2012 (9) TMI 681 - AT - Income Tax

Rejection of books of account u/s 145 - AO apply GP rate to calculate Net profit Held that - As the books was not produced before the AO nor before CIT(A) for verification and the audit report mentioning fact that there was no requirement for deduction of TDS on hire charges paid which was below the prescribed limit, cannot be accepted in the absence of books of account and payment vouchers. Therefore, the action of the AO for rejection of books of account was correct. Disallowance u/s 40(a)(ia) - Assessee is engaged in the business of transport contract - Takes transport contract and give contracts to truck operators for transporting the goods - The assessee did not file reply to the queries or documents asked for by the AO - The books of account and bills and vouchers were also not produced - AO rejected the books of account and estimated the net profit @ 8% of total receipts Held that - Once the books of account are rejected and profit is estimated, there is no reason to make further disallowance of any of the expenditure. Where profit is assessed on estimated basis by applying net profit rate, the expenses are deemed to be considered and no further deduction is to be allowed or disallowed. Appeal decides in favour of assessee

Summary

Issues:
Cross appeals filed by the assessee and Revenue against the order of CIT(A) for the assessment year 2006-07.

Analysis:
1. The assessee company, engaged in transport contracts, did not deduct TDS for payments to truck operators, leading to disallowance under section 40(a)(ia). The Assessing Officer rejected the books of account and estimated net profit at 8% of total receipts, making an addition of Rs. 20,06,458.

2. The CIT(A) upheld the rejection of books of account but reduced the addition to Rs. 7,95,477, disallowing 40% of expenses. The assessee contested the disallowance under section 40(a)(ia), while the Revenue challenged the reduced net profit estimation.

3. The Tribunal noted the business nature of the assessee and the net profit rate shown. Despite audited accounts, the books of account were not produced due to a partner dispute. The Assessing Officer disallowed hire charges and estimated profit at 8%, citing non-production of books.

4. The Tribunal agreed with the CIT DR that transport charges fell under section 194C for TDS deduction. Without produced books, the audit report's TDS exemption claim was deemed unacceptable.

5. Rejecting the books justified estimating profit at 8%. Citing legal precedents, the Tribunal held that after estimating profit, no further disallowance should be made under section 40(a)(ia). The lower authorities' actions were deemed unwarranted post-profit estimation.

6. The Tribunal modified the lower authorities' order, directing the Assessing Officer to calculate income at an 8% net profit rate on total hire charges. No additional disallowance under section 40(a)(ia) was deemed necessary.

7. Consequently, the Revenue's appeal was dismissed, while the assessee's appeal was partially allowed.