COMMISSIONER OF INCOME TAX Vs. RAKESH MAHAJAN

JUDGEMENT

(1.) SINCE common questions of law arise for determination, therefore, both the appeals were taken up together for disposal.

(2.) THE assessee is a Civil Contractor, who filed his return for Assessment Year 2005 -06 declaring income from Govt. contracts as well as from running trucks on hire. In respect of the contract work, gross receipts were declared at Rs. 12.09 crores on which net income was shown at Rs. 62,66,030/ - which came to just about 5% of the gross receipts. The expenses debited against the contract receipts included expenses on freight and carriage amounted to Rs. 1,18,82,601/ -.

(3.) AS against the returned income of Rs. 68,75,230/ -, the Assessing Officer (in short 'A.O.') completed the assessment on 31.12.2007 assessing total income at Rs. 98,30,115/ -. In the course of assessment proceedings, the A.O. noted that no expenses on diesel and fuel had been shown in respect of the trucks run on hire on the ground that net receipts from the trucks were declared on estimate basis under Section 44AE. On the other hand, huge expenses of Rs. 1,18,82,601/ - were debited against the contract income on account of freight and carriage and no details could be furnished by the assessee to show the break -up of these expenses in respect of each of the six trucks stated to be used in the contract business. The A.O. observed that the freight expenses debited in the contract account were apparently excessive considering that they were stated to be incurred only on six trucks and was of the view that since the assessee was unable to provide truck -wise details of such expenses, it was entirely possible that these expenses of Rs. 1.18 crores included expenses incurred on the trucks run one hire. Since it was not possible to verify the actual expenses on freight incurred in the contract business, the A.O. held that the accounts were incorrect and incomplete and that the net income from contracts had been suppressed by inflating the expenses on freight. The A.O., therefore, rejected the books of accounts under Section 145(3) and estimated net profit from contract at 8% of gross receipts which came to Rs. 96.73/ - lacs. After giving credit for income already declared from contract as well as from running of trucks, the A.O. made an addition of Rs. 28,10,914/ - to the contract income declared and further found that depreciation on trucks stated to be run on hire had been claimed at 40% and since the assessee was unable to specify the trucks that were actually used in the hiring business, he held that the enhanced rate of depreciation was not allowable and that depreciation should be allowed on all trucks at the normal rate of 25%. Accordingly, further addition of Rs. 1,43,971/ - was made on account of depreciation on trucks.