The New Truck Operators Union, Doraha V. ITO Ward-(4), Khanna

ITA 455/CHANDI/2022

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 7675 (ITAT-CHANDIGARH)
• Duration Of Justice: 3 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-09-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 22-05-2022
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Principle of natural justice; Rule of consistency
• Section: 144; 143(3); 44AB; 145(3)

Judgement Text

आयकर अपील य अ धकरण,च डीगढ़ यायपीठ,च डीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH, “B”, CHANDIGARH BEFORE SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER AND SHRI VIKRAM SINGH YADAV, ACCOUNTANT MEMBER आयकरअपीलसं./ITA No.455/CHD/2022 नधा रणवष / Assessment Year :2013-14 The New Truck Operators Union G.T. Road, Doraha 141421 बनाम Income Tax Officer, Ward-(4), Khanna थायीलेखासं./PAN NO: AAAAT8243P अपीलाथ /Appellant यथ /Respondent नधा रतीक ओरसे/Assessee by : Sh. Sudhir Sehgal, Advocate राज वक ओरसे/ Revenue by : Sh. Akashdeep, JCIT, Sr. DR स ु नवाईक तार$ख/Date of Hearing : 12.09.2022 उदघोषणाक तार$ख/Date of Pronouncement :. 13.09.2022 आदेश/Order Per Sudhanshu Srivastava, Judicial Member: This appeal has been preferred by the assessee against the order dated 11.05.2022 passed by the National Faceless Appeal Centre [NFAC], Delhi for Assessment Year 2013-14. 2.0 The brief facts of the case are that the assessee filed its return of income belatedly for the captioned year, declaring an income of Rs.8,99,530/-. Subsequently, the case was selected for scrutiny under the CASS guidelines. During the course of assessment proceedings, the Assessing Officer (AO) observed that the assessee did not produce any original vouchers/bills of expenses etc. and also the books of account were not produced. The AO further observed that the assessee was also required to get its accounts audited in terms of Section 44AB ITA No. 455-Chd-2022 (AY 2013-14) - The New Truck Operators Union 2 of the Income Tax Act, 1961 [hereinafter called ‘the Act’] as the gross receipts exceeded the prescribed limit of Rs.1.00 crore. It was further noted by the Assessing Officer that the assessee did not furnish such audit report in time. Thereafter, the AO raised various queries from time to time, requiring the assessee to produce books of account as well as original vouchers pertaining to income and expenditure, but, no compliance was made by the assessee and the assessee only requested for adjournments from time to time. Left with no option, the Assessing Officer proceeded to reject the books of account in terms of Section 145(3) of the Act and proceeded to frame the assessment u/s 144 r.w.s. 143(3) of the Act by applying profit rate of 12% on gross receipts of Rs.4,10,12,477/-. Thus, the addition to the income of the assessee was made to the tune of Rs.40,21,967/- and the taxable income was assessed at Rs.49,21,497/-. 2.1 Aggrieved, the assessee approached the Ld. NFAC and the Ld. NFAC noted that in the immediately succeeding assessment year i.e., A.Y. 2014-15, the Assessing Officer had applied net profit rate of 5% on gross receipts. However, in the current year, he had estimated the same @ 12% without any change in the nature of business or for any particular noticeable reason. The Ld. NFAC directed that the AO should workout the net profit @ 5% of the gross receipts. Accordingly, the assessee’s appeal came to be partly allowed. 2.2. Aggrieved, the assessee has now approached this Tribunal, challenging the order of the Ld. NFAC by raising the following grounds of appeal: 1. That the Ld. CIT(A) has erred in applying a net profit rate of 5% on gross receipts of Rs. 4,10,12,477/- ignoring the facts of the case that the assessee is a 'Truck Union' and has been formed for overall benefit of 'truck owners' and has no profit motive at all. ITA No. 455-Chd-2022 (AY 2013-14) - The New Truck Operators Union 3 2. That the Ld. CIT(A) has failed to appreciate that the assessee does not own a truck of its own and almost, whatever, freight is received, the same is passed on to the owners of the Truck and, as such, the application of net profit of 5% on the total freight receipts is highly exorbitant. 3. That the Ld. CIT(A) has failed to take the facts of comparable cases in the similar line of 'Truck Union' cases and, thus, the application of 5% as net profit on the receipts is highly exaggerated. 4. That the appellant craves leave to add, amend, or alter any of the above ground or grounds of appeal during the course of appellate proceedings. 3.0 The Ld. Authorized Representative submitted that Ld. NFAC had misdirected itself in directing the AO to estimate net profit @ 5% of gross receipts ignoring a very crucial fact that the assessee was a truck union not having any trucks of its own but which was formed for the purpose of bringing together the various truck owners with an aim to reduce competition and price cutting between them. It was submitted that the truck union did not have any other assets also and the percentage retained as convenience fee from the truck-owners was utilized towards payment of salary and wages to the staff as well as office and establishment expenses. It was further submitted that the Ld. NFAC had failed to appreciate that whatever freight was received was passed on to the truck owners and, therefore, the application of net profit rate of 5% was exorbitant and against the past history of the assessee. The Ld. AR referred to chart submitted by the assessee before the Ld. NFAC which has been duly reproduced at pg.4 of the impugned order and submitted that in AY 2011-12 the net profit percentage was 1.69%, in AY 2012-13, the net profit percentage was 1.56% and in AY 2013-14 i.e. the current assessment year, the net profit was 2.19%. It was further submitted that although the AO had ITA No. 455-Chd-2022 (AY 2013-14) - The New Truck Operators Union 4 applied net profit rate of 5% in AY 2014-15, the assessee was already in appeal before the Ld. First Appellate Authority challenging such estimation. 3.1. The ld. AR placed reliance on certain judicial precedents (which have been filed in the form of paper book placed on record) and submitted that even in the cases of best judgment assessment, the Assessing Officer must make such assessment, which he honestly believes to be a fair estimate and the same must be based on knowledge of previous assessments of the assessee. It was further submitted by the Ld. AR that in the case of ‘Bhatinda Truck Operator Union vs. ITO’ (reported in (2007) 158 taxman 148 (Asr.) (MAG), the Amritsar Bench of ITAT had held that even when the assessee had failed to produce books of account and the AO had invoked provisions of Section 145(3) of the Act and estimated the assessee’s income by applying net profit rate of 10%, without referring to the past history of the assessee and also without making any independent enquiry, the said estimation of profit was highly arbitrary and unreasonable and without any basis. The Ld. AR also referred to the case of ‘Shri Guru Nanak Truck Operators Union, Sunam vs. ITO’ in ITA No. 284/Chd/2020, wherein vide order dated 18.03.2021, the coordinate bench of the ITAT had considered profit estimation by the AO under similar circumstances and had reduced the estimated net profit from 1.5% to 1% of the gross receipts based on the past history of the assessee. 3.2. The Ld. AR prayed that the estimation of the net profit may suitably be modified to meet the ends of justice. 4. Per contra, the Ld. Sr. Departmental Representative, while supporting the order of the Ld. NFAC, also referred to the observations of the Assessing Officer in the assessment order that the assessee had ITA No. 455-Chd-2022 (AY 2013-14) - The New Truck Operators Union 5 not only failed to produce the books of account, but had also not produced any vouchers in original to substantiate the various expenses claimed by it. The Ld. Sr. DR further submitted that the assessee had not even filed the audit report within the prescribed time limit and had also filed the return of income belatedly which indicated that the assessee was trying to cover up some discrepancies before filing the return. The Ld. Sr. DR submitted that the Ld. NFAC had already given adequate relief to the assessee by directing the Assessing Officer to restrict the addition by applying net profit rate of 5%, which was also in accordance with the addition made by the AO in AY 2014-15. The Ld. Sr. DR prayed that assessee’s appeal be dismissed. 5.0 We have heard the rival submissions and also have perused the material on record. The facts are not in dispute and the only question before us is the quantification of the estimated net profit. The assessee has not challenged the rejection of books of account and the Ld. AR has only prayed for a reasonable estimation of net profit. The AO has applied profit rate of 12% on the gross receipts, whereas the Ld. NFAC has directed that the net profit rate of 5% should be applied. As per the assessee’s return of income, the net profit for the year under consideration is 2.19% whereas in A.Y. 2012-13, the same was 1.56% and in AY 2011-12, the same was 1.69%. The Ld. AR has argued that although the assessee was at fault in not producing the books of account even then the AO could not have arbitrarily applied profit rate of 12% without considering the past history of the assessee. The order of Ld. NFAC has also been assailed by the Ld. AR by advancing similar arguments. 5.1 As far as the best judgment assessments u/s. 144 of the Act are concerned, the same are resorted to by the Assessing Officer when he has limited knowledge about the financial dealings and circumstances ITA No. 455-Chd-2022 (AY 2013-14) - The New Truck Operators Union 6 of the assessee and where the assessee has failed to extend adequate cooperation to the Assessing Officer during the course of assessment proceedings. However, while exercising the powers u/s. 144 of the Act, in spite of the assessee not having extended due cooperation to the Assessing Officer, the Assessing Officer is duty bound to act within the four corners of law. In our considered opinion, best judgment assessment is quasi judicial in nature and the estimation made by the Assessing Officer has to be based on the principles of natural justice, equity and a good conscience. Thus, in common parlance, the words ‘best judgment assessment’ would mean making assessment which is without prejudice or bias and which does not smack of arbitrariness on the part of the Assessing Officer. It is settled law that even while making best judgment assessment, the past history of the assessee is to be duly considered. To this extent, we are agreeable to the contention raised by the Ld. AR. 5.2 It is seen that while applying the profit rate of 12%, the Assessing Officer has ignored the past trends and even the Ld. NFAC, although after having duly reproduced the earlier year data, has not considered this aspect. In our considered opinion, the lower authorities would not have ignored the past trends of the assessee. 5.3 We have also gone through the judicial precedents relied upon by the Ld. AR and we note that the facts of this case are identical to the facts of the case in the case of ‘Bhatinda Truck Operator Union vs. ITO’ (Supra) wherein the Amritsar Bench of the ITAT returned the following findings: “7. We have heard both the parties and given our thoughtful consideration to the rival contentions gone through the evidence and material placed on record and the orders of the authorities below. It is not in dispute that assessee had not produced the books of account, bills and vouchers, copy of bank account etc. The Assessing Officer was, therefore, fully justified for invoking ITA No. 455-Chd-2022 (AY 2013-14) - The New Truck Operators Union 7 the provisions of section 145(3) of the Act. The assessee has not even disputed this issue before us. Therefore, we agree with the authorities below that provisions of section 145(3) are attracted to this case. 8. Having held so now the question is whether the addition made by the Assessing Officer and sustained by the CIT(A) was justified having regards to the facts of the case, material and evidence placed on record. It is settled law that even if book results are rejected the Assessing Officer is duty bound to make a fair and reasonable estimate of income based on evidence and material on record. He cannot make an addition in an arbitrary manner or on the basis of personal vendetta The income estimated should be a fair estimate which no doubt involves certain amount of gross work. Reliance in this regard is placed on the judgment of Privy Council in the case of CIT Central and United Provineer v Laxminarain Badridas (1937) 5 ITR 170 where it was held as under:- "Under section 23(4) of the Income tax Act the Officer is to make an assessment to the best of his judgment against a person who is in default as regards supplying information. He must not act dishonestly or vindictively or capriciously because he must exercise judgment in the matter. He must make what he honestly believes to be a fair estimate of the proper figure of assessment, and for this purpose he must be able to take into consideration, local knowledge and repute. In regard, to the assessee’s circumstances and his own knowledge of previous returns by, and assessments of, the assessee and all other matters which he thinks will assist him in arriving at a fair and proper estimate, and though there must necessarily be guess-work. In the matter, it must be honest guess-work. In that sense too the assessment must be, to some extent, arbitrary The section places the officer in the position of a person whose decision as to amount is final and subject to no appeal, but whose decision, if it can be shown to have been arrived at without an honest exercise of judgmmt, may be revised or reviewed by the Commissioner under the powers conferred upon that official by section 33.” 9. Now for the purpose of estimating the income of assessee, the Assessing Officer can refer to the past history of the case which acts as a good guide to the Assessing Officer. If past history of the case is not available, the Assessing Officer can ITA No. 455-Chd-2022 (AY 2013-14) - The New Truck Operators Union 8 refer to comparative cases engaged in similar trade and estimate the income the basis of GP/NP shown/estimated in those cases. The Assessing Officer can also make independent enquiries and refer to the results of such enquiries after confronting the same to assessee. In the present case, the Assessing Officer has neither referred to past history of the case nor has made any independent enquiries. He has also not referred to any comparable case where income was estimated by applying net profit rate of 10 per cent. Therefore, it could be said that income estimated by the Assessing Officer is without any basis and the CIT(A) too has summarily upheld the same without referring to any other case.” 10. xxx xxxx x xx x 11. The Ld. counsel has referred to the decision dated 3-10- 2001 of CIT(A), Bhatinda, in the case of the Truck Union Rampura Phul case (supra) for the assessment year 1998-99 (a copy was placed before us) where assessment was completed under section 144 by applying net profit rate of 4 per cent by Assessing Officer on freight contract receipts of Rs. 2,21,20,827. On appeal, the CIT(A) reduced the net profit rate of 3 per cent of the freight receipts. The contention of the Ld. AR that Department has not filed any appeal against the said order of CIT(A) is not disputed by the Revenue. In the case of Berger Paints India Ltd. (supra), it has been held if the Department has not challenged the decision of the appellate authority in one case, it is not open to Department to challenge the decision in another case. The principle of consistency and uniformity in approach is required to be followed. These facts show that in another case, the Assessing Officer has estimated the income by applying rate of 4 per cent whereas in this case net profit rate of 10 per cent has been applied. In the other case also, the assessment was completed under section 144, In the present case assessment has been made by invoking the provisions of section 145(3) which again requires that assessment is to be made in the same manner as under section 144. No material has been placed on record or enquiry has been made by Assessing Officer that in this case the assessee collected higher rate of commission/fees from its Members Truck Operators. No other comparable case has also been cited. In fact, the Ld. DR was specifically asked to cite even a single other case of identical nature where net profit rate of 10 per cent is applied. He could not do so. Under these circumstances, we consider the orders of the authorities below ITA No. 455-Chd-2022 (AY 2013-14) - The New Truck Operators Union 9 for applying rate of profit at 10 per cent as highly arbitrary, unreasonable and without any basis. 12. In the fight of detailed facts and circumstances of the case discussed above and the legal position mentioned above, we are of the considered opinion that orders of authorities below deserve to be set aside. We order accordingly and direct the Assessing Officer to compute the income by applying net profit rate of 3 per cent of the freight receipts, union fee and collection from Truck Operators. The assessee would not be entitled to any deduction for the expenses as the income is directed to be computed by applying net profit rate of 3 per cent. These grounds of appeals are treated as partly allowed.” 5.4 Similarly, the Chandigarh Bench of the ITAT in the case of ‘Shri Gurunanak Truck Operators Union, Sunam Vs. ITO’ (Supra) also held the issue in favour of the assessee by directing that instead of estimated net profit rate of 1.5%, the net profit rate of 1% should be applied. The relevant observations of the Bench are contained in Para 12 of the above said order and are being reproduced hereunder for a ready reference: “12. We have heard the rival contentions of parties and perused the material on record including the cases relied upon by the authorities below and the Ld. counsel for the assessee. The grievance of the assessee is that the Ld. CIT(A) has wrongly sustained the addition 1.5% without taking into consideration the past history of the case of the assessee and that the Ld. CIT(A) has wrongly affirmed the action of the Assessing Officer in rejecting the books of account of the assessee without assigning any reasons. As pointed out by the Ld. counsel, in the past three years, the gross commission of the total receipts remained below 1%. The Ld. CIT(A) has determined the addition @ 1.5% and as per settled law when the books of account are rejected, the profit is determined on estimation basis. Further, in determining the profit on estimation basis, the past history plays a vital role. Therefore, we are of the considered view that the net profit rate of 1.5% sustained by the Ld. CIT(A) is on higher side in view of the past history. Hence, we find merit in the contention of the Ld. counsel that 1.5% profit rate estimated by the Ld. CIT(A) is on ITA No. 455-Chd-2022 (AY 2013-14) - The New Truck Operators Union 10 higher side. Accordingly, in the interest of justice, we partly allow the appeal of the assessee and modify the order passed by the Ld. CIT(A) and restrict the net profit rate to 1% of the gross receipts, which is more than the percentage in the last 3 years. We therefore, direct the Assessing Officer to compute the addition @ 1% of the gross receipts." 5.5 In the present case also, we note that although the AO has applied the rate of 12% and the Ld. NFAC has reduced it to 5%, no cogent reason has been given for such estimation. The past history/trend of the assessee has not been considered by the lower authorities which makes their orders unsustainable. In our considered view, the application of net profit rate of 2.5% of the gross receipts would meet to the ends of justice in as much as any leakage of revenue would be covered as also the assessee’s non production of books of account and vouchers would also be taken care of. It is so directed accordingly. 6.0. In the result, the appeal of the assessee is partly allowed. (Order pronounced in the open Court on 13.09.2022). Sd/- Sd/- (VIKRAM SINGH YADAV) (SUDHANSHU SRIVASTAVA) Accountant Member Judicial Member Dated : 13.09.2022 Aks/- ITA No. 455-Chd-2022 (AY 2013-14) - The New Truck Operators Union 11 आदेशक त+ल,पअ-े,षत/ Copy of the order forwarded to : 1. अपीलाथ / The Appellant 2. यथ / The Respondent 3. आयकरआय ु .त/ CIT 4. आयकरआय ु .त (अपील)/ The CIT(A) 5. ,वभागीय त न1ध, आयकरअपील$यआ1धकरण, च3डीगढ़/ DR, ITAT, CHANDIGARH 6. गाड फाईल/ Guard File आदेशान ु सार/ By order, सहायकपंजीकार/ Assistant Registrar