2015 (3) TMI 675 - AT - Income Tax

Adoption of net profit rate for estimating the income from transport business - CIT(A) restricted the estimation of income made by the AO by adopting the net profit rate of 5% instead of 10% applied by the Assessing Officer - Held that - The assessee firm is not having vehicles of its own and thus, there is no question of claiming any depreciation allowance. The entire business of transportation is carried on by the assessee by engaging the vehicles of third parties, and as rightly contended on behalf of the assessee the net profit margin of the assessee is bound to be lower since the assessee is required to share some profit with the owners of the vehicles. Thus the net profit rate of 5% applied by the learned CIT(A) to estimate the income of the assessee from transport business is quite fair and reasonable, and upholding the impugned order of the CIT(A) on this issue - Decided against Revenue. Inclusion of incentive and bonus in the gross transport receipts for the purpose of applying the net profit rate by CIT(A) - AO adding the said amounts separately to the total income of the assessee - Held that - the income by way of incentive and bonus is directly linked to the transport business of the assessee, and since the same, forms an integral part of the gross receipts of the assessee s transport business, it cannot be added separately for the purpose of computing the income of the assessee by applying a net profit rate. Moreover, once the books of account are rejected and the income of the assessee is estimated by applying a net profit rate, the net profit rate so adopted is required to be applied to the gross receipts of the transport business and as held in the case of Maddi Sudarshanam Oil Mills Co. (1959 (2) TMI 27 - ANDHRA PRADESH HIGH COURT), the business receipts relating to the same business, such as incentive and bonus cannot be added separately.- Decided against Revenue.

Summary

Issues:
1. Estimation of income by applying net profit rate.
2. Inclusion of incentive and bonus in gross receipts for income estimation.

Estimation of Income by Applying Net Profit Rate:
The appeal was filed by the Revenue against the order of the Commissioner of Income-tax(Appeals) Vijayawada, which estimated the income of the assessee partnership firm, engaged in transport contracting, at a net profit rate of 5% instead of the 10% applied by the Assessing Officer. The Assessing Officer rejected the books of account as the assessee failed to produce them, leading to the estimation of business income at 10% of gross transport receipts. The assessee contended that being a transporter without its own vehicles, it shared profit with vehicle owners, justifying a lower profit margin. The CIT(A) agreed, reducing the net profit rate to 5%, citing a comparable case and rejecting the inclusion of incentive and bonus separately in the income calculation. The Tribunal upheld the CIT(A)'s decision, considering the unique circumstances of the case and dismissing the Revenue's appeal.

Inclusion of Incentive and Bonus in Gross Receipts for Income Estimation:
The Revenue challenged the CIT(A)'s decision to include incentive and bonus in the gross transport receipts for applying the net profit rate instead of adding them separately to the total income, as done by the Assessing Officer. The Department argued that since no expenses were incurred to earn these amounts, they should be added separately. However, the Tribunal disagreed, stating that incentive and bonus were integral to the transport business income and should be part of gross receipts. Citing legal precedent, the Tribunal upheld the CIT(A)'s decision, emphasizing that once the books are rejected, the net profit rate should be applied to gross receipts without separate additions. Consequently, the Tribunal dismissed the Revenue's appeal, affirming the inclusion of incentive and bonus in gross receipts for income estimation.

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