M/S DELUXE ROADLINES PVT LTD V. THE DEPUTY COMMISSIONER

ITA/213/2014

AI Insights

The case involves Deluxe Roadlines Pvt. Ltd., a transport company, appealing against the income estimation made by the tax authorities for the assessment year 2009-10. The company challenged the tribunal's decision which had reduced its estimated business profit to 2.5% of total turnover, contrary to its previous years' profits which were less than 1%. The tax authorities had estimated the income at 8% initially, which was later reduced to 3% by the Commissioner and further to 2.5% by the tribunal. The High Court found that the authorities had not adequately considered the company's maintained accounts and previous profit declarations, leading to a decision that was more guesswork than based on evidence.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 694031 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 14-10-2014
• Assessment Year: misc
• Other Referred Cases: Raghubar Mandal Harihar Mandal vs The State of Bihar (1957 Vo.VIII STC 770)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: K V ARAVIND
• Assessee Lawyers: A SHANKAR; M LAVA
• Keywords: Book of accounts; Business Profit; Income Declaration; Income estimation; Survey; Tax assessment
• Section: 144; 143(1); 44AB; 133A; 260-A

Judgement Text

" 1 IN THE HIGH COURT OF KARNATAKA AT BANGALORE DATED THIS THE 14th DAY OF OCTOBER 2014 PRESENT THE HON’BLE MR JUSTICE N. KUMAR AND THE HON’BLE MR JUSTICE B. MANOHAR ITA NO. 213/2014 BETWEEN: M/S DELUXE ROADLINES PVT. LTD. REPRESENTED BY ITS MANAGING DIRECTOR SRI KUSHALCHAND D SHAH NO.79, 4TH CROSS, N R ROAD, KUMBALGUNDI KALASIPALYAM, BANGALORE – 560 002. .. APPELLANT (BY SRI A SHANKAR & M LAVA, ADVS.) AND: THE DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 11(1), R P BHAVAN OPP RBI, NO.14/3 5TH FLOOR, NRUPATHUNGA ROAD BANGALORE – 560 001. .. RESPONDENT (BY SRI K V ARAVIND, ADV.) THIS APPEAL IS FILED UNDER SECTION 260-A OF INCOME TAX ACT, 1961 ARISING OUT OF ORDER DATED 01/01/2014 PASSED IN ITA NO.16(BNG)/2013, FOR THE ASSESSMENT YEAR 2009-10 PRAYING TO FORMULATE THE SUBSTANTIAL QUESTION OF LAW AS STATED ABOVE AND ANSWER THE SAME IN FAVOUR OF THE APPELLANT 2 AND TO ALLOW THE APPEAL AND SET-ASIDE THE FINDINGS TO THE EXTENT AGAINST THE APPELLANT IN THE ORDER PASSED BY THE TRIBUNAL IN ITA NO.16(BNG)/2013 DATED 01/01/2014 FOR THE ASSESSMENT YEAR 2009-10. THIS APPEAL COMING ON FOR ADMISSION THIS DAY, N KUMAR J., DELIVERED THE FOLLOWING: JUDGMENT The assessee has filed this appeal challenging the order passed by the Tribunal, confirming order passed by the authorities below. 2. The appeal is admitted to consider the following substantial question of law: “Whether the tribunal is justified in law in estimating the appellant’s business profit at 2.5% of the total turnover without any basis and contrary to income accepted in the earlier years and recorded a perverse finding on the facts and circumstances of the case?” 3. The assessee is in the business of transport. It owns around 100 trucks which it utilizes to transport various goods as well as petrol. There was a survey under Section 133A of the Income Tax Act, 1961 (For short hereinafter referred to as “The Act”) in the premises of the assessee on 14.07.2011. It was noticed 3 there from that the assessee’s gross collection for the year was nearly Rs.52,85,46,030/- and the other income was Rs.84,63,079/-The assessee had offered a net income of Rs.70,64,490/- for taxation after claiming various expenses amounting to Rs.53,15,55,168/-. In order to verify the genuineness of the expenditure claimed by the assessee various details were called for. Since the assessee could not furnish the details before the AO, he came to the conclusion that either the assessee has not having/maintaining the books of accounts and supporting vouchers/bills towards various expenditure claimed or that the same were not produced inspite of several opportunity given to the assessee. Therefore, he held he is not satisfied with the correctness and genuineness of the accounts of the assessee. Therefore, he proceeded to complete the assessment under Section 144 of the IT Act and estimated the income of the assessee at 8% of the total turnover. Aggrieved by the same, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals). The Commissioner reduced the income of the 4 assessee to 3% of the total turnover. Aggrieved by the same, the assessee preferred an appeal to the tribunal. The tribunal after hearing both the parties, held that the assessee has not filed any evidence before them to demonstrate that it has been maintaining books of accounts as required under the Act. It is also not brought out in evidence to justify its claim of 1% of the total turnover to be its business income except placing reliance upon the returns of income for the earlier years. The said returns were accepted under Section 143(1) of the Act and therefore, it cannot be said that acceptance of the returns by the revenue could not form basis for the estimation of income for the relevant assessment year. It is the duty of the assessee to maintain proper books of accounts and to justify its claim for necessary evidence. Therefore, the tribunal agreed with the appellate authority restricting the income of the assessee to 3% of the turnover as compared to 8% of the turnover estimated by the commissioner. However, after recording the said finding, the tribunal held since the appellate authority 5 has not given any comparable cases in similar businesses to come to the conclusion that 3% of the turnover is reasonable in estimating business income of the assessee, they were of the opinion that it would meet the ends of justice if the business income is restricted to 2.5% of the total turnover. Aggrieved by the said finding, the assessee has preferred this appeal. 4. Learned counsel for the assessee assailing the impugned order contended the assessee has maintained accounts. They have all been duly audited. Even the auditor’s report is field under Section 44AB. The assessing authority as well as the appellate authority do not dispute the total turnover furnished by the assessee. They act on the same but they decline to take note off the profit declared by the assessee for the last five years which works to less than 1% of the total turnover. Ignoring the same, the assessing authority determined the income at 8% whereas the appellate authority without any basis reduced it to 3% and now the tribunal has reduced it to 2.5%. Therefore, the 6 approach of the authorities in the light of the aforesaid materials is improper and contrary to law and requires to be set-aside. 5. Per contra, learned counsel appearing for the revenue submitted that when the assessee has not produced books of accounts which he is said to have maintained, the authorities had no option except to resort to estimate of income and therefore, he submits no case for interference is made for. 6. The Apex Court in the case of RAGHUBAR MANDAL HARIHAR MANDAL vs THE STATE OF BIHAR (1957 Vo.VIII STC 770) has held when the returns and the books of 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 to some evidence of material and it must be something more than mere suspicion. The assessing officer must make what he honestly believes to be a fair estimate of the proper figure of assessment and for this purpose he must take into consideration such materials as the 7 assessing officer has before him, including the assessee’s circumstances, knowledge of previous returns and all other matters which the assessing officer thinks will assist him in arriving at a fair and proper estimate. 7. Therefore, in the instant case, when the assessee did not produce the books of accounts, the assessing officer was not helpless. The assessee has been filing returns every year. In fact, he has produced five years returns. It is from that they took the turnover because the turnover offered by the assessee for the year 2009-10 was comparable with the past five years turnover as reflected in the returns filed. They acted on that. However, he refused to act on the profits shown in the said returns. No reasons are given for not relying on the said profits at the same time, he has also not taken into consideration the comparable cases in similar business to come to the conclusion. Without any basis, the assessing authority determined the profit at 8%, the first appellate authority reduced it to 3% and the 8 tribunal has reduced it to 2.5%. In coming to the said finding, all the three authorities have declined to take note off the evidence by way of earlier returns. In that view of the matter, what the authorities have done is a mere guess work and without any basis. That is not permissible in law as held by the Apex Court in the aforesaid judgment. 8. In that view of the matter, the impugned orders are unsustainable. Hence, the order passed by the tribunal is hereby set-aside. Matter is remitted back to the tribunal for fresh consideration in the light of the observations made above. In that view of the matter, the substantial question of law is answered in favour of the assessee and against the revenue and appeal is partly allowed. sd/- JUDGE sd/- JUDGE brn "