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TMI Blog2015 (7) TMI 653X X X X Extracts X X X X X X X X Extracts X X X X ..... ee will go up to 44.77% which is unrealistically higher in the case of a transport contractor. He has also referred to the provisions of section 44AD, which are applicable in case of a transport contractor whose turnover is less than ₹ 40 lac and in those cases, net profit rate of 8% is prescribed. In the present case, the turnover of the assessee exceeds ₹ 2 crore and therefore, adoption of net profit rate of 7.5% in the facts of the present case is reasonable in view of the fact that the assessee is showing a very high amount of outstanding unpaid lorry hire charges, which are paid by way of cash payment in the next year in the month of April and May 2010 and this amount is ₹ 44.14 lac. Thus no infirmity in the order of learned CIT(A). - Decided against revenue and assessee. Addition on unexplained expenses - CIT(A) deleted the addition - Held that:- We fail to understand that how the provision for income tax and audit fees payable can be added by invoking the provisions of section 68 of the Act. In this regard, it is observed by learned CIT(A) in Para 10.2 of his order that the recklessness of the Assessing Officer can be seen that even he has not verified t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . For The Revenue : Shri Amit Nigam, D. R. For The Assessee : Shri K. R. Rastogi, C.A. ORDER PER A. K. GARODIA, A.M. The appeal is filed by the Revenue and the Cross Objection is filed by the assessee, which are directed against the order of CIT(A)-II, Lucknow dated 23/12/2014 for assessment year 2010-2011. 2. Ground No. 1 of Revenue s appeal and the only ground raised by the assessee in its Cross Objection are inter-connected, which are as under: Ground No. 1 of Revenue s appeal: 1. The Commissioner of Income-tax (Appeal) has erred in law and on facts of the case by applying the net profit rate of 7.5% on the gross receipts thereby allowing the relief of ₹ 32,59,715/- out of the additions made on account of disallowance of lorry hire charges, salary to drivers, administrative expenses and lorry fuel Running and maintenance expenses, without appreciating the fact that the assessee did not produce complete bill and vouchers in support of the claim so made. Ground raised by assessee in its Cross Objection: That the net profit rate of 7.5% considered by learned CIT(A) is excessive and a lesser percentage should be applied. 3. Learn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ires that in respect of expenses claimed in the profit and loss account the primary onus is on the appellant to prove the genuineness of the expenses. In the case of the appellant a large portion of lorry hire charges has been shown as outstanding, which are claimed to have been paid off in subsequent year but all in cash. Hence the genuineness of such payments remained unverifiable, in absence of complete identity and cash payments. 8.2 However the appellant's argument that arbitrary disallowance of 20% out of lorry hire charges by the AO cannot be justified, deserves merit and it is also against any quasi judicial act by the assessing officer. The AO is also duty bound to act in a manner which shows his application of mind to the facts of the case. Further net profit rate of 44.77% assessed by the AO is also very high in the case of a transport contractor, where the norms have been fixed under the ACT when turnover is below ₹ 40 lakh. In view of the discussions made above it is held that the best option available to the AO was to reject the book results, since he could not have satisfied himself about the correctness and completeness of the books of accounts maintain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account are rejected, the assessing officer must make an estimate, and to that extent he must make a guess; but-the estimate must, be related some evidence or material and it must be something more than mere suspicion. Again in State of Kerala v. c. velukutty [1966] to ITR 239 (sc), which was a case under the Travancore-cochin General Sales Tax Act, the court observed: The limits of the power are implicit in the expression 'best of his judgment'. Judgment is a faculty to decide matters with wisdom truly and legally. Judgment does not depend upon the arbitrary-caprice of a judge, but on settled and invariable principles of justice. Though there is an element of guesswork in a 'best judgment assessment', it shall not be a wild one, but shall have a reasonable nexus to the available material and the circumstances of each case. It is evident from above established position of the law that the authority making a best judgment assessment must make an honest and fair estimate of income of the assessee and such estimate shall not be capricious but should have a reasonable nexus to the available material, circumstances of the case and business of the appellant T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h are applicable in case of a transport contractor whose turnover is less than ₹ 40 lac and in those cases, net profit rate of 8% is prescribed. In the present case, the turnover of the assessee exceeds ₹ 2 crore and therefore, adoption of net profit rate of 7.5% in the facts of the present case is reasonable in view of the fact that the assessee is showing a very high amount of outstanding unpaid lorry hire charges, which are paid by way of cash payment in the next year in the month of April and May 2010 and this amount is ₹ 44.14 lac. Hence, after considering the facts of the present case in its totality and various Tribunal decisions referred to by learned CIT(A) in his order, we are of the considered opinion that this issue has been decided in proper perspective by learned CIT(A) after considering all aspects of the matter and therefore, we do not find any infirmity in the order of learned CIT(A). Accordingly, ground No. 1 of the Revenue s appeal and ground No. 1 of Cross Objection of the assessee are rejected. 5. Ground No. 2 of the Revenue s appeal is as under: 2. The Commissioner of Income-tax (Appeal) has erred in law and on facts of the case in del ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tween the expenses of salary claimed and actual payment made. 9. Learned D. R. of the Revenue supported the assessment order whereas learned A. R. of the assessee supported the order of learned CIT(A). 10. We have considered the rival submissions. We find that this disallowance was made by the Assessing Officer by making ad hoc 20% disallowance out of salary to staff of ₹ 3,81,400/-. The same was deleted by learned CIT(A) on the basis that as he has directed the Assessing Officer to estimate the profit of the assessee by applying 7.5% net profit rate of gross receipts, and hence, separate addition of this nature is not called for. We find no infirmity in the order of CIT(A) on this issue and therefore, this ground is also rejected. 11. Ground No. 4 of Revenue s appeal is as under: 4. The Commissioner of Income-tax (Appeal) has erred in law and on facts of the case in deleting the addition of ₹ 4,49,913/- made on account of cash payment above ₹ 20.000/- which was in contravention of provisions contained in section 40A(3) of the Income Tax Act, 1961. 12. Learned D. R. of the Revenue supported the assessment order whereas learned A. R. of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X
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