Malaya Kumar Mund, Kalahandi V. ACIT, Sambalpur

ITA 256/CTK/2015

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 3674 (ITAT-CUTTACK)
• Duration Of Justice: 3 year(s) 2 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-08-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2010-2011
• Appeal Filed On: 26-05-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: B N BEHERA
• Keywords: Business income
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK BEFORE S/SHRI N.S SAINI, ACCOUNTANT MEMBER AND PAVAN KUMAR GADALE, JUDICIAL MEMBER ITA NO. 256 /CTK/201 5 ASSESSMENT YEAR : 201 0 - 2011 MALAYA KUMAR MUND AT : HILL TOWN, PO: BHAWANIPATNA, DIST: KALAHANDI. VS. ACIT, CIRCLE 2(1), SAMBALPUR PAN/GIR NO. AJFPM 1124 R (APPELLANT ) .. ( RESPONDENT ) ASSESSEE BY : SHRI B.N.BEHERA, AR REVENUE BY : SHRI SU BH ENDU DATTA , DR DATE OF HEARING : 13 /0 8 / 2018 DATE OF PRONOUNCEMENT : 14 /0 8 / 2018 O R D E R PER N.S.SAINI, AM THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF THE CIT(A) - 1, BHUBANESWAR DATED .3.2015 FOR THE ASSESSMENT YEAR 2010 - 2011. 2. IN GROUND NOS.1 TO 5, THE GRIEVANCE OF THE ASSESSEE IS THAT THE CIT(A) ERRED IN CONFIRMING THE ESTIMATION OF INCOME AT 8% PER ANNUM MADE BY THE ASSESSING OFFICER. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE DERIVES INCOME FROM EXECUTION OF CONTRA CT WORK AND FILED THE RETURN OF INCOME SHOWING TOTAL INCOME AT RS.41,33,380/ - . THE NET PROFIT AS SHOWN AS PER PROFIT AND LOSS ACCOUNT WAS @ 5.07%, WHICH WAS CONSIDERED BY THE ASSESSING 2 ITA NO.256/CTK/2015 ASSESSMENT YEAR : 2010 - 2011 OFFICER AS ABNORMALLY LOW. THE ASSESSING OFFICER OBSERVED THAT THE AS SESSEE EXPRESSED INABILITY TO FURNISH ALL SUPPORTING BILLS FOR PURCHASE OF MATERIALS AND COMPLETE ADDRESS AND DETAILS OF SUNDRY CREDITORS AND ALSO ASSESSEE FAILED TO FURNISH SUPPORTING BILLS AND VOUCHERS IN RESPECT OF TRANSPORTATION CHARGES AND WAGES. THE REFORE, THE ASSESSING OFFICER CONCLUDED THAT THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE ARE NOT CORRECT AND COMPLETE. HE, THEREFORE, REJECTED THE BOOKS OF ACCOUNT BY INVOKING THE PROVISIONS OF SECTION 145(3) OF THE ACT AND ESTIMATED THE INCOME AT 8% OF THE TOTAL TURNOVER OF RS.8,35,72,219/ - , WHICH WORKED OUT TO RS.66,85,780/ - . 4. ON APPEAL THE CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER ON THE GROUND THAT THE NET PROFIT SHOWN BY THE ASSESSEE AT 5.07% WAS LOW. 5. BEFORE US, LD A.R. OF THE ASSE SSEE SUBMITTED THAT IN THE PRECEDING ASSESSMENT YEAR 2007 - 08, THE ASSESSEE HAD SHOWN NET PROFIT @ 5.35% ON GROSS TURNOVER OF RS.6,18,96,497/ - . IN THE ASSESSMENT YEAR 2008 - 09, THE ASSESSEE HAS SHOWN NET PROFIT OF 5.16% ON GROSS TURNOVER OF RS. 8,58,99,883/ - . IT WAS FURTHER SUBMITTED THAT IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR 2009 - 201 0 , THE ASSESSEE HAS SHOWN NET PROFIT OF 5.15% ON GROSS TURNOVER OF RS.8,19,70,201.00 IN AN ASSESSMENT MADE UNDER SECTION 143(3) OF THE ACT VIDE ORDER DATED 7.9.2009. THE REFORE, IT WAS HIS SUBMISSION THAT IN THE GIVEN FACTS OF THE ASSESSEES CASE, 3 ITA NO.256/CTK/2015 ASSESSMENT YEAR : 2010 - 2011 ESTIMATION OF INCOME BY APPLYING RATE OF 8% WAS EXCESSIVE AND IN VIEW OF THE PAST ACCEPTED RESULTS OF THE NET PROFIT AT 6% SHOULD BE APPLIED TO DETERMINE THE INCOME OF THE IMPUGN ED ASSESSMENT YEAR. 6. LD D.R. ON THE OTHER HAND, SUPPORTED THE ORDERS OF LOWER AUTHORITIES. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE ORDERS OF LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE, THE UNDISPUTED FACTS OF THE CASE ARE THAT BEFORE THE ASSESSING OFFICER THE ASSESSEE EXPRESSED INABILITY TO FURNISH ALL SUPPORTING BILLS FOR PURCHASE OF MATERIALS AND COMPLETE ADDRESS AND DETAILS OF SUNDRY CREDITORS AND ALSO ASSESSEE FAILED TO FURNISH SUPPORTING BILLS AND VOUCHERS IN RESPECT OF TRANSPORTATION CHARGES AND WAGES. THEREFORE, THE ASSESSING OFFICER CONCLUDED THAT THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE ARE NOT CORRECT AND COMPLETE AND, THEREFORE, REJECTED THE BOOKS OF ACCOUNT BY INVOKING THE PROVISIONS OF SECTION 145(3) OF THE ACT AND ESTIMATED THE INCOME AT 8% OF THE TOTAL TURNOVER OF RS.8,35,72,219/ - , WHICH WORKED OUT TO RS.66,85,780/ - . 8. ON APPEAL THE CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER ON THE G ROUND THAT THE NET PROFIT SHOWN BY THE ASSESSEE AT 5.07% WAS LOW. 9. THE ONLY SUBMISSION OF LD A.R. IS THAT IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR I.E. 2007 - 08, THE ASSESSEE HAD SHOWN NET PROFIT @ 4 ITA NO.256/CTK/2015 ASSESSMENT YEAR : 2010 - 2011 5.35% ON GROSS TURNOVER OF RS.6,18,96,497/ - AND I N TH E ASSESSMENT YEAR 2008 - 09, THE ASSESSEE HAS SHOWN NET PROFIT OF 5.16% ON GROSS TURNOVER OF RS.8,58,99,883/ - . I N THE IMMEDIATELY PRECEDING ASSESSMENT YEAR 2009 - 201 0 , THE ASSESSEE HAS SHOWN NET PROFIT OF 5.15% ON GROSS TURNOVER OF RS.8,19,70,201.00 WHICH WA S ACCEPTED BY THE DEPARTMENT IN AN ASSESSMENT MADE UNDER SECTION 143(3) OF THE ACT VIDE ORDER DATED 7.9.2009. HENCE, IT WAS SUBMITTED BY LD A.R. THAT ESTIMATION OF INCOME BY APPLYING RATE OF 8% WAS EXCESSIVE AND IN VIEW OF THE PAST ACCEPTED RESULTS OF THE ASSESSEE, THE NET PROFIT AT 6% FOR THE ASSESSMENT YEAR UNDER CONSIDERATION BE ACCEPTE D. 10. WE FIND THAT BOTH THE ASSESSING OFFICER AS WELL AS THE C IT(A) HAS NOT GIVEN ANY BASIS FOR APPLYING THE RATE OF NET PROFIT AT 8% IN ESTIMATING THE INCOME THE YEAR UNDER CONSIDERATION. IT IS ALSO TRITE LAW THAT AFTER REJECTION OF BOOK RESULTS OF THE ASSESSEE, THE ASSESSING OFFICER HAS TO DETERMINE THE INCOME OF THE ASSESSEE ON SOME REASONABLE BASIS. REFERENCE IS INVITED TO THE FOLLOWING DECISIONS ON THE ISSUE AS UNDER: 1. . AS TO HOW THE BEST JUDGMENT ASSESSMENT SHOULD BE MADE, THE LEADING DECISION ON THE POINT IS THE ONE RENDERED BY THE PRIVY COUNCIL IN CIT V. LAXMI NARAIN BADRIDAS (1937) 5 ITR 170 (PC), REVERSING LAXMI NARAIN BADRIDAS V. CIT (1934) 2 ITR 246 (NAG) AND APPROVING ABDUL BAREE CHOWDHURY.V. CIT (1932) 5 ITC 352 (RANG). IN THIS DECISION RENDERED, IT WAS OBSERVED THAT 'HE (THE ASSESSING AUTHORITY) MU ST NOT ACT DISHONESTLY OR VINDICTIVELY OR CAPRICIOUSLY BECAUSE HE MUST EXERCISE JUDGMENT IN THE MATTER. HE MUST MAKE WHAT HE HONESTLY BELIEVES TO BE A FAIR ESTIMATE OF THE PROPER FIGURE OF ASSESSMENT AND FOR THIS PURPOSE HE MUST, THEIR LORDSHIP THINK, BE A BLE TO TAKE INTO CONSIDERATION LOCAL KNOWLEDGE AND REPUTE IN REGARD TO THE ASSESSEE'S 5 ITA NO.256/CTK/2015 ASSESSMENT YEAR : 2010 - 2011 CIRCUMSTANCES, AND HIS OWN KNOWLEDGE OF PREVIOUS RETURNS BY AND ASSESSMENTS OF THE ASSESSEE AND ALL OTHER MATERIALS WHICH HE THINK WILL ASSIST HIM IN ARRIVING AT A FAIR A ND PROPER ESTIMATE: AND THOUGH THERE MUST NECESSARILY BE GUESS - WORK IN THE MATTER, IT MUST BE HONES T GUESS - WORK.' THESE OBSERVATIONS RECEIVED THE IMPRIMATUR OF THE SUPREME COURT IN STATE OF KERALA V. C. VEIUKUTTY (1966) 60 ITR 239 (SC) IN THE FOLLOWING WORDS: 'THE PRIVY COUNCIL, WHILE RECOGNIZING THAT AN ASSESSMENT MADE BY AN OFFICER TO THE BEST OF HIS JUDGMENT INVOLVED SOME GUESS - WORK, EMPHASIZED THAT HE MUST EXERCISE HIS JUDGMENT AFTER TAKING INTO CONSIDERATION THE RELEVANT MATERIAL.' IDENTICAL OBSERVATIONS MADE BY THE JUDICIAL COMMITTEE IN CST V. H.M. ESUFALI H.M. ABDULALI (1973) 90 ITR 271 (SC) AS FOLLOWS: 'THE ASSESSING AUTHORITY WHILE MAKING THE BEST JUDGMENT ASSESSMENT, NO DOUBT, SHOULD ARRIVE AT ITS CONCLUS ION WITHOUT BIAS AND ON RATIONAL BASIS. THAT AUTHORITY SHOULD NOT BE VINDICTIVE OR CAPRICIOUS.' 2 . A BEST JUDGMENT ASSESSMENT IS NOT BY WAY OF PENALTY OF NON - COMPLIANCE AS HELD IN JOT RAM SHER SINGH V. CIT (1934) 2 ITR 129 (ALL). EVEN THOUGH THE ITO IS NO T BOUND BY THE STRICT JUDICIAL PRINCIPLES, WHILE MAKING THE BEST JUDGMENT ASSESSMENT, HE SHOULD BE GUIDED BY RULES OF EQUITY, JUSTICE AND GOOD CONSCIENCE AS HELD IN CIT V. RANICHHERA TEA CO. LTD. (1994) 207 ITR 979 (CAL). 3. AS EMPHASIZED BY THE HON'BLE S UPREME COURT IN STATE OF KERALA V. C. VEIUKUTTY (1966) 60 ITR 239 (SC) THAT 'THOUGH THERE IS AN ELEMENT OF GUESS - WORK IN BEST JUDGMENT ASSESSMENT, IT SHOULD NOT BE A WILD ONE AND SHOULD HAVE A REASONABLE NEXUS TO THE AVAILABLE MATERIAL AND THE CIRCUMSTANCE S OF EACH CASE'. LIKEWISE, IT HAS BEEN LAID DOWN BY THE SUPREME COURT IN THE CASE OF STATE OF ORISSA V. MAHARAJA SHRI B.P. SINGH DEO (1970) 76 ITR 690 (SC) THAT 'THE MERE FACT THAT THE MATERIAL PLACED BY THE ASSESSEE BEFORE THE ASSESSING AUTHORITIES IS UN RELIABLE DOES NOT EMPOWER THOSE AUTHORITIES TO MAKE AN ARBITRARY ORDER. 4 . THE POWER OF LEVY ASSESSMENT ON THE BASIS OF BEST JUDGMENT IS NOT A N ARBITRARY POWER; IT IS AN ASSESSMENT ON THE BASIS OF BEST JUDGMENT. IN OTHER WORDS, THAT ASSESSMENT MUST BE BASED ON SOME RELEVANT MATERIAL. IT IS NOT A 6 ITA NO.256/CTK/2015 ASSESSMENT YEAR : 2010 - 2011 POWER THAT CAN BE EXERCISED UNDER THE SWEET WILL AND PLEASURE OF CONCERNED AUTHORITIES.' 5 . THE BASIS OF ESTIMATE OR THE BASIS OF COMPUTATION SHOULD BE DISCLOSED BY THE ASSESSING AUTHORITY, OR OTHERWISE THE BES T JUDGMENT ASSESSMENT MAY BE QUASHED. IN ANAND RICE & OIL MILLS V. C!T (1977) 108 ITR 372 (CAL.), HUGE ADDITIONS WERE MADE BY THE ITO ON THE GROUND THAT THE ASSESSEE HAD INFLATED THE PURCHASE PRICES OF GOODS AND A MAJOR PORTION OF THE ADDITION WAS SUSTAINE D BY THE TRIBUNAL WITHOUT FURNISHING ANY BASIS OF ITS OWN ESTIMATE. THE CALCUTTA HIGH COURT HELD THAT THE ORDER OF THE TRIBUNAL BEING ARBITRARY, THE SAME COULD NOT BE SUSTAINED. IN GANGA PRASAD SHARMA V. CIT (1981) 132 ITR 87 (UP'), THE MADHYA PRADESH HIGH COURT EMPHASIZED THAT WHILE MAKING BEST JUDGMENT ASSESSMENT, THE BASIS OF COMPUTATION SHOULD BE DISCLOSED BY THE ITO. IN CIT V. RANICHHERA TEA CO. LTD. (1994) 207 ITR 979 (CAL), THE ITO REJECTED THE LOSS RETURN AND DETERMINED THE LOSS AT NIL ON DEFAULT OF THE APPELLANT TO PRODUCE BOOKS OF ACCOUNT. NO BASIS FOR COMPUTATION WAS DISCLOSED BY THE ITO. IT WAS HELD BY THE CALCUTTA HIGH COURT THAT THE ITO ACTED ILLEGALLY. WE FIND THAT THIS BENCH OF THE TRIBUNAL IN THE CASE OF SHREEGOPAL MUNDHRA VS ITO IN ITA NO.437/CTK/2016 FOR ASSESSMENT YEAR 2010 - 2011 ORDER DATED 30.1.2017 HAS HELD AS UNDER: I FIND THAT THE REJECTION OF BOOKS OF ACCOUNT OF THE ASSESSEE IS NOT UNDER CHALLENGE BEFORE ME. THE ONLY SUBMISSION OF THE LD A.R. OF THE ASSESSEE IS TH AT THE NET PROFIT RATE APPLIED TO ESTIMATE THE INCOME IS EXCESSIVE. IT IS NOT IN DISPUTE THAT THE NET PROFIT RATE DECLARED AND ACCEPTED BY THE DEPARTMENT IN THE IMMEDIATELY PRECEDING ASSESSMENT YEARS IS IN A.Y. 2007 - 08 @ 3.04%, IN A.Y. 2008 - 09 @ 2.77% AND IN A.Y. 2009 - 10 @ 2.64%. IN MY CONSIDERED VIEW, AFTER REJECTING OF BOOK RESULTS OF THE ASSESSEE, THE INCOME OF THE ASSESSEE HAS TO BE ESTIMATED BY THE ASSESSING OFFICER BUT WHILE DOING SO, HE CANNOT MAKE A WILD GUESS OF THE SAME. THE PAST ACCEPTED RE SULTS ARE A GUIDE TO THE ESTIMATION OF THE INCOME OF THE ASSESSEE. CONSIDERING THE PAST ACCEPTED RESULTS OF THE ASSESSEE, I AM OF THE CONSIDERED VIEW THAT ESTIMATION OF INCOME OF THE ASSESSEE BY APPLYING THE NET PROFIT RATE OF 4% WILL MEET THE ENDS OF JUS TICE. I, THEREFORE, MODIFY THE ORDER OF THE CIT(A) 7 ITA NO.256/CTK/2015 ASSESSMENT YEAR : 2010 - 2011 ACCORDINGLY AND PARTLY ALLOW THE GROUND OF THE APPEAL OF THE ASSESSEE. IN THE PRESENT CASE, IT IS OBSERVED THAT T HE REASONABLE BASIS IS THE PAST ACCEPTED RESULTS OF THE ASSESSEE. WE ALSO OBSERVE THAT TH E RATE OF NET PROFIT AT 5.35%, 5.16% AND 5.15% HAS BEEN ACCEPTED BY THE DEPARTMENT IN THE CASE OF THE ASSESSEE ITSELF FOR THE PRECEDING ASSESSMENT YEARS 2007 - 08, 2008 - 09 AND 2009 - 2010. IN THE ASSESSMENT YEAR UNDER CONSIDERATION, THE ASSESSEE HAS SHOWN NET PROFIT RATE AT 5.07%. RESPECTFULLY FOLLOWING THE ABOVE QU OTED DECISION S AND THE DECISION OF THIS BENCH OF THE TRIBUNAL IN THE CASE OF SHREEGOPAL MUNDHRA (SUPRA) AND CONSIDERING THE FACTS OF THE PRESENT CASE IN ITS ENTIRETY, WE ARE OF THE CONSIDERED VIE W THAT THERE IS FORCE IN THE ARGUMENTS OF LD A.R. OF THE ASSESSEE THAT NET PROFIT FOR THE YEAR UNDER CONSIDERATION SHOULD BE ESTIMATE D AT 6 % OF THE GROSS TURNOVER. WE MODIFY THE ORDER ACCORDINGLY. THUS, THE GROUND S OF APPEAL TAKEN BY THE ASSESSEE ARE PARTLY ALLOWED. 11. IN GROUND NO.6 OF APPEAL, THE GRIEVANCE OF THE ASSESSEE IS THAT THE CIT(A) ERRED IN NOT DELETING THE ADDITION OF RS.16,11,550/ - , WHICH IS PART OF BUSINESS INCOME AND FOR WHICH SAME IS LIABLE TO BE DELETED. 12. WE FIND THAT THE ASSE SSEE HAS RAISED THIS GROUND OF APPEAL BY WAY OF GROUND NOS.8 & 11 BEFORE THE CIT(A) AND THAT THE CIT(A) HAS NOT ADJUDICATED THE SAME. THEREFORE, WE RESTORE THIS GROUND TO THE FILE OF THE CIT(A) FOR ADJUDICATION AFTER ALLOWING REASONABLE OPPORTUNITY OF HEA RING TO THE ASSESSE. 8 ITA NO.256/CTK/2015 ASSESSMENT YEAR : 2010 - 2011 13. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 14 /0 8 /2018. SD/ - SD/ - ( PAVAN KUMAR GADALE) ( N.S SAINI) JUDICIALMEMBER A CCOUNTANT MEMBER CUTTACK; DATED 14 /0 8 /2018 B.K.PARIDA, SPS COPY OF THE ORDER FORWARDED TO : BY ORDER, SR.PRIVATE SECRETARY ITAT, CUTTACK 1. THE APPELLANT : MALAYA KUMAR MUND AT: HILL TOWN, PO: BHAWANIPATNA, DIST: KALAHANDI. 2. THE RESPONDENT: ACIT, CIRCLE 2(1), SAMBALPUR 3. THE CIT(A) - 4. PR.CIT - 5. DR, ITAT, CUTTACK 6. GUARD FILE. //TRUE COPY//