ACIT, New Delhi V. Shri Baldev Singh Dhillon, New Delhi

ITA 1027/DEL/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 3907 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 2 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-06-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 30-05-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 19-03-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: Y S KAKKAR
• Assessee Lawyers: K R MANJANI
• Keywords: Unexplained cash credit; Gift; Depreciation; Question of law; Onus to prove
• Section: 133(6); 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH A DELHI) BEFORE SHRI G.E. VEERABHADRAPPA, HONBLE VICE PRESIDENT AND SHRI A.D. JAIN ITA NO. 1027(DEL)2009 ASSESSMENT YEAR: 2005-06 THE ASSTT.COMMISSIONER OF INCOME TAX, SHRI BALD EV SINGH DHILLON, CIRCLE 36(1), NEW DELHI. V . B-43, SWASTHYA VIHAR, DELHI-110092. (APPELLANT) (RESPONDENT) APPELLANT BY: MS. Y.S. KAKKAR, SR. DR RESPONDENT BY: SHRI K.R. MANJANI, ADVOCATE ORDER PER A.D. JAIN, J.M . THIS IS DEPARTMENTS APPEAL FOR THE ASSESSMENT YEAR 2005-06, TAKING THE FOLLOWING GROUNDS:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) HAS ERRED IN DELETING ADDITION OF ` 14,70,000/- MADE ON ACCOUNT OF UNEXPLAINED CASH CREDIT U/S 68 OF THE I.T. ACT, 196 1 RECEIVED AS GIFT FROM VARIOUS RELATIVES. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) HAS ERRED IN DELETING ADDITION OF ` 16,14,129/- COMPUTED AT 3% OF THE GROSS RECEIPTS OF ` 5,38,04,285/- BY REJECTING THE BOOKS OF ACCOUNT OF THE ASSESSEE. ITA NO. 1027(DEL)09 2 2. THE ASSESSEE INDIVIDUAL IS ENGAGED IN THE BUSINE SS OF TRANSPORTATION, IN THE NAME AND STYLE OF M/S. BULK AUTO CARRIERS, A PR OPRIETARY CONCERN OF THE ASSESSEE. 3. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSE E CLAIMED TO HAVE RECEIVED GIFTS AMOUNTING TO ` 14,70,000/-, AS UNDER: ` 1. SMT. HAMIR KAUR 5,00,000/- 2. SHRI JASVIR SINGH 3,50,000/- 3. SHRI TARSEM SINGH 2.70,000/- 4. SHRI RAVINDER SINGH 2,00,000/- 5. SHRI HARINDER SINGH 1,50,000/- 4. IN SUPPORT OF THESE GIFTS, THE ASSESSEE FILED AF FIDAVITS FROM THE DONORS. 5. THE AO OBSERVED THAT THE AFFIDAVITS WERE SIMILAR LY WORDED STATING THAT THE DONOR WAS AN AGRICULTURIST, HAVING NO OTHER INC OME OTHER THAN THE AGRICULTURAL INCOME AND WAS NOT ASSESSED TO INCOME TAX; THAT THE GIFTS HAVE BEEN MADE IN CASH, OUT OF NATURAL LOVE AND AFFECTIO N; THAT THE ASSESSEE WAS RELATED TO ALL THE DONORS; THAT ALONG WITH THE AFFI DAVITS, EXTRACT OF LAND RECORD WAS FURNISHED, STATING THE LAND-HOLDING OF THE PERS ON CONCERNED. THE AO OBSERVED THAT IN THE CASE OF HAMIR KAUR, DONOR, THE LAND RECORD INDICATED VARIOUS TRANSACTIONS OF TRANSFER AND MORTGAGES AND THAT IN THE CASE OF JASVIR ITA NO. 1027(DEL)09 3 SINGH, DONOR, PART OF THE LAND HAD BEEN MORTGAGED WITH STATE BANK OF INDIA, SUNAM, FOR ` 2.8 LAKHS; THAT THE NOTICE U/S 133(6) HAD BEEN ISS UED TO EACH OF THE DONORS; THAT THE DONORS, IN RESPONSE, HAD REITE RATED THE FACTS AS CONTAINED IN THEIR AFFIDAVITS; THAT IN THE CASE OF HARINDER S INGH, THOUGH IN HIS AFFIDAVIT, HE HAD STATED THAT HE WAS NOT ASSESSED TO INCOME TA X, IN RESPONSE TO THE NOTICE U/S 133(6) OF THE ACT, HE HAD STATED THAT HE HAD FILED HIS RETURN OF INCOME FOR ASSESSMENT YEAR 2005-06 AND HAD MAINTAIN ED BOOKS OF ACCOUNT W.E.F. MAY, 2006 AND HAD QUOTED PAN; THAT THE DATE OF THE GIFT FELL PRIOR TO THIS DATE; THAT THERE WAS NO CLINCHING EVIDENCE REG ARDING THE IDENTITY OF THE DONORS HAVING BEEN ESTABLISHED; THAT THE ENTIRE TRA NSACTIONS WERE IN CASH AND THE GENUINENESS THEREOF COULD NOT BE ESTABLISHED BE YOND DOUBT; THAT THE CREDIT-WORTHINESS OF THE DONORS WAS ALSO DOUBTFUL; THAT IN THE CASE OF JASVIR SINGH, THERE WAS A CLAIM OF HIS HAVING EARNED AN AN NUAL INCOME OF ` 5.5 LAKHS FROM AGRICULTURE AND DAIRY FARMING; THAT HOWE VER, HE HAD MORTGAGED A PART OF HIS LAND TO BANK, TO GET A LOAN OF ` 2.8 LAKHS; THAT FURTHER, AS PER THE ASSESSEES RETURN OF INCOME, THE ASSESSEE HAD HIMSE LF STATED THAT HE HAD EARNED AGRICULTURAL INCOME @ ` 20,000/- PER ACRE; THAT AT THIS RATE, ESTABLISHING AN INCOME OF ` 5.5 LAKHS FROM A HOLDING OF 11.5 ACRES WERE VERY DIFFICULT, EVEN IF THE LAND WAS MORE FERTILE; THAT MOREOVER, IT WAS HIGHLY ITA NO. 1027(DEL)09 4 IMPROBABLE THAT A PERSON HIMSELF SECURING A LOAN B Y MORTGAGING HIS LAND WOULD GIFT SUCH A HEAVY AMOUNT TO ANOTHER PERSON; T HAT IN THE CASE OF ALL THE OTHER DONORS, THE INCOME FROM LAND CAME TO FAR BELO W THEIR STATED ANNUAL INCOMES, IF A RATE OF ` 20,000/- PER ACRE AS STATED BY THE ASSESSEE IN HIS RETURN OF INCOME WERE TO BE ADOPTED IN EACH OF THESE CASES , EVEN AFTER GIVING CREDIT FOR LAND OF HIGHER FERTILITY. 6. BY VIRTUE OF THE IMPUGNED ORDER, THE LD. CIT(A) DELETED THE ADDITION OF ` 14,70,000/- MADE BY THE ASSESSEE ON ACCOUNT OF UNEX PLAINED CASH CREDITS REPRESENTING THE GIFTS RECEIVED. 7. THE LD. DR HAS CONTENDED THAT THE LD. CIT(A) HAS ERRED IN MAKING THE DELETION OF THE ADDITION RIGHTLY MADE; THAT WHILE D OING SO, THE LD. CIT(A) HAS ILLEGALLY FAILED TO CONSIDER THAT THE ASSESSEE HAD MISERABLY FAILED TO DISCHARGE HIS ONUS U/S 68 OF THE ACT; THAT NEITHER THE IDENT ITY, NOR THE CREDIT-WORTHINESS OF THE CREDITORS, NOR EVEN THE GENUINENESS OF THE T RANSACTIONS WAS ESTABLISHED BY THE ASSESSEE; THAT THE ANGLE OF WHOM PROBABILITY IN THE TRANSACTIONS HAS ALSO NOT BEEN RIGHTLY CONSIDERED BY THE LD. CIT(A). RELIANCE HAS BEEN PLACED ON IAC V. INDIAN ART EMPORIUM, 121 CTR 29 1(BOM)(THIRD MEMBER), AS TO WHETHER THE HOLDING OF LAND JUSTIFIE S THE INCOME. RELIANCE HAS ALSO BEEN PLACED ON THE FOLLOWING DECISIONS:- ITA NO. 1027(DEL)09 5 1. SUMATI DAYAL V. CIT, 214 ITR 801(SC); 2. CIT V. DURGA PRASAD MORE, 82 ITR 540(SC); 3. CIT V. R.S. SIBAL, 269 ITR 429(DEL); 4. RAJEEV TANDON V. ACIT, 294 ITR 488(DEL); AND 5. S. KUPPUSWAMI MUDALIAR V. CIT, 50 ITR 1(MAD). 8. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE A SSESSEE, IN THIS REGARD, HAS PLACED STRONG RELIANCE ON THE IMPUGNED ORDER. IT HAS BEEN REITERATED AS BEFORE THE AUTHORITIES BELOW THAT THE DONORS WERE C LOSE RELATIVES OF THE ASSESSEE; THAT THE GIFTS WERE MADE OUT OF NATURAL L OVE AND AFFECTION; THAT THE DONORS AFFIRMED THE TRANSACTION BY WAY OF AFFIDAVIT S; THAT THE CONTENTS OF THE AFFIDAVITS WERE ALSO CONFIRMED BY THE DONORS IN THE INDEPENDENT ENQUIRY MADE BY THE AO U/S 133(6) OF THE ACT; THAT BESIDES, THEY HAD ALSO FURNISHED THEIR FARD GIRDAVRIS, SHOWING THEIR HOLDINGS AND TH E CROPS THEREON; THAT THE AO DID NOT MAKE ANY FURTHER ENQUIRIES; AND THAT THE PARTIES WERE NOT EVEN SUMMONED BY THE AO. RELIANCE HAS BEEN PLACED ON SMT. SONU AGARWAL V. ITO-1(3), LUCKNOW 29 SOT 478(LUCK.) AND DCIT V. V IJAY PARKASH(HUF), 120 TTJ (ASR) 429 (CO-AUTHORED BY ON E OF US, J.M.). 9. WE HAVE HEARD THE PARTIES ON THIS ISSUE AND HAVE PERUSED THE MATERIAL ON RECORD WITH REGARD THERETO. IN SUPPORT OF THE G IFTS, THE ASSESSEE FILED AFFIDAVITS OF THE FIVE DONORS. THEREIN, THE DONOR S DEPOSED THAT THEY WERE AGRICULTURISTS HAVING ONLY AGRICULTURAL INCOME AND NO OTHER INCOME; THAT THEY ITA NO. 1027(DEL)09 6 WERE NOT ASSESSED TO INCOME TAX; AND THAT THEY HAD MADE THE GIFTS TO THE ASSESSEE OUT OF NATURAL LOVE AND AFFECTION, THE ASS ESSEE BEING RELATED TO THEM. EXTRACTS OF THE LAND RECORD, SHOWING THEIR LAND HOL DINGS, WERE ALSO FILED. THE AO ISSUED TO THEM, NOTICE U/S 133(6) OF THE I.T . ACT. IN RESPONSE, EACH OF THE DONORS REITERATED THE FACTS CONTAINED IN THE IR RESPECTIVE AFFIDAVITS. IN THE CASE OF DONOR, SHRI HARINDER SINGH, HOWEVER, TH E DATE OF GIFT WAS PRIOR TO MAY 2006, WHEN HE STATEDLY SUPPORTED MAINTAINING BO OKS OF ACCOUNT. 10. THE ABOVE EVIDENCE REMAINS UNCONTROVERTED. DE SPITE THEREOF, THE AO OBSERVED THAT THERE WAS NO CLINCHING EVIDENCE REGAR DING THE IDENTITY OF THE DONORS. NOW, ONCE NOT ONLY THE AFFIDAVITS OF THE D ONORS, THE EXTRACTS OF THEIR LAND RECORD SHOWING THEIR RESPECTIVE LAND HOLDINGS AND THEIR SUBMISSIONS IN RESPONSE TO THE NOTICES U/S 133(6) OF THE ACT WERE ON RECORD AND THE AO HIMSELF DID NOT DEEM IT PROPER TO MAKE ANY FURTHER ENQUIRY, SUCH OBSERVATIONS OF THE AO AMOUNTED TO NOTHING OTHER TH AN SUSPICION, CONJECTURES AND SURMISES. 11. FURTHER, THE AO DOUBTED THE GENUINENESS OF THE TRANSACTIONS, SINCE ALL THE GIFTS WERE IN CASH. THIS OBSERVATION AGAIN, W AS NOT SUSTAINABLE. IT IS TRITE LAW THAT THERE IS NO PROHIBITION IN MAKING GI FTS IN CASH. IT IS ONLY THAT SUCH GIFTS MAY BE VIEWED MORE SUSPICIOUSLY. HOWEVE R, IN THE PRESENT CASE, THE ASSESSEE HAS DULY DISCHARGED HIS ONUS OF PROVIN G THE GENUINENESS OF SUCH ITA NO. 1027(DEL)09 7 GIFTS BY FILING ALL THE REQUISITE DOCUMENTARY EVIDE NCE. BESIDES, THE DONORS THEMSELVES, IN THEIR SUBMISSIONS BEFORE THE AO IN R ESPONSE TO THE NOTICES U/S 133(6) OF THE ACT, CATEGORICALLY ADMITTED HAVING MA DE SUCH GIFTS. THE AO DID NOT CONDUCT ANY FURTHER ENQUIRY INTO THE MATTER . STILL, THE ADDITION WAS MADE BY MAKING A BALD OBSERVATION IN THIS REGARD, W ITHOUT BRINGING ANY MATERIAL ON RECORD AGAINST THE ASSESSEE. IT WAS THE AOS ONUS TO PROVE THE GIFT TRANSACTIONS AS BOGUS ONES. THIS ONUS, HOWEV ER, WAS NOT DISCHARGED. 12. APROPOS DONOR, JASVIR SINGH, THE AO DOUBTED HIS CREDIT-WORTHINESS. IT WAS OBSERVED THAT JASVIR SINGH HAD CLAIMED ` 5.5 LAKHS AS INCOME FROM AGRICULTURE AND DAIRY FARMING. THIS, AS PER THE A O, WAS ON THE HIGHER SIDE, SINCE JASVIR SINGH HAD A LAND-HOLDING OF 11.5 ACRES AND THE INCOME THEREFROM WAS SHOWN AT HIGHER RATE THAN THAT OF ` 20,000/- PER ACRE BY THE ASSESSEE HIMSELF. JASVIR SINGH WAS ALSO OBSERVED T O HAVE RAISED A LOAN OF ` 2.80 LAKHS BY WAY OF MORTGAGE OF HIS LAND. THE AO WAS OF THE VIEW THAT A PERSON HIMSELF RAISING A LOAN BY WAY OF MORTGAGE WO ULD NOT GIFT A SUM OF ` 3,50,000/-. 13. THESE OBSERVATIONS OF THE AO ARE CONTRARY TO TH E EVIDENCE BROUGHT ON RECORD. JASVIR SINGH HAD FILED HIS AFFIDAVIT CONFI RMING THE GIFT TRANSACTION. IN THE ENQUIRY CONDUCTED INDEPENDENTLY BY THE AO U/ S 133(6) OF THE ACT, HE HAD REITERATED AND CONFIRMED THE CONTENTS OF HIS AF FIDAVIT. THERE WAS NO ITA NO. 1027(DEL)09 8 MATERIAL WITH THE AO TO COMPARE THE AGRICULTURAL IN COME OF JASVIR SINGH WITH THAT OF THE AO. NOTHING WAS BROUGHT ON RECOR D TO SHOW THAT BOTH THE INCOMES WERE COMPARABLE. NO EVIDENCE WAS ADDUCED TO SHOW THAT JASVIR SINGH WAS INCAPABLE OF MAKING THE GIFT IN QUESTION. THE FACTUM OF HIS HAVING RAISED A LOAN BY MORTGAGING HIS LAND WAS NOT DETERMINATIVE OF HIS CAPACITY AS A DONOR, PARTICULARLY IN THE FACE OF EV IDENCE ALREADY ON RECORD BEFORE HIM. 14. LIKEWISE, IN THE CASE OF THE OTHER DONORS ALSO, THE AO STATED THAT THEY DID NOT HAVE SUFFICIENT MEANS TO MAKE THE GIFTS. H ERE ALSO, NO MATERIAL WAS BROUGHT ON RECORD TO SUBSTANTIATE SUCH ALLEGATION, PITTED AGAINST THE DOCUMENTARY AS WELL AS ORAL EVIDENCE OF THE DONORS THEMSELVES. 15. THE LD. CIT(A), WHILE DELETING THE ADDITION MAD E BY THE AO, KEPT IN CONSIDERATION, ALL THE ABOVE ASPECTS OF THE MATTER. AS RIGHTLY TAKEN NOTE OF BY THE LD. CIT(A), IN BANSAL STRIPS PVT. LTD. V. A CIT [2006] 99 ITD 177(DEL), IT HAS BEEN OBSERVED THAT IT IS THE AOS BURDEN TO ESTABLISH THAT INCOME NOT ADMITTED BY THE ASSESSEE IS IN FACT THE ASSESSEES INCOME. THIS BURDEN HAS NOT BEEN DISCHARGED IN THE PRESENT CASE. 16. CIT V. R.S. SIBAL (SUPRA), IS OF AID TO THE A SSESSEE. THEREIN APROPOS CASH CREDITS, THE ASSESSEES EXPLANATION WAS THAT T HEY REPRESENTED GIFTS. GIFT DEEDS AND AFFIDAVITS OF THE DONORS WERE FURNISHED. THE TRIBUNAL DELETED THE ITA NO. 1027(DEL)09 9 ADDITION. THE HONBLE HIGH COURT HELD THAT THERE WAS NO SUBSTANTIAL QUESTION OF LAW INVOLVED. 17. IN RAJEEV TANDON V. ACIT(SUPRA), THE GIFTS W ERE FROM ABROAD. THE DONORS WERE NOT RELATED TO THE ASSESSEE. THE GIFTS WERE FOR THE GENERAL REASON THAT THE ASSESSEE NEEDED MONEY TO PURCHASE H OUSE AND THE DONOR WANTED TO HELP HIM. IT WAS IN THESE FACTS THAT THE HONBLE HIGH COURT HELD THE GIFTS TO BE NOT ONLY AN UNUSUAL BUT ALSO UNNATU RAL. THE FACTS HEREIN, AS DISCUSSED, ARE ENTIRELY DIFFERENT. 18. SUMATI DAYAL V. CIT(SUPRA) AND CIT V. DURGA PRASAD MORE(SUPRA) LAID DOWN THAT SURROUNDING CIRCUMSTANC ES HAVE TO BE LOOKED INTO BY THE INCOME TAX AUTHORITIES TO FIND OUT THEI R REALITY. SUCH PROPOSITION, NO DOUBT, CAN NEVER BE WALKED OUT OF. HOWEVER, AS DISCUSSED, IN THE PRESENT CASE, THE EVIDENCE BROUGHT BY THE AS SESSEE REMAINS UNREBUTTED. 19. IN SMT. SONU AGARWAL V. ITO (SUPRA), IT WAS H ELD THAT WHERE THE DONORS ARE SHOWN TO BE RELATED TO THE ASSESSEE, UNL ESS IT IS PROVED THAT IT IS ONLY A PRETENSE AND NOT A NATURAL PHENOMENON EXISTE NCE OF LOVE AND AFFECTION CANNOT BE RULED OUT. IN THE PRESENT CASE , THE FACT THAT THE ASSESSEE IS RELATED TO ALL THE FIVE DONORS, HAS REMAINED UNCHAL LENGED. IN SMT. SONU ITA NO. 1027(DEL)09 10 AGARWAL V. ITO (SUPRA), THE DONORS WERE PERSONS OF REASONABLE MEANS. THEY WERE CLEARLY IDENTIFIABLE AND WERE ASSESSED TO TAX. ALL OF THEM WERE CLOSE RELATIVES OF THE ASSESSEE. THEY HAD GIVEN G IFTS TO THE ASSESSEE BECAUSE OF THEIR PERSONAL BONDAGES WITH HER. ALL OF THEM H AD FILED AFFIDAVITS IN SUPPORT OF GIFTS. ALL OF THEM HAD CONFIRMED TO TH EM GIVING THE GIFTS AND HAD PROVED THAT THEY HAD SOURCE OF INCOME. IT WAS IN T HESE FACTS, THAT THE IDENTITY OF THE DONORS, THEIR CREDIT-WORTHINESS AND THE GENU INENESS OF THE TRANSACTIONS WERE HELD TO BE DULY PROVED. SIMILAR ARE THE FACT S HERE. 20. IN DCIT V. VIJAY PARKASH(HUF)(SUPRA), NO EVID ENCE CONTRARY TO THAT BROUGHT BY THE ASSESSEE HAD BEEN BROUGHT ON RE CORD BY THE AO. THE EVIDENCE BROUGHT BY THE ASSESSEE WAS NOT REFUTED BY THE DEPARTMENT. THE ADDITION WAS HELD RIGHTLY DELETED BY THE LD. CIT(A) . IN THE PRESENT CASE ALSO, AS DISCUSSED, THE EVIDENCE BROUGHT BY THE ASSESSEE REMAINS UNCONTROVERTED. PLUS THE AO HAS BROUGHT NOTHING TO THE CONTRARY ON RECORD. 21. IN VIEW OF THE ABOVE, FINDING NO MERIT THEREIN, GROUND NO.1 IS REJECTED. 22. APROPOS GROUND NO.2, WHILE REJECTING THE BOOKS OF ACCOUNT OF THE ASSESSEE AND DETERMINING THE INCOME OF THE ASSESSEE ON ESTIMATE BASIS, AT ` 16,14,129/-, I.E., 3% OF THE GROSS RECEIPT OF ` 5,38,04,285/-, THE AO OBSERVED THAT IN ASSESSMENT YEAR 2004-05, THE SALES OF THE A SSESSEE WERE OF ` ITA NO. 1027(DEL)09 11 99,23,221/- AS AGAINST SALES OF ` 5,38,04,285/- IN ASSESSMENT YEAR 2005-06; THAT THE GROSS PROFIT IN ASSESSMENT YEAR 2004-05 WA S OF ` 9,05,063/-, AS AGAINST THAT OF ` 21,37,911/- IN ASSESSMENT YEAR 2005-06; THAT THE GR OSS PROFIT OF 9.12% IN ASSESSMENT YEAR 2004-05 HAD DROPPED TO 3.97% IN ASSESSMENT YEAR 2005-06; THAT THE NET PROFIT IN ASSESSMENT YEA R 2004-05 WAS OF ` 3,96,968/-, AMOUNTING TO 3.97% WHICH HAD DROPPED TO NET PROFIT OF ` 6,71,377/-, AMOUNTING TO 1.25% IN ASSESSMENT YEAR 2 005-06; THAT THERE HAD THUS BEEN A SHARP FALL IN THE GROSS PROFIT AS WELL AS NET PROFIT RATIO OF THE ASSESSEE; THAT THE ASSESSEE HAD DEBITED HEAVY EXPEN SES UNDER THE HEADS DIESEL AND SPARES; THAT ON QUERY, THE ASSESSEE HAD NOT BEEN ABLE TO PRODUCE CONSUMPTION REGISTER FOR DIESEL AND SPARES; THAT THE ASSESSEE HAD FURNISHED COPIES OF LEDGER ACCOUNT FOR VARIOUS EXPE NSES, TO SUPPORTING BILLS AND VOUCHERS HAD NOT BEEN PRODUCED, DUE TO WHICH, V ERIFICATION OF THE EXPENSES TO THEIR FULL EXTENT WAS NOT POSSIBLE; THA T NO VEHICLE LOG BOOK OR TELEPHONE MAINTENANCE REGISTER HAD BEEN MAINTAINED BY THE ASSESSEE; AND THAT THERE WAS THUS NO OPTION BUT TO REJECT THE BOO KS OF ACCOUNT OF THE ASSESSEE AND TO COMPUTE THE TOTAL INCOME ON THE BAS IS OF THE AVAILABLE EVIDENCE. ITA NO. 1027(DEL)09 12 23. THE LD. CIT(A) HELD THAT THE AO HAD NOT BEEN JU STIFIED IN REJECTING THE BOOKS OF ACCOUNT OF THE ASSESSEE AND APPLYING THE N ET PROFIT RATE ON ESTIMATE BASIS. THE ADDITION OF ` 16,14,129/- WAS THUS DELETED. THE AO WAS DIRECTED TO TAKE THE INCOME OF THE ASSESSEE FROM HI S BUSINESS AT ` 6,71,377/-, AS PER THE RETURN OF INCOME FILED BY THE ASSESSEE. 24. THE LD. DR HAS CONTENDED THAT THE LD. CIT(A) H AS ERRED IN DELETING THE ADDITION, IGNORING THE OBSERVATIONS OF THE AO IN TH E ASSESSMENT ORDER. RELIANCE HAS BEEN PLACED ON KACHWALA GEMS V. JCIT , 288 ITR 10(SC). 25. THE LEARNED COUNSEL FOR THE ASSESSEE, ON THE OT HER HAND, HAS PLACED STRONG RELIANCE ON THE IMPUGNED ORDER. IT HAS BEEN SUBMITTED THAT THE ASSESSEE IS IN THE BUSINESS OF TRANSPORTATION OF VE HICLES FOR COMPANIES LIKE, MARUTI UDYOG LTD., MAHENDRA & MAHENDRA, ETC.; THAT DURING THE YEAR, THE ASSESSEE HAD DECLARED NET PROFIT OF ` 6,71,376/-, AFTER CLAIMING DEPRECIATION OF ` 8,21,632/- ON GROSS AVERAGE OF ` 5,38,04,285/-, AS COMPARED TO NET PROFIT OF ` 3,96,968/- ON GROSS AVERAGE OF ` 99,23,221/- DURING THE PREVIOUS YEAR; THAT THIS IS THE SECOND YEAR OF BUSINESS OPERATION OF THE ASSESSEE; THAT THE AO HAD ERRED IN CALCULATING THE BUSINESS PROFIT RATIO ON AN ESTIMATE BASIS; THAT THE GROSS PROFIT RATE RATIO IS NOT RELEVANT IN THE BUSI NESS OF TRANSPORTATION, SINCE IT IS A SERVICE INDUSTRY; THAT IT WAS THE STEEP INCREA SE IN THE VOLUME OF BUSINESS ITA NO. 1027(DEL)09 13 OF THE ASSESSEE FROM ` 99.23 LAKHS TO ` 5.38 CRORES DURING THE YEAR, WHICH HAD RESULTED IN THE FALL IN THE NET PROFIT RATIO; THAT THE EXPENDITURE ON ACCOUNT OF SPARE, DIESEL AND OFFICE RENT ETC. HAD INCREASED, B RINGING ABOUT THE FALL IN THE NET PROFIT RATIO; THAT ALL THE EXPENSES WERE DULY A ND FULLY VOUCHED; THAT THE AVERAGE INCOME HAD INCREASED MORE THAN FIVE TIMES; THAT THE ASSESSEE, IN ORDER TO ACHIEVE TIMELY DELIVERY OF VEHICLES, HAD P AID HIGHER FREIGHT; THAT THE DIESEL AND INTEREST EXPENSES AND DEPRECIATION HAD S HOT UP SINCE THE ASSESSEE HAD PURCHASED THREE CAR CARRIERS DURING THE YEAR; T HAT FURTHER, THE ASSESSEE HAD TAKEN A BUSINESS PREMISES ON RENT, SINCE THERE HAD BEEN A SUBSTANTIAL INCREASE IN THE BUSINESS; THAT THE ASSESSEE HAD DUL Y FILED VARIOUS DETAILS AND DOCUMENTS, AS REQUIRED BY THE AO; THAT THE AO HAD N OT REQUIRED THE PRODUCTION OF BOOKS OF ACCOUNT FOR VERIFICATION; TH AT THE BOOKS HAD BEEN REJECTED IN THE ABSENCE OF FUEL AND SPARE PARTS CON SUMPTION REGISTER, VEHICLE LOG BOOK AND TELEPHONE RECORD REGISTER; THAT HOWEVE R, THE BOOKS WERE WRONGLY REJECTED WITHOUT TAKING INTO CONSIDERATION THE ASSESSEES ACCOUNT BOOKS AND EVIDENCE PRODUCED BY HIM, WITHOUT VERIFYI NG THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE; THAT THE ASSESS EE HAD FURNISHED MONTHWISE DETAILS OF DIESEL ACCOUNT AMOUNTING TO ` 10,68,928/-; THAT THIS WAS ALSO NOT VERIFIED BY THE AO; THAT THE EXPENDITURE O N SPARE PARTS WAS ONLY OF ` 2,13,661/-, AGAINST THE GROSS RECEIPTS OF MORE THAN ` 5 CRORES; THAT MOREOVER, ITA NO. 1027(DEL)09 14 THE AO HAD NEVER ASKED FOR VERIFICATION OF BILLS AN D VOUCHERS; AND THAT THE LD. CIT(A) CORRECTLY DELETED THE ADDITION, HOLDING THAT THE REJECTION OF THE ASSESSEES BOOKS OF ACCOUNT WAS BAD. 26. IN THIS REGARD, WE FIND THAT THE AO HAD MADE TH E ADDITION BY ESTIMATING THE INCOME AT 3% OF THE GROSS PROFIT TUR N OVER OF THE ASSESSEE. WHILE DOING SO, THE AO HAD FAILED TO APPRECIATE THE STEEP RISE IN THE VOLUME OF THE ASSESSEES BUSINESS FROM ` 99.23 LAKHS IN THE EARLIER YEAR TO ` 5.38 CRORES DURING THE YEAR UNDER CONSIDERATION. IT AL SO FAILED TO REGISTER WITH THE AO THAT THE FALL IN THE NET PROFIT RATIO WAS ON AC COUNT OF INCREASE IN EXPENDITURE LIKE FREIGHT, DIESEL, INTEREST AND OFFI CE RENT ETC. THE FREIGHT INCOME OF THE ASSESSEE HAD INCREASED FIVE TIMES DUR ING THE YEAR. THE ASSESSEE HAD PAID HIGHER FREIGHT SO AS TO ACHIEVE T IMELY DELIVERY OF THE VEHICLES. BESIDES, THE ASSESSEE HAD PURCHASED THRE E CAR CARRIERS, DUE TO WHICH, DIESEL AND INTEREST EXPENSES AND DEPRECIATIO N HAD GONE UP. ALSO, THE ASSESSEE HAD TAKEN A BUSINESS PREMISES ON RENT. T HESE FACTS WERE NOT TAKEN INTO CONSIDERATION BY THE AO WHILE REJECTING THE BO OKS OF ACCOUNT OF THE ASSESSEE. THE BOOKS OF ACCOUNT OF THE ASSESSEE WE RE DULY AUDITED. ALONG WITH THE RETURN OF INCOME, THE ASSESSEE FILED HIS A UDITED ACCOUNTS INCLUDING ITA NO. 1027(DEL)09 15 BALANCE SHEET AND PROFIT AND LOSS ACCOUNT WITH ANNE XURES AND TAX AUDIT REPORT U/S 44 AB OF THE ACT. PERTINENTLY, NO DISCR EPANCY WHATSOEVER WAS POINTED OUT THEREIN BY THE AO. 27. IN THESE CIRCUMSTANCES, THE LD. CIT(A) WAS CORR ECT IN HOLDING THAT THE AO WAS NOT JUSTIFIED IN REJECTING THE BOOKS OF ACCO UNT OF THE ASSESSEE AND APPLYING THE NET PROFIT RATE ON ESTIMATE BASIS. 28. THEREFORE, FINDING NO MERIT IN GROUND NO.2, THE SAME IS ALSO REJECTED. 29. IN THE RESULT, THE APPEAL FILED BY THE DEPARTME NT IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 03.06.2011. SD/- SD/- (G.E. VEERABHADRAPPA) (A.D. JAIN) VICE PRESIDENT JUDICIAL MEMBER DATED: 03.06.2011 *RM COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR TRUE COPY BY ORDER DEPUTY REGISTRAR