Despite more than prescribed Trucks-income computed u/s 44AE at rates prescribed in the section with benefits of salary & partner’s interest-ITAT Order
ABCAUS Case Law Citation:
ABCAUS 1208 (2017) (04) ITAT
In the instant case, both the assessee and the Revenue were in cross-appeals against order of the CIT(A). The assessee inter alia was aggrieved by order passed by the CIT(A) in confirming the action of Assessing Officer in rejecting assessee’s contention of its case being covered u/s 44AE of the Income Tax Act, 1961 (‘the Act’).
Assessment Year : 2007-08
Date/Month of Pronouncement: April, 2017
Important Case Laws Cited/relied upon:
Madhukar Khosla Vs. ACIT
Kesharbhai Ghamarbhai Chaudhary Vs. ITO
Brief Facts of the Case:
The assessee was a partnership firm. The return of its income was processed under section 143(1) of the Act. Subsequently, the AO recorded reasons for habouring a belief that income had escaped assessment and consequently issued a notice u/s 148 of the Act.
The assessee filed an objection on the reopening of the assessment. The said objections was rejected and the AO proceeded to pass assessment order.
In reassessment proceedings, the AO disallowed 25% of the expenses debited under the head truck expense and 25% of total cartage and labour expenses on the ground that the assessee could not produce complete details and supporting evidence to support claim of expenses. On appeal, the CIT(A) re-appreciated this issue and confirmed the disallowance at 10%.
Contentions of the Appellant:
The assessee pleaded that since it was plying trucks and if its books are not reliable i.e. he failed to submit supporting documents for claiming various expenses, then, income should have been computed by taking guidance under section 44AE of the Act.
It was contended that in the case of transporter, it had been provided in section 44AE that income is to be computed at the prescribed rate of Rs. 3,500/- per month per truck.
It was submitted that the assessee was having 11 trucks during the year, and its income ought to be assessed as per section 44AE of the Income Tax Act.
Observations made by the Tribunal:
The Tribunal noted that the assessee had been maintaining books of accounts and it had filed audit report also. However the assessee was having only 10 trucks in the beginning of the year but in the second half it acquired the 11th Truck and thus on the close of the account, it was having 11 trucks. The AO disallowed 25% of cartage and labour which had been reduced by the CIT(A) at 10%.
On the question of estimated disallowance, the ITAT observed that a perusal of the computation of income made by the AO would indicate that he mainly made two additions in the declared income. However, due to the estimated disallowance, income had been multiplied 70 times and the reason for this multiplication was that the assessee failed to submit supporting evidences.
The Tribunal opined that in such situation, the AO ought to had looked into the provision of section 44AE which provides tax on presumptive basis. Even if the assessee was maintaining books of accounts, and it had little higher number of trucks (i.e. one more ) than the prescribed limit, then atleast the AO should have looked into the scheme of Act for guidance purpose.
It was noted that the in the case of Kesharbhai Ghamarbhai Chaudhary, ITAT had observed that on the question of estimation of the income of a transporter, section 44AE is a good guideline in the case of transporter who owns less than ten goods carriages.
The ITAT was of the view that on consideration of all the aspects, the income of the assessee ought to be estimated by taking a guidance under section 44AE of the Act. The AO ought to have not enhanced the income at such a level under garb of making disallowance on estimate basis. The CIT(A) has erred in rejecting the relevant ground of the assessee’s appeal, whereby it had prayed that its income ought to be computed with the help of section 44AE.
The AO was directed to compute the income of the assessee by taking 11 trucks at the rate prescribed in section 44AE relevant to the assessment year and also grant all consequential benefits i.e. salary and interest to the partners as per section 40b of the Act.