2018 (10) TMI 1219 - AT - Income Tax

Estimation of income - rejection of books of accounts - assessee failure to produce the books of account/bills etc. - Genuineness of expenditure - loading/ unloading and hire charges for vehicle - CIT-A upholding the estimation of Income @5% of gross turnover - Held that - Assessee has made transport business to the extent of ₹ 20.34 crores. He maintains or arranges lorry from others for the purpose of transport. The average hire charges per lorry ranges from ₹ 3,000/- to ₹ 10,000/- according to the distance/load. The assessee maintains books on gross daily receipts and payments. He maintains separate register for collection of advance and final collection with the full details of trips based on each lorry. This traceable with the lorry registration number. The particular trip sheet contains the advance collection, hamali charges for loading and unloading charges. These are traceable on day-wise/trip-wise. These micro information are not available in the regular receipts & payment register maintained by the assessee. In our view, each industry has its own method of accounting. AO has to understand the system of the particular industry. In this case, the ld. CIT(A) has verified the system himself and found to be proper. We are in agreement with the findings of ld. CIT(A). Addition u/s 68 - Held that - We notice that assessee maintains cash book for all these ventures and wherever there is requirement in all three ventures, he utilizes the funds. In that process, in the hands of the assessee, he controls the same in his capital account. AO has accumulated the whole year transactions and came to the conclusion that there is huge capital introduced. In the day to day activities, the requirement of capital is across the venture/business may not be to that extent. It is the maximum utilization of available funds as per the method suitable to the assessee. AO cannot determine how the cash should be utilized in the business. Ld. CIT(A) has already verified the method of accounting and he has satisfied with the method. AO has not even tried to understand the method followed by the assessee and we are in agreement with the findings of ld. CIT(A). Accordingly, we uphold the action of the CIT(A) in deleting the addition Revenue appeal dismissed

Summary

Issues Involved:
1. Rejection of Books of Accounts and Estimation of Income.
2. Addition under Section 68 of the Income-tax Act, 1961.

Detailed Analysis:

Issue 1: Rejection of Books of Accounts and Estimation of Income

The Assessing Officer (AO) rejected the books of accounts of the assessee, who is a proprietor of two concerns, due to the failure to produce proper bills/vouchers for hire charges and other expenses. The AO estimated the income at 5% of gross receipts, amounting to ?1,01,73,579/-, as the entries in the account books were not verifiable.

Before the CIT(A), the assessee's Authorized Representative (AR) argued that detailed records were maintained, including advance vouchers, lorry hire pay orders, consignment notes, and daily trip details. The AR emphasized that the books of accounts were audited, and the system of record-maintenance was comprehensive.

The CIT(A) examined the specimen bills and vouchers and concluded that the records were capable of cross-verification. The CIT(A) found no reason to reject the books of accounts and directed the AO to accept the profit returned by the assessee.

The Tribunal agreed with the CIT(A), noting that the assessee maintained traceable records for each transaction and that the AO failed to understand the accounting method specific to the transport industry. Hence, the Tribunal dismissed the revenue's grounds on this issue.

Issue 2: Addition under Section 68 of the Income-tax Act, 1961

The AO added ?83,20,000/- under Section 68, observing that the assessee made substantial cash deposits without proper explanation. The AO noted discrepancies between the cash book and capital account, questioning the cash availability from the assessee's proprietary concerns.

The AR explained that the assessee operated three distinct businesses and followed an unusual but acceptable method of accounting, recording payments for the use of own lorries in the books of one concern and reintroducing the cash as needed.

The CIT(A) verified the cash book and supporting documents, confirming the assessee's method of recording transactions. The CIT(A) accepted the explanation that the cash deposits were from the assessee's other proprietary businesses and deleted the addition.

The Tribunal upheld the CIT(A)'s decision, agreeing that the AO failed to understand the assessee's accounting method. The Tribunal noted that the CIT(A) had thoroughly verified the records and found the method acceptable. Thus, the Tribunal dismissed the revenue's ground on this issue.

Conclusion:

The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s decisions to accept the assessee's books of accounts and delete the addition under Section 68. The Tribunal emphasized the importance of understanding industry-specific accounting methods and the thorough verification conducted by the CIT(A).