set aside the DRP's order on this issue and directed the AO not to include the amount of service tax in the total receipts for determining income under Section 44B. Conclusion: The appeal was partly allowed. The Tribunal remitted the matter back to the AO for fresh examination of documents regarding the operation of ships and directed the AO not to include service tax in the gross receipts for determining taxable income under Section 44B.
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