Recently, ITAT Jodhpur Bench in Hamid Khan vs. Income-tax Officer held that when the receipts are not shown by the assessee in the regular books of accounts, it cannot be presumed without bringing cogent material on record that the expenses related to the said rec eipts were shown in the books of accounts.

In other words, when the receipts were out of the books of accounts, the payment on account of expenses may also be out of the books of accounts. In such circumstances, the only way to determine the income is application of net profit rate U/S 44AD

Facts of the case:

The assesseewas engaged in the business of supply of labour for civil and technical job works assigned by a Company. During the assessment proceedings, the Assessing Officer noticed difference between the receipts that the assessee had shown and the receipts as per form no. 26AS submitted by the contractee company. The explanation of the assessee was that the said amount must represent the book adjustment entries made by the company (contractee), which in fact had not been received by the assessee. The assessee, however, did not produce any evidence in support of his contention that the difference was on account of adjustment entry made by company.

Thus, the Assessing Officer made addition of amount of difference to the income of the assessee. On appeal, the Commissioner (Appeals) confirmed the addition. Therefore, aggrieved by the decision, a second appeal was made by the assessee.

It was held that:

It was an admitted that there was a difference between the total receipts shown by the assessee in his books of account and by the contractee in Form No. 26AS. The assessee could not produce any evidence in support of his contention that the difference was on account of adjustment entry. The Assessing Officer made the addition on account of difference in those receipts.

When the receipts were not shown by the assessee in the regular books of account, it cannot be presumed without bringing cogent material on record that the expenses related to the said receipts were shown in the books of account. In other words, when the receipts were out of the books of account, the payment on account of expenses may also be out of the books of account. In such circumstances, the only way to determine the income is application of net profit rate.

In the instant case, the assessee in the earlier years was showing the income U/S 44AD, which provides that the net profit rate must be applied at 8 per cent. Since certain contract receipts were not shown by the assessee, the net profit rate was to be applied on those receipts. Therefore, the Assessing Officer was directed to apply net profit rate of 8 per cent on such receipts which were not accounted for by the assessee in the regular books of accounts.