SHRI BHAIRU LAL DANGAYACH, JAIPUR V. ITO, WARD-4(1), JAIPUR

ITA 1177/JPR/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 2075 (ITAT-JAIPUR)
• Duration Of Justice: 6 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-04-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 09-10-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: PRAVIN SARASWAT
• Keywords: Set aside
• Section: 143(3); 143(2); 145(3); 145; 144

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S,B JAIPUR JH FOT; IKY JKO] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS[KK LNL; DS LE{K BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRA M SINGH YADAV, AM VK;DJ VIHY LA- @ ITA NO. 1177/JP/2019 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR : 2011-12 BHAIRU LAL DANGAYACH A-2, CHANKYA PURI, UGAM PATH, BANIPARK, JAIPUR. CUKE VS. THE ITO, WARD-4(1), JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: ADMPD 8724 F VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ L S@ ASSESSEE BY : SHRI PRAVIN SARASWAT (C.A.) JKTLO DH VKSJ LS @ REVENUE BY : SMT. RUNI PAL (JCIT) LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 18/03/2020 MN?KKS'K.KK DH RKJH[ K@ DATE OF PRONOUNCEMENT: 15/04/2020 VKNS'K@ ORDER PER: VIKRAM SINGH YADAV, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LD. CIT(A)-II, JAIPUR DATED 23.07.2019 FOR THE ASSESSME NT YEAR 2011-12 WHEREIN THE ASSESSEE HAS CHALLENGED THE SUSTENANCE OF DISAL LOWANCE OF RS. 3,00,000/- OUT OF RS. 8,36,424/- MADE BY THE ASSESSING OFFICER . 2. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE RETU RN OF INCOME WAS FILED ON 23.09.2011 DECLARING TOTAL INCOME OF RS. 6,02,854/- , THE CASE OF SELECTED FOR COMPULSORY SCRUTINY AND NOTICE U/S 143(2) OF THE AC T WAS ISSUED. THEREAFTER, THE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE IT A CT AND INCOME WAS ASSESSED AT RS. 16,67,280/- WHEREIN ADDITION OF RS. 8,36,424/- WAS MADE BY THE ASSESSING OFFICER AS TRADING ADDITION BY REJECT ING THE BOOKS OF ACCOUNT OF THE ASSESSEE U/S 145(3) OF THE ACT, BESIDES OTHER A DDITIONS. AS PER THE ITA NO. 1177/JP/2019 BHAIRU LAL DANGAYACH VS. ITO 2 ASSESSEE OFFICER, THERE ARE VARIOUS DISCREPANCIES A S DISCUSSED IN PARA 7.1 OF THE ASSESSMENT ORDER, THEREFORE, THE BOOKS OF ACCOU NTS ARE LIABLE TO BE REJECTED U/S 145(3) OF THE ACT. AS PER THE ASSESSIN G OFFICER, THE ASSESSEE HAS BENEFITED ITS SISTER CONCERN M/S SHRI AUTO IRON LTD AS DEFINED U/S 40(A)(2(B) AND SINCE THE ASSESSEE HAS ROTATED SALES AS WELL AS PURCHASES WITH ITS SISTER CONCERN AND THE QUANTUM OF BENEFIT PROVIDED IN PURC HASES IS ON A HIGHER SIDE, THE BENEFITS PROVIDED TO THE SISTER CONCERN AMOUNTI NG TO RS. 77,23,442/- AND TRADING ADDITIONS OF RS. 8,36,424/- WAS MADE IN THE HANDS OF THE ASSESSEE. 3. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD CIT(A) AND THE RELEVANT FINDINGS OF THE LD. CIT(A) ARE CONTAINED AT PARA 2.3 OF OF HER ORDER WHICH IS REPRODUCED AS UNDER:- 2.3 I HAVE PERUSED THE FACTS OF THE CASE, ASSESSME NT ORDER AND THE SUBMISSION OF THE APPELLANT. GROUND NO. 01 TO 04 AR E BEING TAKEN UP TOGETHER WHICH ARE INTERRELATED. ASSESSING OFFICER MADE ADDITION OF RS. 8,36,424/- BY APPLYING PROVISION OF SECTION 40A(2 )(A) BY OBSERVING THAT THE AUTHORIZED REPRESENTATIVE ARGUED THAT THE ASSESSING OFFICER HAS NOT CONSIDERED THE CREDIT NOTE RECEIVED WHILE W ORKING OUT THE AVERAGE SALES/PURCHASE PRICE. AUTHORIZED REPRESENTATIVE SAID THAT THE ASSESSING O FFICER HAS NOT BROUGHT ANY DIRECT EVIDENCE OF SALE OF GOODS AT LOW ER RATE BY COMPARING THE TRANSACTION WITH OTHER PARITIES ON SIMILAR DATE S. HE FURTHER ARGUED THAT SIMILAR ADDITION WAS MADE IN A.Y. 2009-10 WHER EIN HONBLE ITAT IN SET ASIDE THE MATTER ASSESSING OFFICER, ACCEPTED AS SESSEES CONTENTION AND DELETED THE ENTIRE TRADING IN SET ASIDE ASSESSM ENT. ON PERSONAL OF OVERALL FACTS, IT IS SEEN THAT THE A SSESSING OFFICER HAS NOT BROUGHT ANY DIRECT EVIDENCE TO PROVE THAT ASSESSEE SOLD GOODS TO SISTER CONCERNS AT LOWER RATE. HOWEVER LOOKING TO THE FACT THAT SOME CONCESSION IS GIVEN TO THE SISTER CONCERNS THEREFOR E CONSIDERING THIS AND ITA NO. 1177/JP/2019 BHAIRU LAL DANGAYACH VS. ITO 3 ALSO KEEPING IN MIND THAT ASSESSEE ALSO FAILED TO J USTIFY THE PURPOSE OF SUCH CONCESSION TO SISTER CONCERN, I FIND THAT IT W OULD BE REASONABLE IF DISALLOWANCE IS RESTRICTED TO RS. 300,000/-. THESE GROUNDS OF APPEAL ARE PARTY ALLOWED. 4. HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE MATERIAL AVAILABLE ON RECORD. IT IS SETTLED LEGAL PROPOSITION THAT ONC E THE BOOKS OF ACCOUNT ARE REJECTED, THE AO CAN PROCEED TO ASSESS THE INCOME O N THE BASIS OF BEST JUDGMENT INSTEAD OF RESORTING TO MAKING THE ADDITIO N TO THE BOOKS RESULTS. FURTHER, FOR ESTIMATING THE GP RATE, THE PAST RESUL TS SO DECLARED AND ACCEPTED/ATTAINED FINALITY PROVIDES A RELIABLE BASI S FOR ESTIMATING THE GP RATE. IN THIS CASE, IT IS NOTED THAT FOR A.Y. 2009-10, TH E ASSESSEE HAS DISCLOSED THE GROSS PROFIT RATE OF 1.71% AND FOR A.Y. 2010-11, IT HAS DISCLOSED THE GROSS PROFIT RATE OF 1.95% AND WHEN THE SAME IS COMPARED WITH THE GROSS PROFIT RATE OF CURRENT YEAR WHICH IS 2%, WE FIND THAT THE GROSS PROFIT SO DECLARED IS ON A HIGHER SIDE AS COMPARED TO PAST YEARS. THE ASS ESSING OFFICER HAS STATED THAT THE DECLARED GP RATE IS EXTREMELY LOW IN THIS NATURE OF BUSINESS HOWEVER, IN THE ABSENCE OF ANY COMPARABLE THIRD PARTY DATA I N SIMILAR LINE OF BUSINESS, WHERE THE ASSESSEE HAS DECLARED A BETTER GP AS COMP ARED TO THE PREVIOUS YEARS WHICH HAVE ATTAINED FINALITY, WE FIND THAT TH ERE IS NO BASIS FOR MAKING FURTHER TRADING ADDITION IN THE HANDS OF THE ASSESS EE EVEN WHERE THE BOOKS OF ACCOUNTS HAVE BEEN REJECTED. IN THIS REGARD, REFER ENCE CAN BE DRAWN TO THE DECISION OF HONBLE OF RAJASTHAN HIGH COURT IN CASE OF CIT VS GOTAN LIME KHANIJ UDHYOG (2002) 256 ITR 243 WHEREIN IT WAS HEL D AS UNDER: 3. WE HAVE PERUSED THE STATEMENT OF CASE AND THE F INDING RECORDED BY THE TRIBUNAL IN THE LIGHT OF OBSERVATIONS MADE IN T HE STATEMENT OF CASE AND HEARD THE LEARNED COUNSEL. SECTION 145 AS IT ST OOD AT THE RELEVANT TIME, READS AS UNDER : ITA NO. 1177/JP/2019 BHAIRU LAL DANGAYACH VS. ITO 4 '145. METHOD OF ACCOUNTING.(1) INCOME CHARGEABLE U NDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION OR I NCOME FROM OTHER SOURCES SHALL BE COMPUTED IN ACCORDANCE WITH THE M ETHOD OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE : PROVIDED THAT IN ANY CASE WHERE THE ACCOUNTS ARE CO RRECT AND COMPLETE TO THE SATISFACTION OF THE ASSESSING OFFICER BUT TH E METHOD EMPLOYED IS SUCH THAT, IN THE OPINION OF THE ASSESSING OFFICER, THE INCOME CANNOT PROPERLY BE DEDUCED THEREFROM, THEN THE COMPUTATION SHALL BE MADE UPON SUCH BASIS AND IN SUCH MANNER AS THE ASSESSING OFFICER MAY DETERMINE : PROVIDED FURTHER THAT WHERE NO METHOD OF ACCOUNTING IS REGULARLY EMPLOYED BY THE ASSESSEE, ANY INCOME BY WAY OF INTE REST ON SECURITIES SHALL BE CHARGEABLE TO TAX AS THE INCOME OF THE PRE VIOUS YEAR IN WHICH SUCH INTEREST IS DUE TO THE ASSESSEE : PROVIDED ALSO THAT NOTHING CONTAINED IN THIS SUB-SE CTION SHALL PRECLUDE AN ASSESSEE FROM BEING CHARGED TO INCOME-TAX IN RES PECT OF ANY INTEREST ON SECURITIES RECEIVED BY HIM IN A PREVIOUS YEAR IF SUCH INTEREST HAD NOT BEEN CHARGED TO INCOME-TAX FOR ANY EARLIER PREVIOUS YEAR. (2) WHERE THE ASSESSING OFFICER IS NOT SATISFIED AB OUT THE CORRECTNESS OR THE COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE, O R WHERE NO METHOD OF ACCOUNTING HAS BEEN REGULARLY EMPLOYED BY THE AS SESSEE, THE ASSESSING OFFICER MAY MAKE AN ASSESSMENT IN THE MAN NER PROVIDED IN SECTION 144.' 4. A PERUSAL OF THE AFORESAID PROVISION GOES TO SHO W THAT THE ORDINARY MANDATE OF THE STATUTE IS THAT WHERE INCOME CHARGEA BLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION OR I NCOME FROM OTHER SOURCES IS RETURNED ON THE BASIS OF ACCOUNTS MAINT AINED BY THE ITA NO. 1177/JP/2019 BHAIRU LAL DANGAYACH VS. ITO 5 ASSESSEE BY EMPLOYING A METHOD OF ACCOUNTING REGULA RLY, SUCH INCOME IS TO BE COMPUTED IN ACCORDANCE WITH THE METHOD REG ULARLY EMPLOYED BY THE ASSESSEE. WITH EFFECT FROM 1-4-1997, BY THE FINANCE ACT, 1995, THE POSITION HAS BEEN ALTERED BY DIRECTING THAT THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PR OFESSION OR INCOME FROM OTHER SOURCES SHALL BE SUBJECT TO THE PROVISI ONS OF SUB-SECTION (2) IN ACCORDANCE WITH EITHER CASH OR MERCANTILE SYSTEM OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. THUS, FOR THE P URPOSE OF COMPUTING INCOME ON THE BASIS OF METHOD OF ACCOUNTI NG ADOPTED BY THE ASSESSEE, THE SAME IS CONFINED TO MAINTENANCE OF AC COUNTS ON CASH BASIS OR MERCANTILE SYSTEM OF ACCOUNTING, I.E., TO SAY, ON ACCRUAL BASIS. NO OTHER SYSTEM, EVEN IF EMPLOYED REGULARLY BY THE ASSESSEE, IS ACCEPTABLE FOR COMPUTING THE INCOME AS PER THE PROV ISIONS OF THE ACT. HOWEVER, THIS PROVISION IPSO FACTO DOES NOT MEAN TH AT REJECTION OF BOOKS OF ACCOUNT OF AN ASSESSEE MUST YIELD TO DIFFE RENT CONCLUSION IN THE COMPUTATION OF INCOME AS RETURNED BY THE ASSESS EE ON THE BASIS OF ACCOUNTS MADE BY HIM EMPLOYING ANY OTHER METHOD OF ACCOUNTING. 5. BE THAT AS IT MAY, THE PROVISION WHICH WAS IN FO RCE IN THE ACCOUNTING PERIOD RELEVANT TO ASSESSMENT YEAR IN QUESTION ENVI SAGED THAT WHERE THE ACCOUNTS ARE CORRECT AND COMPLETE TO THE SATISF ACTION OF THE ASSESSING OFFICER BUT THE METHOD EMPLOYED IS SUCH T HAT IN THE OPINION OF THE ASSESSING OFFICER, THE INCOME CANNOT PROPERL Y BE DEDUCED THEREFROM, THEN THE COMPUTATION SHALL BE MADE UPON SUCH BASIS AND IN SUCH MANNER AS THE ASSESSING OFFICER MAY DETERMINE. IT ALSO ENVISAGED THAT WHERE NO METHOD OF ACCOUNTING IS REGULARLY EMP LOYED BY THE ASSESSEE, ANY INCOME BY WAY OF INTEREST ON SECURITI ES SHALL BE CHARGEABLE TO TAX AS THE INCOME OF THE PREVIOUS YEA R IN WHICH SUCH INTEREST IS DUE TO THE ASSESSEE, THAT IS TO SAY, ON ACCRUAL BASIS. THUS, SUB-SECTION (1) DEALS WITH METHOD OF ACCOUNTING EMP LOYED BY THE ITA NO. 1177/JP/2019 BHAIRU LAL DANGAYACH VS. ITO 6 ASSESSEE WITH REFERENCE TO COMPUTING INCOME CHARGEA BLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION OR INCOME FROM OTHER SOURCES ON THE BASIS OF METHOD OF ACCOUNTING EMPLO YED BY THE ASSESSEE. IT DOES NOT DEAL WITH CORRECTNESS OR COMP LETENESS OF ACCOUNTS, BUT WITH ANY DEFECT IN METHOD OF ACCOUNT. ON THE OTHER HAND, SUB-SECTION (2) ENVISAGED THAT W HERE THE ASSESSING OFFICER IS NOT SATISFIED ABOUT THE CORRECTNESS OR T HE COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE, OR WHERE NO METHOD OF ACC OUNTING HAS BEEN REGULARLY EMPLOYED BY THE ASSESSEE, THE ASSESSING O FFICER MAY MAKE ASSESSMENT IN THE MANNER PROVIDED IN SECTION 144 OF THE ACT, THAT IS TO SAY, AS PER BEST OF HIS JUDGMENT. BOTH THESE PROVISIONS DO NOT ENVISAGE THAT BY RESOR TING TO BEST JUDGMENT ASSESSMENT THE ASSESSING AUTHORITY MUST RE ACH TO A DIFFERENT FIGURE OF INCOME AND PROFIT THAN WHAT HAS BEEN DISC LOSED BY THE ASSESSEE. BEST JUDGMENT IS ALSO TO BE BASED ON THE MATERIAL AVAILABLE ON RECORD. THEREFORE, NOTWITHSTANDING REJECTION OF BOOKS OF ACCOUNT, THE MATERIAL DISCLOSED BY THE ASSESSEE ALONG WITH O THER MATERIAL THAT MAY BE COLLECTED BY THE ITO FORMS THE BASIS OF COMP UTATION OF INCOME. ON THAT BASIS WHAT CONCLUSION IS TO BE REACHED IS I NDEPENDENT OF RESULTS SHOWN IN THE BOOKS OF ACCOUNT, IF ANY, MAINTAINED B Y THE ASSESSEE. SECTION 145 ONLY PROVIDES THE BASIS ON WHICH COMPUT ATION OF INCOME IS TO BE MADE FOR THE PURPOSE OF DETERMINING THE AMOUN T OF TAX PAYABLE BY AN ASSESSEE. THE PROVISION BY ITSELF DOES NOT DE AL WITH ADDITIONS OR DELETIONS IN THE INCOME. THEREFORE, MERELY BECAUSE THERE IS SOME DEFICIENCY IN THE BOOKS OF ACCOUNT OR MERELY BECAUS E OF REJECTION OF BOOKS OF ACCOUNT, IT DOES NOT MEAN THAT IT MUST LEA D NECESSARILY TO ADDITIONS IN THE RETURNED INCOME OF THE ASSESSEE. W HAT CHANGES IN EITHER CASE IS THE BASIS FOR COMPUTING THE INCOME C HARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION OR INCOME FROM OTHER ITA NO. 1177/JP/2019 BHAIRU LAL DANGAYACH VS. ITO 7 SOURCES. THE RESULT WOULD DEPEND ON THE OTHER PRIN CIPLES OF COMPUTING THE INCOME. THEREFORE, WE HOLD THAT MERELY CHANGING THE BASIS OR METHOD OF ARRIVING AT END-RESULT OF WORKING OUT THE COMPUTATION OF TAXABLE INCOME UNDER THE ACT, NECESSARILY DOES NOT RESULT IN DEVISING AT PROFITS OR GAINS FROM BUSINESS OR OTHER SOURCES DIF FERENT FROM ONE RETURNED BY THE ASSESSEE, WHERE HE HAS RETURNED HIS INCOME, WHICH IS DIFFERENT FROM THE RESULT REACHED BY THE ASSESSEE A S PER METHOD OF ACCOUNTING EMPLOYED BY HIM, BY ADOPTING DIFFERENT B ASIS BY THE ASSESSING AUTHORITY. 5. IN LIGHT OF AFORESAID DISCUSSIONS AND RESPECTFUL LY FOLLOWING THE DECISION REFERRED SUPRA, THE ADDITION OF RS 3,00,000/- SO CO NFIRMED BY THE LD CIT(A) IS HEREBY DIRECTED TO BE DELETED AND THE GROUND OF APP EAL SO TAKEN BY THE ASSESSEE IS ALLOWED. 6. GIVEN THAT WE HAVE DELETED THE ADDITION ON MERIT S, OTHER GROUNDS RAISED BY THE ASSESSEE RELATING TO REJECTION OF BOOKS OF A CCOUNTS U/S 145(3) AND DISALLOWANCE OF PURCHASES FROM THE RELATED PERSONS AS DEFINED U/S 40(A)(2)(B) OF THE ACT HAVE BECOME ACADEMIC AND THE SAME ARE DISMISSED AS INFRUCTUOUS. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 15/04/2020. SD/- SD/- FOT; IKY JKO FOE FLAG ;KNO (VIJAY PAL RAO) (VIKRAM SINGH YADAV) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 15/04/2020. * SANTOSH. VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: ITA NO. 1177/JP/2019 BHAIRU LAL DANGAYACH VS. ITO 8 1. VIHYKFKHZ@ THE APPELLANT- BHAIRU LAL DANGAYACH, JAIPUR. 2. IZR;FKHZ@ THE RESPONDENT- ITO, WARD-4(1), JAIPUR. 3. VK;DJ VK;QDR@ CIT 4. VK;DJ VK;QDR@ CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR. 6. XKMZ QKBZY@ GUARD FILE {ITA NO. 1177/JP/2019} VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR