Sri. C. Basavaraj Babu, V. ITO,

ITA 1597/BANG/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 8668 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 2 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-02-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 18-01-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 22-11-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T N PRAKASH
• Section: 40A(3); 69; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER ITA NO.1597/BANG/2013 ASSESSMENT YEAR : 2008-09 SHRI C. BASAVARAJ BABU, PROP. M/S. GURU TRADERS, CHANDRAVADI, HULLAHALLI, NANJANGUD 571 314. PAN: AEMPB 0049Q VS. THE INCOME TAX OFFICER, WARD 1(3), MYSORE. APPELLANT RESPONDENT APPELLANT BY : SHRI RAVISHANKAR, ADVOCATE RESPONDENT BY : SHRI T.N. PRAKASH, ADDL. CIT(DR) DATE OF HEARING : 18.01.2016 DATE OF PRONOUNCEMENT : 05.02.2016 O R D E R PER INTURI RAMA RAO, ACCOUNTANT MEMBER THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AG AINST THE ORDER OF CIT(APPEALS), MYSORE DATED 29.8.2013 FOR THE ASSESS MENT YEAR 2008-09. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS O F APPEAL:- 1. THE HONBLE CIT(A) ERRED IN UPHOLDING THE ADD ITIONS MADE U/S.40A(3) ON THE GROUND THAT ALL THE TURNOVER WERE RECORDED IN THE BOOKS OF ACCOUNTS AND THE PAYMENTS EXCEEDING RS.20,000/- WERE CONFIRMED DIRECTLY BY THE PARTIES INVOLVED. ITA NO.1597/BANG/2013 PAGE 2 OF 5 2. THE HONBLE CIT(A) ERRED IN NOT APPRECIATING TH AT THE ASSESSEE WAS GIVEN NO OPPORTUNITY TO DEFEND THE PAY MENTS MADE IN THE BOOKS OF ACCOUNTS TO THE PARTIES INVOLVED. 3. THE HONBLE CIT(A) FAILED TO APPRECIATE THAT ON CE THE BOOKS OF ACCOUNTS WERE REJECTED ON THE GROUND THAT THEY WERE INCORRECT THE ONLY OPTION LEFT FOR THE ASSESSEE TO ESTIMATE THE TOTAL INCOME U/S.144. 4. THE HONBLE CIT(A) FAILED TO APPRECIATE THAT ON CE THE BOOKS WERE REJECTED AND INCOME WAS TO BE ESTIMATED THERE IS NO PLACE FOR DISALLOWANCE U/S.40A(3). 3. BRIEFLY THE FACTS OF THE CASE ARE THAT THE APPEL LANT IS AN INDIVIDUAL. HE IS ENGAGED IN THE BUSINESS OF DEALING IN FERTILI ZERS AND PADDY. RETURN OF INCOME FOR THE AY 2008-09 WAS FILED ON 31.7.2008 DE CLARING INCOME OF RS.3,17,340. AGAINST SUCH RETURN OF INCOME, AFTER ISSUE OF NOTICE U/S. 143(2), ASSESSMENT WAS COMPLETED U/S. 144 OF THE IN COME-TAX ACT, 1961 [THE ACT] VIDE ORDER DATED 24.9.2010 BY THE ITO, WARD 1(3), MYSORE AT A TOTAL INCOME OF RS.6,94,540. THE DISPARITY BETWEEN THE RETURNED INCOME AND ASSESSED INCOME IS ON ACCOUNT OF ADDITION MADE UNDER THE PROVISIONS OF SECTION 40A(3) OF RS.3,48,157 AND ON ACCOUNT OF CASH DEFICIT AS PER BOOKS OF ACCOUNT OF RS.29,042. 4. IT IS OBSERVED BY THE ASSESSING OFFICER THAT THE BOOKS OF ACCOUNT WERE NOT RELIABLE AND THEREFORE HE REJECTED THE BOO K RESULTS AND ASSESSMENT IS STATED TO HAVE BEEN COMPLETED UNDER T HE PROVISIONS OF SECTION 144 INVOKING THE PROVISIONS OF SECTION 145( 3) OF THE ACT. ITA NO.1597/BANG/2013 PAGE 3 OF 5 5. BEING AGGRIEVED BY THE ASSESSMENT ORDER, AN APPE AL WAS FILED BEFORE THE CIT(APPEALS). IT WAS INTER ALIA CONTENDED THAT WHEN THE BOOKS OF ACCOUNT WERE REJECTED BY THE AO, THE ONLY COURSE OPEN TO THE AO IS TO ESTIMATE THE PROFIT BY ADOPTING THE COMPARABLE PROF IT IN THE SIMILAR TRADE OF BUSINESS AND HAVING REJECTED THE BOOKS OF ACCOUNT, THE AO CANNOT MAKE DISALLOWANCES UNDER THE PROVISIONS OF THE ACT SUCH AS SEC. 40A(3) AND SEC. 69 OF THE ACT. 6. THE CONTENTION OF THE APPELLANT WAS REJECTED BY THE LD. CIT(APPEALS) VIDE IMPUGNED ORDER BY HOLDING AS UNDER:- 9. I HAVE CONSIDERED THE RIVAL CONTENTIONS CAREFUL LY. IN THE CASE LAW CITED BY THE APPELLANT THERE WAS A SEARCH WHEREIN UNACCOUNTED BUSINESS TRANSACTIONS WERE FOUND. IT I S OBSERVED THAT SINCE THE TRANSACTION WAS OUTSIDE THE BOOKS, IT IS IMPOSSIBLE TO MAKE PAYMENT BY CHEQUE. HOWEVER, THE FACTS IN THE CASE OF THE APPELLANT ARE TOTALLY DIFFERENT. IN THE CASE OF TH E APPELLANT, AS ANALYSED BY THE AO IN THE ORDER, THE PROVISIONS OF SEC 40A(3) ARE CLEARLY ATTRACTED. FURTHER THE ADDITION U/S 69 IS CLEARLY IDENTIFIED BY THE AO. THE REJECTION OF BOOKS IS FOR DIFFERENT REASONS. HENCE, CONSIDERING THE FACTS AND CIRCUMSTANCES, I F IND THAT THE ADDITIONS MADE ARE ON SOUND REASONING AND ACCORDING LY, THE ADDITIONS ARE CONFIRMED AND THE APPEAL IS DISMISSED . 7. BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFOR E US. THE LD. COUNSEL FOR THE ASSESSEE CONTENDED THAT THE CIT(APP EALS) HAD FAILED TO APPRECIATE THAT ADDITIONS WERE MADE WITHOUT AFFORDI NG REASONABLE OPPORTUNITY TO EXPLAIN THE CASE OF ASSESSEE AND IT WAS FURTHER CONTENDED THAT HAVING REJECTED BOOKS OF ACCOUNT, THE ONLY COU RSE OPEN TO THE AO WAS ITA NO.1597/BANG/2013 PAGE 4 OF 5 TO ESTIMATE THE PROFIT BY ADOPTING COMPARABLE PROFI T IN THE SIMILAR LINE OF BUSINESS. THEREFORE, HE PRAYED THAT THE ADDITIONS MAY BE DELETED. 8. ON THE OTHER HAND, THE LD. SR. DR SUPPORTED THE ORDERS OF LOWER AUTHORITIES. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IN THIS CASE, THE AO HAD SPECIFICALLY STAT ED THAT THE ASSESSEE HAD COMPLIED WITH ALL THE NOTICES ISSUED BY HIM. DESPI TE THIS, HE HAD CHOSEN TO REJECT THE BOOKS OF ACCOUNT AS HE FOUND THAT THE EN TRIES RECORDED IN THE BOOKS OF ACCOUNT ARE NOT CORROBORATED BY THE ENTRIE S MADE IN THE BOOKS OF THE FIRM, FROM WHOM THE ASSESSEE PURCHASED THE FERT ILIZERS. IN OUR CONSIDERED OPINION, THIS ALONE WOULD NOT ENABLE THE AO TO REJECT THE BOOKS OF ACCOUNT AND MAKE ADDITIONS UNDER OTHER PROVISION S OF THE ACT SUCH AS SEC. 69 AND SEC. 40A(3). HAVING REJECTED THE BOOKS OF ACCOUNT, THE ONLY COURSE OPEN TO THE AO IS TO ESTIMATE THE PROFIT BY ADOPTING PROFIT IN THE COMPARABLES ENGAGED IN SIMILAR LINE OF BUSINESS. T HE SAME BOOKS OF ACCOUNT CANNOT BE RELIED UPON BY THE AO TO MAKE DIS ALLOWANCES UNDER ANY OTHER PROVISIONS OF THE ACT AS HELD BY THE HONBLE ANDHRA PRADESH HIGH COURT IN INDWELL CONSTRUCTIONS PVT. LTD. V. CIT, 232 ITR 276 ; CIT V. INTER CONTINENTAL CONSTRUCTIONS, 372 ITR 141 AND CIT V. Y. RAMACHANDRA REDDY, 372 ITR 77 . IN LIGHT OF THIS LEGAL PRINCIPLE, WE ARE UNABLE TO SUSTAIN THE ADDITIONS MADE. ITA NO.1597/BANG/2013 PAGE 5 OF 5 10. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 5 TH DAY OF FEBRUARY, 2016. SD/- SD/- (VIJAY PAL RAO ) ( INTURI RAMA RAO ) JUDICIAL MEMBER ACCOUNTANT MEMBE R BANGALORE, DATED, THE 5 TH FEBRUARY, 2016. /D S/ COPY TO: 1. APPELLANT 2. RESPONDENTS 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.