Rainbow Enterprises, Nainital V. ITO- 3, Nainital

ITA 1246/DEL/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 6952 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 10 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-02-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 11-12-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 13-03-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RASMITA JHA
• Keywords: Rejection of books of accounts; Principle of natural justice
• Section: 40A(3); 145

Judgement Text

1 ITA NO.124 6/DEL/2012 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH:F NEW DELHI BEFORE SHRI N.K. SAINI, ACCOUNTANT MEMBER & SMT. BEENA PILLAI, JUDICIAL MEMBER I.T.A .NO. 1246/DE L/2012 (ASSESSMENT YEAR-2008- 09) RAINBOW ENTERPRISES, 128, NEOTA NIWAS, HALDWANI, NAINITAL (PAN: AAJFR6201P) (APPELLANT) VS INCOME TAX OFFICER-3, HALDWANI. (RESPONDENT) APPELLANT BY SHRI K. SAMPATH, ADV. RESPONDENT BY SMT. RASMITA JHA, SR. DR ORDER PER BEENA PILLAI, JUDICIAL MEMBER : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF LD. CIT(A) II DEHRADUN DATED 12.10.2011, FOR A.Y. 2008- 09, ON THE FOLLOWING GROUNDS OF APPEAL: DATE OF HEARING 11.12.2015 DATE OF PRONOUNCEMENT 12.02.2016 2 ITA NO.124 6/DEL/2012 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS), ERRED IN CONFIRMING THE ADDITION. II. THE APPELLANT RESPECTFULLY, SUBMITS AS UNDER:- 1. THE LEARNED COMMISSIONER OF INCOME TAX APPEALS ( CIT-A) HAS WITHOUT GOING INTO THE FACTS HAS SUSTAINED ADDI TION AGGREGATING TO RS.10,17,229.00. 2. THE LD. CIT-A HAS SUSTAINED THE ADDITIONS ON ACC OUNT OF CASH PAYMENTS & BALANCES OF SUNDRY CREDITORS. 3. THAT THE ORDER IS BAD IN LAW, NOT IN AGREEMENT WITH FACTS AND IS AGAINST THE PRINCIPLES OF NATURAL JUSTICE. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM, DERIVING INCOME FROM THE BUSINESS OF COLOUR L AB I.E; PROCESSING OF PHOTOGRAPHS AND TRADING OF RELEVANT GOODS. THE A SSESSEE HAD FILED ITS RETURN OF INCOME FOR THE RELEVANT YEAR DE CLARING A TOTAL LOSS OF RS. 8,57,524/- ON 31.03.2009. DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND ON THE EXAMINATION OF BOOKS OF ACCO UNT, IT WAS GATHERED BY THE AO THAT THE ASSESSEE HAD CASH PAYME NTS AND DEPOSITS. IT WAS GATHERED BY THE AO THAT TOTAL PUR CHASES HAD BEEN MADE IN CASH ONLY. THE AO RECORDS THAT THOUGH CASH WAS AVAILABLE IN THE BOOKS OF THE ASSESSEE, THE ASSESSEE MADE PAY MENTS ABOVE RS. 20,000/- TO M/S.AAAR GEE & CO.. THUS, THE AO SP ECIFICALLY CALLED UPON THE ASSESSEE REGARDING THE SAME. THE A SSESSEES NEITHER FILED ANY DETAILS SUCH AS NAME OF THE PERSO N TO WHOM THE PAYMENT WAS MADE NOR PROVIDE ANY REASON FOR MAKING PAYMENTS ABOVE RS. 20,000/- WAS FURNISHED BY THE ASSESSEE. THEREFORE, THE AO REJECTED THE BOOKS OF ACCOUNT BY INVOKING PROVIS IONS OF SECTION 145 OF THE ACT. THE LD A.O ALSO DISALLOWED CASH PA YMENTS 3 ITA NO.124 6/DEL/2012 AGGREGATING TO RS. 10,17,229/- THEREBY REDUCING THE LOSS TO RS. 69,561/-. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE WEN T INTO APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) JUSTIFIED THE ACT OF LD.AO IN DISALLOWING CASH PAYMENTS AND THEREBY MAKING ADDITI ON TO THE EXTENT OF RS. 10,17,229/-. AGGRIEVED BY THE ORDER PASSED BY THE LD.CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US. WE HAVE GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW; THE JUDGMENTS RELIED UPON BY BOTH THE PARTIES; THE COMP ILATION OF JUDGMENTS FILED BY THE ASSESSEE AND THE ARGUMENTS O F BOTH THE SIDES. IT IS OBSERVED THAT THE LD.A.O REJECTED THE ASSESSE ES BOOKS OF ACCOUNTS UNDER THE PROVISO TO SECTION 145 OF THE AC T HAD COMPUTED THE ASSESSEES INCOME BY APPLYING THE GROSS PROFIT RATE OF 17.84% AS COMPUTED BY THE ASSESSEE THE SHORT ISSUE THAT NEED S TO BE CONSIDERED IS AS TO WHETHER IN SUCH A CASE ANY DISALLOWANCE/DEDUCTION ON ACCOUNT OF PURCHASES U/S. 40A(3), AT ALL BE MADE/ALLOWED(AS THE CASE MAY BE) TO THE ASSESSEE , THOUGH IT MAY BE TRUE THAT A GROSS PROFIT RATE OF 17.84% AS C ALCULATED BY THE ASSESSEE. SIMILAR FACTS AROSE BEFORE THE HONBLE ALLAHABAD HI GH COURT IN THE CASE OF CIT VS. BANWARI LAL BANSHIDHAR, REPORTED IN (1998) 229 ITR 229 WHEREIN IT WAS HELD THAT ONCE THE BOOKS OF ACCO UNT OF ASSESSEE ARE REJECTED, PROFIT HAS TO BE ESTIMATED ON THE BY COMPARING THE G.P RATES ADOPTED BY THE ASSESSEE IN THE PRECEEDING YEA RS. NO ADDITION 4 ITA NO.124 6/DEL/2012 U/S.40A(3) CAN BE MADE ONCE THE BOOKS ARE REJECTED. THE LD. A.O AS WELL AS LD.CIT(A) COMMITTED ERROR IN MAKING ADDITIO N U/S.40A (3) AFTER REJECTION OF BOOKS OF ACCOUNTS. APPLYING THE RATIO TO THE FACTS OF THE PRESENT FACTS BEFORE US, THE LD. A.O AS WELL AS LD. CIT(A) HAS WRONGLY DISALLOWED/GRANTED DEDUCTION (AS THE CASE M AY BE) U/S.40A(3) OF THE ACT. IN OUR CONSIDERED VIEW, NO DISALLOWANCE COULD HAVE BEEN MADE IN VIEW OF THE PROVISIONS OF SECTION 40A(3) READ WITH RULE 6DD(J) AS NO DEDUCTION WAS ALLOWED TO AND CLAI MED BY THE ASSESSEE IN RESPECT OF THE PURCHASES. WHEN THE GRO SS PROFIT RATE IS APPLIED, THAT WOULD TAKE CARE OF EVERYTHING AND THE RE WAS NO NEED FOR THE ASSESSING OFFICER TO MAKE SCRUTINY OF THE A MOUNT INCURRED ON THE PURCHASES BY THE ASSESSEE. EVEN OTHERWISE, O NCE THE BOOKS HAVE BEEN REJECTED, THE PROFITS HAS TO BE ARRIVED O N ESTIMATION. WE THEREFORE FOLLOWING THE SAME RATIO, SET ASIDE TH E ISSUE TO LD.A.O, TO ARRIVE AT THE ESTIMATED PROFIT ON COMPARATIVE BA SIS OF G.P RATE, ADOPTED BY THE ASSESSEE IN THE PRECEDING YEARS AND DECIDE THE ISSUE AFRESH AFTER AFFORDING REASONABLE OPPORTUNITY OF BE ING HEARD TO THE PARTIES . NEEDLESS TO SAY THAT NET PROFIT SHOULD BE COMPUTED IN THE SAME MANNER IN WHICH IT WAS COMPUTED FOR THE PRECEDING Y EAR. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 12.02. 2016 SD/- SD/- (N.K. SAINI) (BEENA PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 12.2.2016 *KAVITA ARORA COPY FORWARDED TO: 5 ITA NO.124 6/DEL/2012 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI DATE 1. DRAFT DICTATED ON 01.09.2015 2. DRAFT PLACED BEFORE AUTHOR 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. 5. APPROVED DRAFT COMES TO THE SR.PS/PS 12.2.16 6. KEPT FOR PRONOUNCEMENT ON 12.216 7. FILE SENT TO THE BENCH CLERK 12.2.16 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER.