Law:

Section:

Section 145, read with section 29, of the Income-tax Act, 1961 - Method of accounting - Rejection of accounts - Assessment year 1987-88 - Whether when an estimate is made to best of an Assessing Officer, he substitutes income that is to be computed under section 29 - Held, yes - Whether once best assessment is made by fixing a rate of net profit, assessee's claim for deduction on account of expenses cannot be deemed to have been ignored - Held, yes - Whether net profit rate is applied after taking into consideration all factors and it accounts for all deductions which are referred to under section 29 and are deemed to have been taken into consideration while making such an estimate - Held, yes FACTS The assessee was a firm of labour contractors doing loading and unloading work of gunny bags from mandi to godowns and from the godowns to Railway Station and vice versa. It received payment of Rs. 25,40,127 from the FCI for the assessment year 1987-88 and made payments on account of freight charges to the Truck Operators' Union amounting to Rs. 11,45,650 by cheque and Rs. 8,66,130 in cash. The Assessing Officer after examining the evidence produced by the assessee rejected the books of account and applied the rate of profit at 8 per cent on gross receipts amounting to Rs. 25,40,127 and estimated the total income from contract work at Rs. 2,03,000 as against the declared income of Rs. 24,895. On appeal, the Commissioner (Appeals) allowed the payments made towards freight as a deduction. On revenue's appeal, the Tribunal dismissed the same. On reference, the question that arose for consideration was as to whether freight charges paid by the assessee to the Truck Operators' Union were to be deducted from gross receipts and then net profit rate was to be applied to the gross receipts. HELD Section 29 prescribes that the income referred to in section 28 which is assessable under the head 'Profits and gains of business or profession' shall be computed in accordance with the provisions contained in sections 30 to 43A. Section 145 provides for computation of income under section 29 on the basis of books of account and method of accounting regularly followed by the…

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