SHRI BABOO LAL , JAIPUR V. ITO, WARD-6(1), JAIPUR

ITA 1370/JPR/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 4655 (ITAT-JAIPUR)
• Duration Of Justice: 2 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-02-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2009-2010
• Appeal Filed On: 18-12-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: G M MEHTA
• Keywords: Depreciation; Business expenditure; Rectification of order; Corroborative evidences; Revised return
• Section: 142(1); 143(2); 13; 145(3); 32; 28; 144; 154; 139

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S,A 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 VIKRAM SINGH YADAV, AM VK;DJ VIHY LA-@ ITA. NO. 1370/JP/2019 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2009-10 M/S BABOO LAL 47, HANUMAN NAGAR, OPP. VIJAY PATH, MANSAROVAR, JAIPUR. CUKE VS. THE ITO, WARD-6(1), JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AADFB 9044 L VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ L S@ ASSESSEE BY : SHRI G. M. MEHTA (C.A.) JKTLO DH VKSJ LS @ REVENUE BY : MISS CHANCHAL MEENA (JCIT) LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 14/02/2020 MN?KKS'K.KK DH RKJH[ K@ DATE OF PRONOUNCEMENT : 18/02/2020 VKNS'K@ ORDER PER: VIKRAM SINGH YADAV, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF LD. CIT(A)-II, JAIPUR DATED 23.10.2019 FOR THE ASSESSME NT YEARS 2009-10 WHEREIN THE ASSESSEE HAS TAKEN THE FOLLOWING GROUND S OF APPEAL:- 1. LD. CIT(A) HAS ERRED IN SUSTAINING LEGALITY OF ORDER UNDER SECTION 144 OF THE IT ACT WHEN DURING THE COURSE OF HEARING BOOKS OF ACCOUNTS WERE PRODUCED AND A/R ON BEHALF O F THE ASSESSEE ATTENDED FROM TIME TO TIME, THOUGH NOT ACC EPTED AS RELIABLE. ITA NO. 1370 /JP/2019 M/S BABOO LAL VS. ITO 2 2. LD. CIT(A) WAS NOT JUSTIFIED IN SUSTAINING: (A) ADDITION OF RS. 4,29,625/- FOR SHORTAGE OF CASH WHICH IS COVERED ON APPLICATION OF N.P. RATE ON CIVIL CONSTR UCTION CONTRACT AS THE BOOKS OF ACCOUNTS WERE NOT ACCEPTED AS CORRE CT AND COMPLETE; AND (B) DISALLOWANCE OF 15% OF EXPENSES OF RS. 11,84,52 2/- INCURRED IN CARRYING OUT CONTRACT WORK. 3. LD. CIT(A) HAS ERRED IN LAW IN NOT ADMITTING THE ADDITIONAL GROUND IN RESPECT OF ALLIAWABILITY OF RS. 1,56,732/ - FOR INTEREST ON CAPITAL CONTRIBUTION AND RS. 2,40,000/- FOR REMUNER ATION TO WORKING PARTNERS WHICH WAS ORIGINALLY ALLOWED BY TH E LD. AO BUT LATER ON DISALLOWED/WITHDRAWN THROUGH RECTIFICATION ORDER DT. 06.08.2013 U/S 154 OF THE IT ACT I.E. AFTER ABOUT 2 1 MONTHS OF FILING THE APPEAL BY ASSESSEE AGAINST ORDER DT. 14. 11.2011, IGNORING THE LAW LAID DOWN BY HONBLE JURISDICTIONA L HIGH COURT (245 ITR 527). 4. ADDITIONAL AND LEGAL GROUND OF APPEAL: LD. CIT(A) HAS ERRED IN LAW IN NOT ALLOWING REMAINI NG DEPARECIATION OF RS. 2,27,013/- OUT OF RS. 2,38,263 /- ON FIXED ASSETS USED IN CARRYING ON CONTRACT BUSINESS BY ASS ESSEE {( @ 10% ON SHOP OF RS. 22,87,000/- AND @ 15% ON TOOLS & PLANT OF RS. 63,750/-} ALLOWABLE AS PER EXPL. 5 TO SECTION 3 2 OF IT ACT FOR WHICH NO CLAIM WAS NEEDED. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE FIRM IS ENGAGED IN THE BUSINESS OF CIVIL CONSTRUCTION AND HAS FILED ITS RETURN OF INCOME DECLARING TOTAL INCOME OF RS. 2,64,178/- WHICH WAS SELECTED FOR SCRUTINY AND NOTICE U/S 143(2) OF THE IT ACT WAS ISSUED. SUB SEQUENTLY, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A SHOW CAUSE U/S 144 WAS ISSUED HOWEVER, THE ASSESSEE FAILED TO FURNISH ANY REPLY TO SHOW CAUSE ITA NO. 1370 /JP/2019 M/S BABOO LAL VS. ITO 3 AND THE ASSESSMENT WAS COMPLETED U/S 144 OF THE ACT AT TOTAL INCOME OF RS. 18,78,330/-. SUBSEQUENTLY VIDE ORDER PASSED U/S 154 DATED 06.08.2013, THE ASSESSEES INCOME WAS RECOMPUTED AT RS. 22,75,057/-. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A) WHO HAS SUSTAINED THE DISALLOWANCES SO M ADE BY THE ASSESSING OFFICER. AGAINST THE SAID FINDINGS, THE ASSESSEE IS IN APPEAL BEFORE US. 3. IN GROUND NO. 1, THE ASSESSEE HAS CHALLENGED THE LEGALITY OF THE ORDER PASSED U/S 144 OF THE ACT. IT WAS SUBMITTED B Y THE LD. AR THAT AFTER GETTING THE BOOKS OF ACCOUNTS AUDITED U/S 44A B, RETURN OF INCOME WAS FILED ON 29.09.2009. DURING THE COURSE OF SCRUT INY ASSESSMENT, THE BOOKS OF ACCOUNTS WERE PRODUCED. LIKE MAJORITY OF O THER CIVIL CONSTRUCTION CONTRACTORS, COMPLETE BILLS, MUSTER-RO LLS, WAGES REGISTER COULD NOT BE PRODUCED. FROM THE EXAMINATION OF CASH BOOK, THE LD. AO MADE ADDITION FOR MINUS CASH BALANCE AND DISALLOWED PART OF BUSINESS EXPENSES. IT WAS SUBMITTED THAT THE SOLE REASON FOR COMPLETION OF ASSESSMENT U/S 144 OF THE ACT WAS NON PRODUCTION OF COMPLETE SUPPORTING EVIDENCES. THE PROVISIONS OF SECTION 144 OF THE ACT ARE APPLICABLE ONLY IF NO RETURN OF INCOME WAS SUBMITTE D OR THE ASSESSEE HAS NOT COMPLIED WITH TERMS OF NOTICE U/S 142(1) OF THE ACT. UNDER THE GIVEN FACTS, THE ONLY COURSE OPEN WITH THE ASSESSIN G OFFICER WAS TO APPLY PROVISIONS OF SECTION 145(3) OF THE ACT AND T O ESTIMATE INCOME BY APPLYING GP/NP RATE BUT IN NO CASE THE ASSESSMENT C OULD BE COMPLETED U/S 144 OF THE ACT. ITA NO. 1370 /JP/2019 M/S BABOO LAL VS. ITO 4 4. PER CONTRA, THE LD. DR SUBMITTED THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, SUFFICIENT OPPORTUNITIES WE RE PROVIDED TO THE ASSESSEE TO PRODUCE COMPLETE BILLS, MUSTER-ROLLS, W AGES REGISTER AND PURCHASE BILLS AND WAS ALSO ISSUED A SPECIFIC SHOW CAUSE VIDE ORDER SHEET ENTRY DATED 02.09.2011 AS TO WHY THE ASSESSME NT SHOULD NOT BE MADE U/S 144 OF THE ACT HOWEVER, THE ASSESSEE HAS F AILED TO SUBMIT ANY REPLY TO THE SAID SHOW CAUSE NOTICE AND THEREFO RE, THE ASSESSING OFFICER WAS CORRECT IN COMPLETING THE ASSESSMENT U/ S 144 OF THE ACT WHEREIN HE HAS MADE SPECIFIC DISALLOWANCES, ADDITIO N HAS BEEN MADE TOWARDS PAYMENTS FROM ITS UNDISCLOSED INCOME WHICH RESULTED IN NEGATIVE CASH BALANCE IN ITS CASH BOOK AND THE ASSE SSMENT WAS COMPLETED U/S 144 OF THE ACT BY INVOKING THE PROVIS IONS OF SECTION 145(3) OF THE ACT. FURTHER, IT WAS SUBMITTED BY THE LD. DR THAT THE ASSESSEE HAS TAKEN THIS GROUND AS AN ADDITIONAL GRO UND BEFORE THE LD. CIT(A) AND IN ABSENCE OF A SPECIFIC PAYER MADE BY THE ASSESSEE, THE SAID GROUND WAS NOT ADMITTED AND DISMISSED BY THE L D. CIT(A). 5. REGARDING GROUND NO. 2, THE LD. AR SUBMITTED TH AT THE ASSESSEE HAD MADE PAYMENT OF CERTAIN EXPENSES AFTER GAP OF F EW DAYS FROM THE DATE OF RECEIPT OF EXPENSES VOUCHERS BUT DUE TO MIS TAKE OF THE ACCOUNTANT, HAD ENTERED THE PAYMENT OF THESE EXPENS ES ON THE DATE OF VOUCHERS WHICH RESULTED IN NEGATIVE CASH BALANCE ON 04.03.2019. OTHERWISE, AT THE END OF THE YEAR, CASH BALANCE WAS A POSITIVE AMOUNT AS PER AUDITED STATEMENTS OF ACCOUNTS. AS PER PRACT ICE OF DEPARTMENT, IN GIVEN FACTS, HAD THE LD. AO APPLIED NP RATE ON G ROSS RECEIPTS, THERE WAS NO NEED FOR SEPARATE ADDITION. ITA NO. 1370 /JP/2019 M/S BABOO LAL VS. ITO 5 6. PER CONTRA, THE LD. DR SUBMITTED THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS ON VERIFICATION OF CASH BOOK , IT WAS FOUND THAT THE ASSESSEE WAS HAVING NEGATIVE CASH BALANCE OF RS . 4,29,625/- ON 04.03.2009 AND ASSESSEE HAS FAILED TO SUBMIT ANY EX PLANATION ON THIS ISSUE. ACCORDINGLY, IN THE ABSENCE OF ANY EXPLANATI ON THE AO WAS RIGHT IN TREATING THIS PAYMENT FROM ITS UNDISCLOSED INCOM E WHICH WAS ADDED TO THE INCOME OF THE ASSESSEE. IT WAS FURTHER SUBMI TTED THAT DURING THE COURSE OF APPELLATE PROCEEDINGS, THE ASSESSEE HAD S TATED THAT THERE WERE CERTAIN ERRORS IN CASH BOOK FILED EARLIER AND HAD FILED A FRESH CASH BOOK. IN THIS REGARD, THE REMAND REPORT WAS CALLED BY THE LD. CIT(A) AND IN THE REMAND REPORT, THE ASSESSING OFFICER AFTER VERIFICATION STATED THAT THE ASSESSEE COULD NOT JUSTIFY BILLS/VOUCHERS WHICH WERE CLAIMED AS WRONGLY ENTERED IN CASH BOOK. IN THE ABSENCE OF ANY BILLS/VOUCHERS SUBMITTED BY THE ASSESSEE, THE SECOND CASH BOOK SUB MITTED BY THE ASSESSEE WAS AN AFTERTHOUGHT AND AN ATTEMPT TO JUST IFY THE NEGATIVE CASH BALANCE, THEREFORE, THERE IS NO INFIRMITY IN T HE FINDING OF THE LOWER AUTHORITIES AND THE SAME SHOULD BE CONFIRMED. 7. REGARDING GROUND NO. 3, THE LD. AR SUBMITTED THA T THE PARTNERS WERE PAID INTEREST OF RS. 1,56,732/- AND REMUNERATI ON OF RS. 2,40,000/- AS PER THE PROVISIONS OF PARTNERSHIP DEED DATED 01. 04.1999 WHICH IS DULY ALLOWABLE U/S 40(B)(IV)& (V) OF THE ACT AS WEL L AS IN VIEW OF THE DECISION OF THE HONBLE RAJASTHAN HIGH COURT IN CAS E OF CIT VS. JAIN CONSTRUCTION CO. (2000) 245 ITR 527 AND THE SAID CL AIM HAS BEEN WRONGLY DENIED BY THE AO AND CONFIRMED BY THE LD CI T(A). ITA NO. 1370 /JP/2019 M/S BABOO LAL VS. ITO 6 8. PER CONTRA, THE LD. DR SUBMITTED THAT SINCE THE ASSESSMENT HAS BEEN COMPLETED U/S 144 OF THE ACT, IN VIEW OF THE P ROVISIONS OF SECTION 184(5) OF THE ACT, THE ASSESSING OFFICER HAS RIGHTL Y DISALLOWED THE INTEREST AND REMUNERATION PAID TO THE PARTNERS OF T HE ASSESSEE-FIRM. IT WAS ACCORDINGLY SUBMITTED THAT THERE IS NO INFIRMIT Y IN THE FINDING OF THE LOWER AUTHORITIES WHICH SHOULD BE CONFIRMED. IT WAS FURTHER SUBMITTED THAT THE ASSESSEE HAS TAKEN THIS GROUND BY WAY OF A N ADDITIONAL GROUND BEFORE THE LD. CIT(A) WHICH WAS ALSO NOT ADMITTED A ND DISMISSED AT THE PRELIMINARY STAGE ITSELF. 9. REGARDING GROUND NO. 4, THE ASSESSEE HAS CHALLEN GED THE ACTION OF THE LD. CIT(A) IN NOT ALLOWING DEPRECIATION OF R S. 2,28,700/- ON FIXED ASSETS USED IN CARRYING ON CONTRACT BUSINESS BY THE ASSESSEE. IN THIS REGARD, THE LD. AR SUBMITTED THAT OUT OF ALLOWABLE DEPRECIATION OF RS. 2,39,950/- ON SHOP AND TOOLS & PLANTS, DEPRECIATION OF ONLY RS. 11,250/- ON TOOLS AND PLANTS WAS ALLOWED AS CLAIMED BY THE A SSESSEE IN THE PROFIT AND LOSS ACCOUNT. IT WAS SUBMITTED THAT AS PER EXPL ANATION 5 TO SECTION 32, THE AO SHOULD HAVE ALLOWED REMAINING DEPRECIATI ON ON SHOP EVEN IF NOT CLAIMED BY THE ASSESSEE AND IN SUPPORT, RELIANC E WAS PLACED ON THE DECISION OF PLATIBLENDS INDIA LTD. VS. ADD.CIT (201 7) 398 ITR 568(SC). 10. PER CONTRA, THE LD. DR SUBMITTED THAT IN THE CO MPUTATION OF INCOME FILED BY THE ASSESSEE AT ITS PAPER BOOK PAGE 17, IT HAS SHOWN TOOLS AND PLANTS UNDER THE HEAD FIXED ASSETS ON WHICH DEPRECIATION OF RS. 11,250/- HAS BEEN CLAIMED AND DULY ALLOWED B Y THE ASSESSING OFFICER. FURTHER, OUR REFERENCE WAS ALSO DRAWN TO T HE AUDIT REPORT WHEREIN THE AUDITORS HAVE ALSO CONSIDERED THE FIXED ASSETS CONSISTING OF ITA NO. 1370 /JP/2019 M/S BABOO LAL VS. ITO 7 ONLY TOOLS AND PLANTS ON WHICH DEPRECIATION HAS BEE N COMPUTED AT RS. 11,250/-. IT WAS ACCORDINGLY SUBMITTED THAT THERE IS NOTHING ON RECORD IN TERMS OF ANY ASSET OTHER THAN TOOLS AND PLANTS O N WHICH DEPRECIATION HAS NOT BEEN ALLOWED BY THE AO AND THUS, THE ADDITI ONAL GROUND SO RAISED BY THE ASSESSEE DESERVE TO BE DISMISSED. 11. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE MATERIAL AVAILABLE ON RECORD. THE QUESTION THAT ARISES FOR C ONSIDERATION IS WHETHER THE ASSESSING OFFICER WAS CORRECT IN INVOKI NG THE PROVISIONS OF SECTION 144 OF THE ACT AND IF THE ANSWER TO THE SAM E IS IN AFFIRMATIVE, HOW SHOULD HE GO ABOUT IN MAKING THE BEST ASSESSMEN T. THE PROVISIONS OF SECTION 144 PROVIDE CLEARLY THE VARIOUS SCENARIO S WHERE THE AO IS EMPOWERED TO MAKE THE BEST JUDGMENT ASSESSMENT WHIC H READS AS UNDER: 144. 27 [(1)] IF ANY PERSON (A ) FAILS TO MAKE THE RETURN REQUIRED 28 [UNDER SUB- SECTION (1) OF SECTION 139 ] AND HAS NOT MADE A RETURN OR A REVISED RETURN UND ER SUB-SECTION (4) OR SUB-SECTION (5) OF THAT SECTION, OR (B ) FAILS TO COMPLY WITH ALL THE TERMS OF A NOTICE ISSU ED UNDER SUB - SECTION (1) OF SECTION 142 29 [OR FAILS TO COMPLY WITH A DIRECTION ISSUED UNDER SUB-SECTION (2A) OF THAT SECTION], OR (C ) HAVING MADE A RETURN, FAILS TO COMPLY WITH ALL THE TERMS OF A NOTICE ISSUED UNDER SUB-SECTION (2) OF SECTION 143 , THE 30 [ASSESSING] OFFICER, AFTER TAKING INTO ACCOUNT ALL RELEVANT MATERIAL WHICH THE 30 [ASSESSING] OFFICER HAS GATHERED, 31 [SHALL, AFTER GIVING THE ASSESSEE AN OPPOR-TUNITY OF BEING HEARD, MAKE THE ASSESSMENT 32 ] OF THE TOTAL INCOME OR LOSS TO THE BEST OF HIS JUDGMENT AND DETERMINE THE SUM PAYABLE BY THE ASSESSEE 33 [***] ON THE BASIS OF SUCH ASSESSMENT : ITA NO. 1370 /JP/2019 M/S BABOO LAL VS. ITO 8 34 [ PROVIDED THAT SUCH OPPORTUNITY SHALL BE GIVEN BY THE ASSESSING OFFICER BY SERVING A NOTICE CALLING UPON THE ASSESSEE TO SHOW CAUSE, ON A DATE AND TIME TO BE SPECIFIED IN T HE NOTICE, WHY THE ASSESSMENT SHOULD NOT BE COMPLETED TO THE B EST OF HIS JUDGMENT : PROVIDED FURTHER THAT IT SHALL NOT BE NECESSARY TO GIVE SUCH OPPORTUNITY IN A CASE WHERE A NOTICE UNDER SUB-SECT ION (1) OF SECTION 142 HAS BEEN ISSUED PRIOR TO THE MAKING OF AN ASSESSMENT UNDER THIS SECTION 12. IN THE INSTANT CASE, WE FIND THAT DURING THE CO URSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER HAS ISSUED NOTIC E U/S 143(2), 142(1) AND THROUGH SUCH NOTICE, HAS SOUGHT TO EXAMINE THE BOOKS OF ACCOUNTS OF THE ASSESSEE. THE ASSESSEE IN TURN SUBMITTED CO PY OF CASH BOOK AND LEDGERS HOWEVER, BILLS, VOUCHERS, MUSTER ROLLS, WAG ES REGISTER, PURCHASE BILLS, ETC WERE NOT PRODUCED FOR VERIFICATION INSPI TE OF VARIOUS OPPORTUNITIES GRANTED BY THE ASSESSING OFFICER AS A PPARENT FROM THE FOLLOWING FINDINGS IN THE ASSESSMENT ORDER DATED 14 .11.2011 WHICH REMAIN UNDISPUTED BEFORE US:- THE ASSESSEE IS A FIRM ENGAGED IN THE BUSINESS OF C IVIL CONSTRUCTION. DURING THE YEAR UNDER CONSIDERATION T HE ASSESSEE HAS SHOWN NET PROFIT OF RS.6,72,160/- BEFO RE DEPRECIATION, INTEREST AND REMUNERATION PARTNERS AG AINST GROSS RECEIPTS OF RS. 90,71,494/- I.E. 7.40%. DURIN G THE IMMEDIATELY PRECEDING YEAR THE ASSESSEE HAS DECLARE D NET PROFIT RATE OF 8% BEFORE DEPRECIATION, INTEREST AND REMUNERATION TO PARTNERS. DURING ASSESSMENT PROCEED ING WRITTEN SUBMISSIONS WERE FILED AND COPY OF AUDIT RE PORT WAS FILED. COPY OF CASH BOOK AND LEDGER WAS FILED BUT B ILLS, VOUCHERS, WAGES SHEETS, MUSTER ROLLS, VOUCHERS FOR PAYMENTS WERE NOT PRODUCED ALTHOUGH SUFFICIENT OPPO RTUNITY WAS PROVIDED TO THE ASSESSEE. OPPORTUNITY WAS PROV IDED TO THE ITA NO. 1370 /JP/2019 M/S BABOO LAL VS. ITO 9 ASSESSEE 09-06-2011, 05-07-2011, 12-07-2011, 25-07- 2011, 02- 08-2011, 08- 18-20-1I, 25-08-2011, 02-09-2011, 09-0 9-2011, 07-10-2011, 12-10-2011, 19-10-2011, BUT THE ASSESSE E FAILED TO AVAIL THESE OPPORTUNITIES AND FAILED TO PRODUCE COM PLETE BILLS, VOUCHERS, MUSTER ROLLS, WAGES REGISTER AND PURCHASE BILLS. THE ASSESSEE WAS ASKED VIDE ORDER SHEET ENTRY DATED 02- 09-2011 TO SHOW CAUSE AS TO WHY ASSESSMENT SHALL NOT BE COMPLE TED U/S 144 I.E. BEST JUDGMENT ASSESSMENT. BUT THE ASSESSEE FAI LED TO FURNISH ANY REPLY ON SHOW CAUSE AND EVEN BILLS/ VOUCHERS ET C. WERE NOT PRODUCED TILL DATE, THEREFORE, I HAVE NO ALTERNATI VE BUT TO COMPLETE THE ASSESSEE U/S 144 I.E. BEST JUDGMENT AS SESSMENT. 13. WE THEREFORE FIND THAT THE ASSESSING OFFICER HA VING GIVEN SUFFICIENT OPPORTUNITY TO FURNISH THE AFORESAID DET AILS AND THE ASSESSEE FAILING TO EVEN ATTEND TO THE PROCEEDINGS AND REPLY ING TO THE SHOW- CAUSE SO ISSUED BY THE ASSESSING OFFICER, THE PROVI SIONS OF SECTION 144 HAVE BEEN RIGHTLY INVOKED BY THE ASSESSING OFFICER. 14. NOW, COMING TO THE SECOND QUESTION AS TO HOW TH E POWERS OF BEST JUDGMENT SHOULD BE EXERCISED BY THE ASSESSING OFFICER AND WHAT PRINCIPLES SHOULD BE FOLLOWED BY THE ASSESSING OFFI CER WHILE MAKING THE BEST JUDGMENT. IN THIS REGARD, WE REFER TO WELL-SE TTLED LEGAL PROPOSITION SO LAID DOWN BY THE HONBLE SUPREME COURT IN CASE O F BRIJ BHUSHAN LAL PARDUMAN KUMAR [1978] 115 ITR 524 AS UNDER: AT THE OUTSET, IT MAY BE STATED THAT IN THE CASE O F BOTH THE ASSESSEES THEIR RETURNS AND BOOK RESULTS WERE REJEC TED ON THE GROUND THAT PROPER AND RELIABLE BOOKS OF ACCOUNT HA D NOT BEEN MAINTAINED AND THE ITO WAS REQUIRED TO MAKE THE ASS ESSMENTS ITA NO. 1370 /JP/2019 M/S BABOO LAL VS. ITO 10 ON 'BEST JUDGMENT' BASIS. HOWEVER, THE PRINCIPLES T O BE FOLLOWED BY THE ITO WHILE MAKING A BEST JUDGMENT ASSESSMENT HAVE BEEN CLEARLY LAID DOWN BY THE PRIVY COUNCIL AS ALSO BY T HIS COURT IN A NUMBER OF DECISIONS. IN CIT V. LAXMINARAIN BADRIDAS [1937] 5 ITR 170 (PC), THEIR LORDSHIPS OF THE PRIVY COUNCIL OBSE RVED AS FOLLOWS: 'THE OFFICER IS TO MAKE AN ASSESSMENT TO THE BEST O F HIS JUDGMENT AGAINST A PERSON WHO IS IN DEFAULT AS REGA RDS SUPPLYING INFORMATION. HE MUST NOT ACT DISHONESTLY OR VINDICTIVELY OR CAPRICIOUSLY BECAUSE HE MUST EXERCI SE JUDGMENT IN THE MATTER. HE MUST MAKE WHAT HE HONEST LY BELIEVES TO BE A FAIR ESTIMATE OF THE PROPER FIGURE OF ASSESSMENT, AND FOR THIS PURPOSE HE MUST, THEIR LOR DSHIPS THINK, BE ABLE TO TAKE INTO CONSIDERATION LOCAL KNO WLEDGE AND REPUTE IN REGARD TO THE ASSESSEE'S CIRCUMSTANCE S, AND HIS OWN KNOWLEDGE OF PREVIOUS RETURNS BY AND ASSESS MENTS OF THE ASSESSEE, AND ALL OTHER MATTERS WHICH HE THI NKS WILL ASSIST HIM IN ARRIVING AT A FAIR AND PROPER ESTIMAT E; AND THOUGH THERE MUST NECESSARILY BE GUESSWORK IN THE M ATTER, IT MUST BE HONEST GUESSWORK. IN THAT SENSE, TOO, TH E ASSESSMENT MUST BE, TO SOME EXTENT, ARBITRARY.' SINCE THE LAW RELATING TO 'BEST JUDGMENT ASSESSMENT ' IS THE SAME BOTH IN THE CASE OF INCOME-TAX ASSESSMENT AND SALES TAX ASSESSMENT, THE FOLLOWING OBSERVATIONS OF THIS COUR T IN RAGHUBAR MANDAL HARIHAR MANDAL V. STATE OF BIHAR [1957] 8 ST C 770 , 778 (SC), A CASE UNDER THE BIHAR SALES TAX ACT, WOULD B E MATERIAL: ITA NO. 1370 /JP/2019 M/S BABOO LAL VS. ITO 11 'NO DOUBT IT IS TRUE THAT WHEN THE RETURNS AND THE BOOKS OF ACCOUNT ARE REJECTED, THE ASSESSING OFFICER MUST MA KE AN ESTIMATE, AND TO THAT EXTENT HE MUST MAKE A GUESS; BUT THE ESTIMATE MUST BE RELATED TO SOME EVIDENCE OR MA TERIAL AND IT MUST BE SOMETHING MORE THAN MERE SUSPICION.' AGAIN IN STALE OF KERALA V. C. VELUKUTTY [1966] 60 ITR 239 (SC) , WHICH WAS A CASE UNDER THE TRAVANCORE-COCHIN GENERAL SALES TAX ACT, SUBBA RAO J. (AS HE THEN WAS ), SPEAKING FOR THIS COURT, OBSERVED AT PAGE 244 OF TH E REPORT THUS: 'THE LIMITS OF THE POWER ARE IMPLICIT IN THE EXPRES SION 'BEST OF HIS JUDGMENT'. JUDGMENT IS A FACULTY TO DECIDE M ATTERS WITH WISDOM TRULY AND LEGALLY. JUDGMENT DOES NOT DE PEND UPON THE ARBITRARY CAPRICE OF A JUDGE, BUT ON SETTL ED AND INVARIABLE PRINCIPLES OF JUSTICE. THOUGH THERE IS A N ELEMENT OF GUESSWORK IN A 'BEST JUDGMENT ASSESSMENT', IT SH ALL NOT BE A WILD ONE, BUT SHALL HAVE A REASONABLE NEXUS TO THE AVAILABLE MATERIAL AND THE CIRCUMSTANCES OF EACH CA SE.' IT WILL APPEAR CLEAR FROM WHAT HAS BEEN SAID ABOVE THAT THE AUTHORITY MAKING A BEST JUDGMENT ASSESSMENT MUST MA KE AN HONEST AND FAIR ESTIMATE OF THE INCOME OF THE AS SESSEE AND THOUGH ARBITRARINESS CANNOT BE AVOIDED IN SUCH ESTIMATE THE SAME MUST NOT BE CAPRICIOUS BUT SHOULD HAVE A REASONABLE NEXUS TO THE AVAILABLE MATERIAL AND TH E CIRCUMSTANCES OF THE CASE. IT IS WITH REFERENCE TO THESE ITA NO. 1370 /JP/2019 M/S BABOO LAL VS. ITO 12 PRINCIPLES THAT THE QUESTION RAISED BEFORE US WILL HAVE TO BE CONSIDERED AND LOOKING AT IT FROM THAT POINT OF VIE W THE REAL QUESTION IS WHETHER THE TURNOVER REPRESENTED BY THE COST OF THE STORES/ MATERIAL SUPPLIED BY THE M.E.S. DEPARTM ENT INVOLVES ANY ELEMENT OF PROFIT HAVING REGARD TO THE TERMS AND CONDITIONS ON WHICH SUCH SUPPLY IS MADE? IF IT DOES, THEN THE COST OF SUCH STORES/MATERIAL WILL HAVE TO BE TAKEN INTO ACCOUNT, BUT IF IT DOES NOT, SUCH COST WILL HA VE TO BE EXCLUDED. 15. WHAT IS THEREFORE, REQUIRED IS TO MAKE AN HONES T AND FAIR ESTIMATE OF INCOME AND SUCH ESTIMATE OF INCOME SHOU LD HAVE A REASONABLE NEXUS TO THE AVAILABLE MATERIAL AND THE CIRCUMSTANCES OF THE CASE. IN THE INSTANT CASE, WE FIND THAT THE ASSESSING OFF ICER HAS DISALLOWED 15% OF MATERIAL, WAGES, OFFICE AND PETRO L EXPENSES AMOUNTING TO RS 11,84,522 FOR THE REASON THAT THE A SSESSEE HAS FAILED TO SUBSTANTIATE THESE EXPENSES, HOWEVER, ON WHAT BA SIS/RATIONALE, HE HAS ARRIVED AT THE FIGURE OF 15% HAS NOT BEEN SPECI FIED. THERE IS NO FINDING THAT THERE ARE ANY SPECIFIC EXPENSES WHICH HAVE EITHER NOT BEEN INCURRED FOR THE PURPOSES OF BUSINESS OR ARE BOGUS IN NATURE, THEREFORE, IN ABSENCE OF ANY SPECIFIC FINDING BY THE ASSESSING OFFICER, THE DISALLOWANCE SO MADE IS DIRECTED TO BE DELETED. FU RTHER, INTEREST AND REMUNERATION TO PARTNERS HAVE BEEN DISALLOWED DUE T O SPECIFIC PROVISIONS OF SECTION 184(5) WHICH PROVIDES THAT WH ERE THERE IS A FAILURE ON PART OF THE FIRM AS IS MENTIONED IN SECTION 144 OF THE ACT, NO DEDUCTION BY WAY OF INTEREST AND REMUNERATION SHALL BE ALLOWED. GIVEN THE SPECIFIC BAR IN THE STATUTE AGAINST ALLOWANCE O F SUCH INTEREST AND ITA NO. 1370 /JP/2019 M/S BABOO LAL VS. ITO 13 REMUNERATION WHERE THE ASSESSMENT HAS BEEN COMPLETE D U/S 144, WE DONOT SEE ANY INFIRMITY IN THE ACTION OF THE ASSESS ING OFFICER WHERE HE HAS STRICTLY FOLLOWED THE PROVISIONS OF SECTION 184 (5) OF THE ACT. REGARDING ADDITION MADE ON ACCOUNT OF NEGATIVE CASH BALANCE, WE FIND THAT INSPITE OF SUFFICIENT OPPORTUNITIES PROVIDED B Y THE LD CIT(A) DURING THE APPELLATE PROCEEDINGS AND HAVING CALLED THE REM AND REPORT, THE ASSESSEE HAS FAILED TO PRODUCE THE NECESSARY DOCUME NTATION IN SUPPORT OF ITS CLAIM AND THE ADDITION HAS THUS RIGHTLY BEEN MADE BY THE ASSESSING OFFICER. LASTLY, REGARDING NON-ALLOWANCE OF FULL DEPRECIATION ON ALL THE FIXED ASSETS, WE FIND THAT IN THE BALANCE S HEET AS ON 31.03.2009, THE ASSESSEE HAS SHOWN A SHOP WITH A BOOK VALUE OF RS 22,87,000 BESIDES TOOLS AND PLANT WITH BOOK VALUE OF RS 63,75 0. IN THE PROFIT/LOSS ACCOUNT, DEPRECIATION ON ONLY TOOLS AND PLANT HAS B EEN DEBITED AND SIMILAR IS THE POSITION IN THE COMPUTATION OF INCOM E AND THE AUDITORS REPORT WHERE DEPRECIATION CLAIM IS LIMITED TO TOOLS AND PLANTS. AT THE SAME TIME, GIVEN THAT VALUE OF SHOP HAS BEEN REFLEC TED AS PART OF BLOCK OF ASSETS IN THE FINANCIAL STATEMENTS AND IS A MATT ER OF RECORD WHICH CAN BE VERIFIED IN TERMS OF OWNERSHIP AND WHERE SUCH SH OP PREMISES ARE UTILIZED FOR THE PURPOSES OF BUSINESS, THE ASSESSEE SHALL BE ELIGIBLE FOR DEPRECIATION EVEN THOUGH NOT CLAIMED EARLIER AND TH E MATTER IS REMANDED TO THE FILE OF THE ASSESSING OFFICER FOR L IMITED PURPOSES OF VERIFYING THE DEPRECIATION ON SHOP FORMING PART OF ASSESSEES BLOCK OF ASSETS AND WHERE THE SAME IS FOUND TO BE IN ORDER, ALLOW THE CLAIM AS PER LAW. ITA NO. 1370 /JP/2019 M/S BABOO LAL VS. ITO 14 16. IN THE RESULT, GROUND NO. 1 & 3 ARE DISMISSED, GROUND NO. 2 IS PARTLY ALLOWED, GROUND NO. 4 IS ALLOWED FOR STATIST ICAL PURPOSES AND APPEAL IS DISPOSED OFF ACCORDINGLY. ORDER PRONOUNCED IN THE OPEN COURT ON 18/02/2020. 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:- 18/02/2020. * SANTOSH VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- M/S BABOO LAL, JAIPUR. 2. IZR;FKHZ@ THE RESPONDENT- ITO, WARD-6(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. 1370/JP/2019} VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR.