Pune ITAT Holds Only Profit Element Taxable for Transport Booking Agent; Estimated Income Restricted to 3% of Bank Credits

Senthil Velavan Transport Vs ITO (ITAT Pune)

Pune ITAT Holds Only Profit Element Taxable for Transport Booking Agent; Estimated Income Restricted to 3% of Bank Credits

Summary: The assessee appealed against the order of the CIT(A)/NFAC arising from reassessment under Sections 147 and 250 of the Income Tax Act, challenging the estimated addition sustained by the CIT(A). The grounds relating to the validity of the notice under Section 148 and approvals under Section 151A were not pressed and were dismissed as withdrawn. The Tribunal condoned a delay of 54 days in filing the appeal. The Assessing Officer had reopened the assessment based on information regarding transactions subjected to TDS under Section 194C and non-filing of the return, estimated income at 10% of contract receipts, and made an addition under Section 68. The CIT(A) deleted the addition under Section 68 and reduced the estimated income to 4% of bank credits. Before the Tribunal, the assessee contended that it acted only as a transport booking agent earning nominal commission and that only the profit element was taxable. The Tribunal observed that the bank credits and corresponding payments were not disputed, accepted that only the profit element required estimation, and, considering the nature of the transport agency business and the facts of the case, directed the Assessing Officer to restrict the estimated income to 3% of the bank credit transactions instead of 4%. The appeal was partly allowed.

The Pune ITAT granted substantial relief to a transport booking agent by holding that only the profit element embedded in the bank credits could be brought to tax, since the assessee merely acted as an intermediary arranging lorries and passing the freight collected to truck owners. The Tribunal reduced the estimated income from 4% to 3% of the bank credits.

The Assessing Officer had reopened the assessment after noticing substantial contract receipts reflected through TDS under section 194C while no return had originally been filed. Rejecting the assessee’s explanation that it functioned only as a commission agent, the AO estimated income at 10% of the contract receipts and also made an addition under section 68 towards capital contribution, resulting in an addition exceeding ₹1.13 crore.

In appeal, the CIT(A) deleted the addition under section 68 and reduced the estimated profit rate from 10% to 4% of the bank credits. Before the Tribunal, the assessee contended that it earned only a nominal commission for arranging transport, while the freight amounts collected were passed on to the truck owners and therefore the gross bank credits could not be treated as its income.

Accepting the nature of the assessee’s business and noting that the Revenue had not disputed either the bank credits or the corresponding payments to transport contractors, the Tribunal held that only a reasonable profit margin should be taxed. Considering the realities of the unorganised transport sector, it directed the Assessing Officer to estimate income at 3% of the bank credits instead of 4%, thereby partly allowing the assessee’s appeal.

Cases Discussed

1. Hexaware Technologies Limited v/s ACIT, 162 taxmann.com 225 (Bombay HC)

FULL TEXT OF THE ORDER OF ITAT PUNE

The assessee has filed the appeal against the order of the (CIT(A))/NFAC, passed u/sec 147 and u/sec250 of the Income Tax Act. The assessee has raised the grounds of appeal challenging the action of the CIT(A) partly sustaining the estimated addition made by the Assessing officer. The fallowing grounds of appeal are raised by the assessee :

““The learned CIT(A) National Faceless Appeal Centre (NFAC) erred in law and on facts in confirming the addition made by the learned AO at Rs. 1,13.90,581/.

Technical Grounds

2. The learned Jurisdictional Assesssing Officer (ie “JAO”) erred in assuming jurisdiction by issuing notice u/s 148 of ITA, 1961 dated 31-3-2022, and, learned CIT(A)-NFAC erred in confirming the same impliedly Appellant contends that, after amendment u/s 151A, the 148 notice ought to have been issued only by the Faceless Assessing Officer (Le FAO) and not the “JAO” as so explained and held in the decision in case of Hexaware Technologies Limited v/s ACIT (Bombay HC-162 taxmann.com225) Appellant contends that the present reassessment proceedings are bad in law and ought to be quashed.

3. Learned CIT(A), NFAC erred in law and on facts in upholding the actions of learned JAO in M obtaining approval of two different specified authorities while passing notice u/s 148 of ITA, 1961 Learned JAO, in notice u/s 148 of ITA, 1961 mentioned the approval of “PCIT Nashik-1” as against in assessment order u/s 147 of ITA 1961. learned IAD mentioned k approval of “PCIT-Jamnagar

Grounds on Merits

4. Learned AO as well as learned CIT(A) erred in law and on facts in considering GROSS amounts mentioned in the “bills” as part of Sales Learned IT authorities ought to have appreciated the very miniscule role of the Appellant in match-making of third party customer and third party truck-owners. Appellant contends that, considering the economic transactions clarity mentions in the bills, considering the payout committed for the third-party truck-owner Appellant’s sales turnover ought to have been worked out on NET basis, and considering mere ‘Commission” figures stated thereto.

5. Learned CIT(A) erred in law and on facts by construing whole of bank credits (i.e. Rs. 14,01,67,553) made during the year under consideration as revenue of the appellant without appreciating the intermediary nature of business of appellant. Alternatively, learned CIT(A) ought to have restricted the additions at a much reasonable figure and thereafter, ought to have granted deduction of expenses incurred.

6. Appellant craves leave to add/alter/modify/amend/delete all or any of the grounds of appeal.”

2. At the time of hearing, the Ld.AR has not pressed the grounds of appeal no.2&3 and made endorsement in the appeal memo. And these grounds of appeal are treated as withdrawn and are dismissed.

3. The Ld.AR submitted that there is a delay of 54 days in filing the appeal before the Hon’ble Tribunal and the delay was not intentional and the assessee has filed an application and affidavit for condonation of delay. On consideration of facts and information mentioned in the affidavit, there is a reasonable cause explained and the Ld. DR has no specific objections. Accordingly, the delay is condoned and the appeal is admitted.

4. The brief facts of the case are that, the assessee is a partnership firm and is engaged in the transport business. The Assessing Officer (A.O) has received information based on data analysis that during the financial year 2017-18 the assessee has entered into transactions with the various parties/contractors and TDS u/sec 194C of the Act was made and the assessee has not filed the return of income for the A.Y. 2018-19. The A.O has reason to believe that income has escaped assessment and issued show cause notice u/sec 148A(b) of the Act and subsequently, the assessee has filed online submissions and the assessee has filed explanations on payments made to contractors and TDS u/sec 194C of the Act . Further the assessee has filed return of income on 10.05.2022 disclosing a total income of Rs.1,94,531/-. Subsequently, notice u/sec 142(1) of the Act was issued along with questionnaire. In compliance, the assessee has filed the explanations in respect of claims made submitted that the assessee is only a lorry booking agent and mainly arranging transport to various parties and is entitled to the commission. as agent and freight amount collected is paid directly to the lorry owners. The Assessee explained the modus operandi of business transactions of booking of transport lorry, collection of transport charges and payments to lorry owners and commission entitlement. Whereas the AO was not satisfied with the explanations and dealt on the factual aspects at Page 8 Para 1 of the order and made addition by estimating income @10% of contract receipts, which worked out to Rs.57,56,791/- and similarly made addition of unexplained contribution to capital account of Rs.56,33,790/- u/sec68 of the Act and assessed the total income of Rs.1,13,90,581/- and passed the order u/sec 147 r.w.s. 144B of the Act dated14.03.2023.

5. Aggrieved by the order, the assessee has filed an appeal before the CIT(A), whereas the CIT(A) has considered grounds of appeal, statement of facts, finding of A.O., submissions of the assessee and CIT(A) has deleted the addition u/sec68 of the Act and on the second disputed issue the CIT(A) has restricted estimated income percentage adopted by the A.O to the extent @4% as against @10% on the bank credits and partly allowed the assessee’s appeal. Aggrieved by the order of the CIT(A), the assesse has filed the appeal with the Hon’ble Tribunal.

6. At the time of hearing, the Ld. AR submitted that the CIT(A) has erred in partly sustaining the a estimated addition@4% of contract receipts / bank credits overlooking the facts that the assessee is only a transporter service agent and is entitled to the nominal commission. The Ld.AR mentioned that the assessee has substantiated with all the documents and there is no dispute that the assessee is engaged in the business of providing transport services on percentage basis. Further the tax authorities have accepted that the bank credits and also payments to the various parties/ contractors. The Ld.AR submitted that the margin of income/ commission in nominal and filed a chart. The Ld.AR substantiated the submissions with the factual paper book and judicial decisions and prayed for allowing the appeal. Per contra, Ld.DR relied on the order of the CIT(A).

7. We heard the rival submissions and perused the material on records. The sole crux of the disputed issue envisaged by the Ld.AR that the CIT(A) has erred in partly sustaining the addition @ 4% of the turnover/ bank credits overlooking the facts that assessee is only commission agent and the margin of profit is nominal. The Ld.AR explained that the assessee has substantiated the transactions with the documents/information and there is no dispute that the assessee is engaged in the business of providing transport services on percentage basis. The Ld.AR contentions are that the addition on estimated basis be restricted to @2.16% on the contract receipts/bank credits adopted by the tax authorities instead of 4% directed by the CIT(A). The Ld.AR submitted that the bank credits and debits are not disputed by the revenue authorities and only profit element has to be taxed. Accordingly, We consider the facts, circumstances, submissions and nature of business in the unorganized market conditions and direct the Assessing officer to restrict the estimated income@ 3% of bank account credits transactions adopted by the CIT(A) as against @4% and partly allow the grounds of appeal raised by the assessee.

8. In the result, appeal filed by the Assessee is partly allowed.

Order pronounced on the open Court on 03^rd of July 2026.