A.C.I.T., Circle - 1, Gwalior V. M/s Swastik Roadlines Pvt. Ltd., Gwalior

ITA 41/AGR/2012

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 0435 (ITAT-AGRA)
• Duration Of Justice: 7 year(s) 3 month(s) 14 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 16-05-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 23-05-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 02-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: MAHESH AGARWAL
• Keywords: Principle of natural justice; Corroborative evidences; Assessment record
• Section: 133(6); 68; 145; 56; 28; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AGRA BENCH, AGRA BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI A.L. GEHLOT, ACCOUNTANT MEMBER ITA NO. 41/AGRA/ 2012 ASSESSMENT YEAR 2008-09 ASSTT. COMMISSIONER OF INCOME TAX, VS. M/S SWASTIK ROADLINES PVT. LTD. CIRCLE-1, 19A/115, OPP. PARKING NO.6 GWALIOR T.P. NAGAR, GWALIOR (APPELLANT) (RESPONDENT) (PAN AAGCS2195B) APPELLANT BY : SHRI WASEEM ARSHAD, SR. D.R. RESPONDENT BY : SHRI MAHESH AGARWAL, C.A. DATE OF HEARING : 23.05.2013 DATE OF PRONOUNCEMENT : 31.05.2013 ORDER PER A.L. GEHLOT,ACCOUNTANT MEMBER: THE APPEAL BY THE REVENUE IS FILED AGAINST THE ORD ER OF LEARNED CIT(A), GWALIOR DATED 23.11.2011 FOR A.Y. 2008-09. 2. THE GROUND OF APPEAL RAISED BY THE REVENUE IS RE PRODUCED AS UNDER:- WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(APPEALS) HAS ERRED IN DELETING THE ADDITION OF RS.3,21,58,268/- MADE BY THE AO ON ACCOUNT OF UNPROVED FREIGHT AND R OUTE EXPENSES PAYABLE.? ITA NO.41/AGRA/2012 A.Y. 2008-09 2 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS ENGAGED IN THE BUSINESS OF TRANSPORTATION ON CONTRACT BASIS. DURIN G THE ASSESSMENT PROCEEDINGS THE A.O. NOTED THAT THE ASSESSEE HAS DE CLARED FREIGHT AND ROUTE EXPENSES PAYABLE AT RS.3,21,58,268/- IN THE BALANC E SHEET. BEFORE A.O. ASSESSEE PRODUCED A LIST OF 50-60 PERSONS WITH THE NAME AND ADDRESSES AND CLAIMED THAT THESE PERSONS WERE SUNDRY CREDITORS OF THE ASSESSEE. THE A.O. SENT THE LETTERS TO THEM UNDER SECTION 133(6) OF TH E ACT ON TEST CHECK BASIS ON THE SAME ADDRESS AS PRODUCED BY THE ASSESSEE BUT ALL THE LETTERS WERE RETURNED BACK UNATTENDED. ONE OF CLAIMED SUNDRY CRE DITORS APPEARED BEFORE THE A.O AND PRODUCED HIS SUBMISSION STATING THAT HE HAD NO TRANSACTION WITH THE ASSESSEE IN RELEVANT F.Y. THE A.O. ASKED TO EXP LAIN THE IDENTITY AND GENUINENESS OF THE PERSON RELATED TO THESE LETTERS WHICH RETURNED BACK. THE ASSESSEE FURNISHED THE EXPLANATION BUT THE A.O. WAS NOT SATISFIED. THE A.O. NOTICED THAT THE ASSESSEE COULD NOT SATISFY REGARDI NG THE VERIFICATION OF SUNDRY CREDITORS. THE ASSESSEE PRODUCED ONLY SELF M ADE VOUCHERS IN WHICH THERE WAS NO SIGNATURE OR ANY SIGN OF IDENTITY OF T HE PERSON TO WHOM PAYMENT WAS DUE OR PAYABLE. IN ABSENCE OF DOCUMENTA RY EVIDENCE RS.3,21,58,268/- HAS BEEN DISALLOWED AND ADDED BACK TO THE INCOME OF THE ASSESSEE AS PER I.T. ACT & RULES. THE LEARNED CIT(A ) DELETED THE SAID ADDITION AS UNDER :- (PAGE NOS. 6 TO 8) ITA NO.41/AGRA/2012 A.Y. 2008-09 3 APPELLANTS SUBMISSION ALONGWITH THE ASSESSMENT O RDER HAVE BEEN CONSIDERED CAREFULLY. ASSESSMENT RECORDS HAVE ALSO BEEN PERUSED. THE APPELLANT HAS PRODUCED ITS AUDITED BOOKS OF ACCOUNT S BEFORE THE A.O. FOR CROSS EXAMINATION WHICH HAS BEEN DONE BY THE A. O. VIDE ORDER SHEET ENTRY DTD. 11.11.2010 AND 14.12.2010. ON 14.1 2.2010, THE APPELLANT HAS BEEN ASKED TO SHOW CAUSE AS TO WHY 20 % OF FREIGHT AND ROUTE EXPENSES BE NOT DISALLOWED DUE TO IMPROPER BI LLS AND VOUCHERS AND LACK OF GENUINENESS OF THE RECEIVER OF PAYMENT. FURTHER, THE A.O. HAS MADE THE OBSERVATION THAT THE APPELLANT COULD N OT PROVE THE GENUINENESS OF THE CREDITORS U/S 68 ON ACCOUNT OF F REIGHT AND ROUTE EXPENSE PAYABLE AND WHY THEY SHOULD NOT BE CONSIDER ED AS BOGUS U/S 68. THEREFORE, THE APPELLANT HAS ATTENDED THE PROCE EDINGS ON 20.12.2010 & 21.12.10 AND SUBMITTED ITS EXPLANATION . ON 21.12.10, THE APPELLANT HAS BEEN INFORMED AS UNDER BY THE A.O .:- ONE OF YOUR CREDITOR SHRI SUNIL KULSHRESHTRA REFU SED FOR ANY KIND OF TRANSACTION. PLEASE EXPLAIN WHY SHOULD NOT YOUR ALL CREDITORS BE CONSIDERED BOGUS PLEASE SUBMIT WILL 22.12.2010 AT 1 1.30 A.M. SD/- THE APPELLANT HAS GIVEN WRITTEN REPLIES ON 22.12.2 010 AND 24.122010. ON 27.12.10, APPELLANTS A.R. HAS BEEN INFORMED THA T LETTERS SENT U/S 133(6) TO SUNDRY CREDITORS FOR FREIGHT AND ROUTE EX PENSES PAYABLE HAVE BEEN RECEIVED BACK WITHOUT SERVICE. IT HAS BEE N GIVEN THE OPPORTUNITY TO PROVE THE GENUINENESS OF THE SAME AN D HEARING HAS BEEN ADJOURNED 31.12.10. ON THE SAID DATE, AS PER T HE ORDER SHEET, A.R. HAS ATTENDED THE HEARING AND SUBMITTED THE COM PLIANCE. ACCORDINGLY, ASSESSMENT HAS BEEN PASSED ON THE SAME DATE BY THEA.O. THE MODUS OPERANDI OF THE APPELLANT COMPANY, AS EXP LAINED BEFORE THE A.O. ALSO IS THAT IT IS DOING TRANSPORTATION BU SINESS IN WHICH IT HIRES THE TRUCK FROM OPEN MARKET THROUGH BROKERS AV AILABLE IN THE MARKET. THE BROKER IN TURN, SENDS THE DESIRED NUMBE R OF TRUCK AVAILABLE IN THE MARKET FOR LOADING THE GOODS. THE TRUCK DRIVER WITH TRUCK THEN APPROACHES THE APPELLANT COMPANY, NEGOTI ATES THE FREIGHT ACCORDING TO DISTANCE, WEIGHT ETC. THE APPELLANT CO MPANY THEN PAYS SOME ADVANCE AGAINST THE AGREED FREIGHT TO TAKE CAR E OF DIESEL AND OTHER EXPENSES AND LOADS THE GOODS IN THE TRUCKS. T HE TRUCK DRIVERS DELIVERS THE GOODS AT THE CONSIGNEES DESTINATION A ND COMES BACK TO APPELLANT COMPANY WITH DELIVERY CHALLANS FOR BALANC E PAYMENT OF FREIGHT PAYABLE TO HIM WHICH IS BEING THEN PAID TO THEM. THE APPELLANT COMPANY, ON THE BASIS OF SAID DELIVERY CHALLNS PREP ARES THE BILL FOR ITA NO.41/AGRA/2012 A.Y. 2008-09 4 FREIGHT AND SUBMITS IT TO ITS CUSTOMERS FOR PAYMENT . AS NUMBER OF TRANSACTIONS RUNS INTO THOUSANDS DURING THE YEAR AN D THEREFORE, ALL THE RECORDS ARE MAINTAINED ON THE BASIS OF TRUCK NUMBER S WHICH IS ALSO INDICATED ON THE FREIGHT MEMOS ALONG WITH THE DESTI NATION, WEIGHT ETC. WHICH HAVE ALREADY BEEN PRODUCED BEFORE THE A.O. AN D UNDERSIGNED FOR PERUSAL AND VERIFICATION. HENCE, THE APPELLANT COMPANY HAS PRODUCED COMPLETE DETAILS OF FREIGHT PAYABLE. IT IS PERTINENT TO NOTE THAT NEITHER THE A.O. NOR THE AUDITOR HAVE RECORDED ANY ADVERSE FINDING WHATSOEVER REGARDING MERCANTILE SYSTEM OF A CCOUNTING EMPLOYED AND REGULARLY FOLLOWED BY THE APPELLANT. N OR ANY ADVERSE COMMENT HAS BEEN MADE RGARDING CORRECTNESS AND COMP LETENESS OF APPELLANTS BOOKS OF ACCOUNTS. IN FACT, THE SAME HA VE ALSO BEEN ACCEPTED BY THE A.O. HIMSELF AFTER VERIFICATION. A. O. HAS ALSO NOT DISPUTED THE FREIGHT AND ROUTE EXPENSES CLAIMED AS PER THE APPELLANTS TRADING AND PROFIT & LOSS ACCOUNT AFTER VERIFICATIO N OF THE SAME AND SPECIFIC SHOW CAUSE IN THAT REGARD, AS MENTIONED AB OVE. WHEN A RETURN HAS BEEN FURNISHED AND BOOKS OF ACCOUNTS HAV E ALSO BEEN PRODUCED IN SUPPORT OF THAT RETURN, THE ACCOUNTS SH OULD BE TAKEN AS THE BASIS FOR ASSESSMENT. IF EVIDENCE IS PRODUCED B Y THE APPELLANT IN SUPPORT OF ITS RETURN, IT SHOULD BE ACCEPTED UNLESS REFUTED BY OTHER ADMISSIBLE EVIDENCE. A.O. HAS NOWHERE INVOKED THE P ROVISIONS OF SECTION 145 AND THE BOOKS OF ACCOUNTS OF THE APPELL ANT HAVE BEEN ACCEPTED. 4.1 FURTHER, THE AMOUNT REPRESENTS SUNDRY CREDITOR S FOR EXPENSES PAYABLE ON ACCOUNT OF FREIGHT AND ROUTE AND DOES NO T GET COVERED U/S 68 OF THE I.T. ACT. THE SAME HAVE BEEN SHOWN IN THE APPELLANTS BALANCE SHEET IN SCHEDULE G UNDER THE HEAD SUNDRY CREDITORS AGAINST EXPENSES IN CURRENT LIABILITIES AND PROVISIONS. AL SO, THE ENTIRE EXPENSES HAVE BEEN PAID TO RESPECTIVE PERSONS/CREDI TORS IN THE SUBSEQUENT ASSTT, YEAR. ALL THE TRANSACTION MADE IN REGULAR COURSE OF BUSINESS WITH THESE CREDITORS ARE FOUND DULY REFLEC TED IN THE APPELLANTS BOOKS OF ACCOUNTS. THE TRADING LIABILIT Y, AS REFLECTED IN REGULAR BOOKS OF ACCOUNTS, CANNOT BE REJECTED UNLES S PROVED BOGUS OR FICTITIOUS. THE APPELLANT HAS SUBMITTED REQUIRED DE TAILS SHOWING THAT IT HAD REGULAR BUSINESS DEALINGS IN RESPECT OF TRANSAC TIONS INVOLVED. SIMPLY BECAUSE NO REPLY HAS BEEN RECEIVED IN RESPON SE TO INFORMATION SOUGHT U/S 133(6), A.O. CANNOT JUMP TO THE CONCLUSI ONS THAT THESE ARE BOGUS CREDITORS AND TREAT THE SAME AS UNEXPLAINED C REDITS IN ABSENCE OF ANY ADVERSE MATERIAL. THE INSTANT CASES ARE NOT FOUND TO BE OF CASH CREDITS SIMPLICITER, BUT ALL AMOUNTS ARE PAYABLE TO PARTIES AGAINST THE ITA NO.41/AGRA/2012 A.Y. 2008-09 5 SERVICES RENDERED BY THEM AND WHICH HAVE ALSO BEEN PAID IN DUE TIME DURING NEXT YEAR. ON PERUSAL OF RECORDS, IT IS SEEN THAT THE APPELLANT HAS CLAIMED FREIGHT AND ROUTE EXPENSES AND SUNDRY C REDITORS AGAINST THEM REGULARLY IN EARLIER YEARS AS PER ITS AUDITED BALANCE SHEET WHICH HAVE ALSO BEEN ACCEPTED BY THE A.O. VIDE ORDERS PAS SED U/S 143(3). DETAILS OF LAST 3 YEARS ARE AS UNDER:- SL.NO. A.Y. FREIGHT/TRUCK RUNNING SUNDRY CREDITO RS REMARKS EXPENSES --------------------------------------------------- --------------------------------------------------- ------- 1. 2005-06 7,35,57,334/- 1,48,85,143/- D ISALLOWANCE OF RS.50,000 ON ESTIMATEDBASI 2. 2006-07 11,09,22,656/- 1,72,96,516/- ACCE PTED BY THE A.O. 3. 2007-08 15,61,57,557/- 3,05,99,104/- ACCEPT ED BY THE A.O. --------------------------------------------------- --------------------------------------------------- ------ REGARDING DENIAL OF RECEIPT OF PAYMENT OR CARRYING OUT ANY TRANSACTION WITH THE APPELLANT COMPANY BY SHRI SUNIL KULSHRESHT RA, IT IS SEEN THAT THE SAID SUNIL KULSHRESHTRA HAS INFORMED, VIDE REGISTERED LE TTER, TO THE A.O. THAT HE OWNS TWO TRUCKS NUMBERING MP-06 E 4531 AND RJ-1 G-A 1432 . THE APPELLANT HAS ALSO CLAIMED TO HAVE MADE PAYMENT DIRECTLY TO THE D RIVER FOR THE TRUCK NO.MP 06 E-4531 IN RESPECT OF CONSIGNMENT FOR M/S. CADBUR Y INDIA LTD. SUPPORTING DOCUMENTARY EVIDENCE FURNISHED BY THE APPELLANT IN FORM OF FREIGHT MEMO, CONSIGNMENT NOTE, CONSIGNMENT RECEIPT REPORT, FORM NO.15-1 OF SHRI SUNIL KULSHRESHTHA HAVE NOT BEEN ACCEPTED BY THE A.O. WIT HOUT ANY JURISDICTION. NOR ANY OPPORTUNITY TO CROSS EXAMINE SHRI SUNIL KULSHRE SHTHA HAS BEEN AFFORDED TO THE APPELLANT COMPANY BEFORE DRAWING ADVERSE INFERE NCE WHICH IS AGAINST PRINCIPLE OF NATURAL JUSTICE. THEREFORE, ON THE BASIS OF FACTS ABOVE, A.O. IS NO T FOUND JUSTIFIED IN MAKING ADDITION U/S 68 FOR SUNDRY CREDITORS FOR EXP ENSES PAYABLE AND NOT ADDITION OF RS.3,21,58,268/- IS HEREBY DELETED. 5. IN THE RESULT, THE APPEAL IS ALLOWED. ITA NO.41/AGRA/2012 A.Y. 2008-09 6 4. THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON THE ORDER OF A.O. AND ON THE OTHER HAND, LEARNED AUTHORIZED REPR ESENTATIVE RELIED UPON THE ORDER OF CIT(A) AND SUBMITTED THAT THE AO HAS N OT FOUND ANY DEFECT IN THE BOOKS OF ACCOUNT. HE HAS SUBMITTED THAT NEITHER THE A.O. NOR THE AUDITOR FOUND ANY DEFECT IN THE BOOKS OF ACCOUNT. LEARNED A .R. SUBMITTED THAT THE A.O. DID NOT STATE UNDER WHICH SECTION HE MADE THE ADDITION. THE LEARNED A.R. WHILE EXPLAINING THE NATURE OF AN OUTSTANDING BALANCE SUBMITTED THAT THESE WERE THE OUTSTANDING HIRE CHARGES WHICH WERE ACCOUNTED FOR ON THE BASIS OF MERCANTILE SYSTEM, THEREFORE, THERE IS NO QUESTION OF APPLICATION OF SECTION 68 OF THE ACT. HE FURTHER SUBMITTED THAT TH ERE IS NO CESSATION OF LIABILITIES SO SECTION 41(1) CAN APPLY. THE LEARNE D AUTHORIZED REPRESENTATIVE RELIED UPON THE JUDGMENT OF THE HON BLE ASSAM HIGH COURT IN THE CASE OF TOLA RAM DAGA VS. COMMISSIONER OF IN COME TAX, ASSAM [1965] 57 ITR 632 (ASSAM) WHEREIN IT HAS BEEN HELD THAT ACCOUNTS OF THE FIRM WHICH HAD BEEN PRODUCED IN THE CASE HAD BEEN A CCEPTED AND ACTED UPON BY THE DEPARTMENT AND NO SERIOUS CHALLENGE HAD BEEN MADE TO THEIR GENUINENESS OR THAT THEY WERE KEPT REGULARLY IN THE COURSE OF BUSINESS. THAT BEING THE CASE, THE ACCOUNTS ARE RELEVANT AND AFFOR D PRIMA FACIE OF THE ENTRIES AND THE CORRECTNESS THEREOF UNDER S. 34 OF THE EVID ENCE ACT. THE LEARNED A.R. SUBMITTED THAT IN THE CASE UNDER CONSIDERATION THE A.O. DID NOT DISPUTE ITA NO.41/AGRA/2012 A.Y. 2008-09 7 THE RESULT DECLARED BY THE ASSESSEE, ONCE THE A.O. HAS NOT DISPUTED THE RESULT DECLARED BY THE ASSESSEE SUCH ADDITION CANNOT BE MA DE. THE LEARNED A.R. IN SUPPORT OF HIS CONTENTION RELIED UPON THE DECISION IN THE CASE OF DEVINE INTERNATIONAL VS. DCIT, 134 ITD 149 (DEL.) 5. WE HAVE HEARD LEARNED REPRESENTATIVES OF THE PARTIE S AND RECORDS PERUSED. TO EXAMINE THE ISSUE, WE WOULD LIKE TO REF ER RELEVANT PROVISIONS OF SECTION 145 OF THE ACT WHICH READS AS UNDER:- 145. (1) INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' OR 'INCOME FROM OTHER SO URCES' SHALL, SUBJECT TO THE PROVISIONS OF SUB-SECTION (2) , BE COMPUTED IN ACCORDANCE WITH EITHER CASH OR MERCANTILE SYSTEM OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. (2) THE CENTRAL GOVERNMENT MAY NOTIFY IN THE OFFICI AL GAZETTE FROM TIME TO TIME ACCOUNTING STANDARDS TO BE FOLLOW ED BY ANY CLASS OF ASSESSEES OR IN RESPECT OF ANY CLASS OF IN COME. (3) WHERE THE ASSESSING OFFICER IS NOT SATISFIED AB OUT THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE, OR WHERE THE METHOD OF ACCOUNTING PROVIDED IN SUB-SECT ION (1) OR ACCOUNTING STANDARDS AS NOTIFIED UNDER SUB-SECTION (2), HAVE NOT BEEN REGULARLY FOLLOWED BY THE ASSESSEE, THE AS SESSING OFFICER MAY MAKE AN ASSESSMENT IN THE MANNER PROVID ED IN SECTION 144 .] 5.1 IT IS TO NOTE THAT UNDER SECTION 145(1), THE IN COME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSI ON OR INCOME FROM OTHER ITA NO.41/AGRA/2012 A.Y. 2008-09 8 SOURCES HAS TO BE COMPUTED IN ACCORDANCE WITH THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE, UNLESS IN THE O PINION OF THE INCOME-TAX OFFICER, THE INCOME, PROFITS AND GAINS CANNOT PROPE RLY BE DEDUCED THEREFROM OR THE INCOME-TAX OFFICER IS NOT SATISFIED ABOUT TH E CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE. UNDE R THE SUB-SECTION (3) OF SECTION 145 IN ANY CASE WHERE THE ACCOUNTS ARE CORR ECT AND COMPLETE TO THE SATISFACTION OF THE INCOME-TAX OFFICER BUT THE METH OD EMPLOYED IS SUCH THAT, IN THE OPINION OF THE INCOME-TAX OFFICER, THE INCOM E CANNOT PROPERLY BE DEDUCED THEREFROM, THEN THE COMPUTATION HAS TO BE M ADE UPON SUCH BASIS AND IN SUCH MANNER AS THE INCOME-TAX OFFICER MAY DE TERMINE. HOWEVER, IF THE INCOME-TAX OFFICER IS NOT SATISFIED ABOUT THE C ORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE OR WHERE NO METHOD OF ACCOUNTING HAS BEEN REGULARLY EMPLOYED BY THE ASSESSEE, THE INCOME-TAX OFFICER MAY MAKE THE ASSESSMENT IN THE MANNER PROVIDED IN SECTION 144. S ECTION 145 IS MANDATORY AND THE REVENUE IS BOUND BY THE ASSESSEE'S CHOICE O F A METHOD REGULARLY EMPLOYED UNLESS BY THAT METHOD THE TRUE INCOME, PRO FITS AND GAINS CANNOT BE ARRIVED AT. IN OTHER WORDS, SECTION 145 ENACTS THAT FOR THE PURPOSE OF SECTION 28 (PROFITS AND GAINS OF BUSINESS, PROFESSION OR VO CATION) AND SECTION 56 (INCOME FROM OTHER SOURCES), INCOME, PROFIT AND GAI NS MUST BE COMPUTED IN ACCORDANCE WITH THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. THEREFORE, IF THE ASSESSEE REGULARLY EMPL OYS A PARTICULAR METHOD OF ITA NO.41/AGRA/2012 A.Y. 2008-09 9 ACCOUNTING AND IF NO DEFECTS ARE FOUND IN THE METHO D OR MAINTENANCE OF ACCOUNTS, THE TAXING AUTHORITY IS BOUND TO COMPUTE THE PROFITS AND GAINS OF BUSINESS OR PROFESSION OR VOCATION IN ACCORDANCE WI TH THE METHOD EMPLOYED BY THE ASSESSEE. THEREFORE, IN CASE WHERE THE INCO ME-TAX OFFICER OR THE TAXING AUTHORITY FINDS THAT IN MAINTAINING ACCOUNTS , THE ASSESSEE HAS REGULARLY EMPLOYED A PARTICULAR METHOD AND DOES NOT MAKE ANY INVESTIGATION TO FIND OR DOES NOT FIND ANY DEFECT IN THE ACCOUNTS AND ACCEPT THE ACCOUNTS AS THEY ARE, HE IS BOUND TO COMPUTE THE INCOME IN ACCO RDANCE WITH THE ACCOUNTS MAINTAINED BY THE ASSESSEE. THEREFORE, WHEN THE AS SESSEE REPRESENTS TO THE TAXING AUTHORITY THAT ITS ACCOUNTS ARE MAINTAINED B Y A METHOD OF ACCOUNTING REGULARLY EMPLOYED, HE EXPECTS THE INCOME-TAX OFFIC ER TO ACT UPON SUCH METHOD AND COMPUTE THE INCOME ACCORDINGLY. 5.2 IN THIS REGARD, FOR APPRECIATING THE SCHEME OF THE ACT, WE WOULD LIKE TO REFER CERTAIN JUDICIAL PRONOUNCEMENTS WHICH ARE AS UNDER:- THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. GOTANLIME KHANIJ UDYOG, 256 ITR 243 (RAJ) HELD THAT PROVISION S DO NOT ENVISAGE THAT BY RESORTING TO BEST JUDGMENT ASSESSMENT, THE ASSES SING AUTHORITY MUST REACH A DIFFERENT FIGURE OF INCOME AND PROFIT THAN WHAT H AS BEEN DISCLOSED BY THE ASSESSEE. ITA NO.41/AGRA/2012 A.Y. 2008-09 10 THE JUDGMENT OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. SMT. POONAM RANI (DELHI) 326 ITR 223 IS APPLICABLE TO THE FACTS OF THE CASE UNDER CONSIDERATION. THE FACTS OF THAT CASE WERE TH AT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF MANUFACTURING COPPER WIR ES. FOR THE RELEVANT ASSESSMENT YEAR, SHE FILED A RETURN DECLARING GROSS PROFIT AT THE RATE OF 1.4 PER CENT AGAINST GROSS PROFIT RATE OF 5.91 PER CENT FOR THE PRECEDING YEAR. ON BEING ASKED, THE ASSESSEE ATTRIBUTED THE FALL IN GR OSS PROFIT RATE TO THE INCREASE IN THE PURCHASE PRICE. THE ASSESSING OFFICER REJECT ED THE EXPLANATION GIVEN BY THE ASSESSEE ON THE GROUND THAT NO SUPPORTING EV IDENCE WAS PRODUCED TO SHOW INCREASE IN THE PURCHASE PRICE AND DECREASE IN SALES. HE ALSO NOTICED THAT THE WEIGHT OF FINISHED PRODUCTS DECLARED BY TH E ASSESSEE WAS MORE THAN THE WEIGHT OF RAW MATERIALS. WHEN ASKED TO EXPLAIN, THE ASSESSEE SUBMITTED THAT AFTER DRAWING WIRE, THE PROCESS WENT ON TO PUT THE WIRE FOR ENAMELLING, AS A RESULT OF WHICH THE WEIGHT OF THE WIRE INCREAS ED BY 2-3 PER CENT. THE ASSESSING OFFICER FELT THAT IN THE ABSENCE OF ADEQU ATE SUPPORTING EVIDENCE, THE EXPLANATION GIVEN BY THE ASSESSEE COULD NOT BE ACCEPTED. HE, THEREFORE, REJECTED THE ACCOUNT BOOKS OF THE ASSESSEE UNDER SE CTION 145(3) AND ESTIMATED INCOME BY APPLYING THE GROSS PROFIT RATE OF THE PRECEDING ASSESSMENT YEAR. ON APPEAL, THE COMMISSIONER (APPEA LS) NOTED THAT THE ASSESSEE HAD FURNISHED COMPLETE DETAILS, INCLUDING COMPARATIVE DETAILS IN ITA NO.41/AGRA/2012 A.Y. 2008-09 11 RESPECT OF PURCHASE OF RAW MATERIALS AND MANUFACTUR E OF COPPER WIRES AS WELL AS IN RESPECT OF SALE DURING THE YEAR IN QUEST ION AS COMPARED TO THE EARLIER YEARS. HE ALSO TOOK NOTE OF THE FACT THAT T HE ASSESSEE WAS DULY REGISTERED UNDER THE CENTRAL EXCISE ACT AND WAS MAI NTAINING PROPER QUANTITATIVE DETAILS IN THE PRESCRIBED MANNER AND, THEREFORE, HELD THAT THE ASSESSEE HAD ADOPTED CONSISTENT AND REGULAR METHOD OF ACCOUNTING AND VALUATION OF THE STOCK DURING THE YEAR IN QUESTION AS WAS DONE BY HER IN THE PRECEDING YEARS. HE, ACCORDINGLY, HELD THAT THE ASS ESSING OFFICER WAS NOT JUSTIFIED IN REJECTING THE BOOKS OF ACCOUNT AND IN APPLYING THE ENHANCED GROSS PROFIT RATIO. THE TRIBUNAL DISMISSED THE REVE NUES APPEAL, HOLDING THAT SINCE NO DEFECTS IN THE ACCOUNT BOOKS WERE POINTED OUT, THE ACCOUNTS COULD NOT HAVE BEEN REJECTED AND NO ADDITION COULD HAVE B EEN MADE MERELY ON ACCOUNT OF LOWER PROFIT DECLARED BY THE ASSESSEE. O N THE REVENUES APPEAL, THE HIGH COURT HELD AS UNDER: (PAGE 225) SECTION 145(3) PROVIDES FOR ASSESSMENT IN THE MANNER PRESCRIBED IN SECTION 144 WHERE THE ASSESSING OFFIC ER IS NOT SATISFIED ABOUT THE CORRECTNESS OR COMPLETENESS OF THE ACCOUN TS OF THE ASSESSEE OR WHERE EITHER THE METHOD OF ACCOUNTING PROVIDED I N SUB-SECTION (1) OR THE ACCOUNTING STANDARDS AS NOTIFIED UNDER SUB-S ECTION (2) HAS BEEN REGULARLY FOLLOWED BY THE ASSESSEE. IT WAS NOT THE CASE OF THE REVENUE THAT THE ASSESSEE HAD NOT FOLLOWED EITHER CASH OR M ERCANTILE SYSTEM OF ACCOUNTING. IT WAS ALSO NOT THE CASE OF THE REVENUE THAT THE CENTRAL GOVERNMENT HAD NOTIFIED ANY PARTICULAR ACCOUNTING S TANDARD TO BE FOLLOWED BY TOUR OPERATORS. HENCE, THE SECOND PART OF SUB-SECTION (3) OF SECTION 145 WOULD NOT APPLY TO THE INSTANT CASE. [PARA 5] ITA NO.41/AGRA/2012 A.Y. 2008-09 12 ..THE ASSESSING OFFICER HAD NOT POINTED OUT ANY PARTICULAR DEFECT OR DISCREPANCY IN THE ACCOUNT BOOKS MAINTAIN ED BY THE ASSESSEE. DURING THE COURSE OF HEARING BEFORE THE C OMMISSIONER (APPEALS), IT WAS POINTED OUT BY THE ASSESSEE THAT HER ACCOUNT BOOKS WERE DULY AUDITED UNDER SECTION 44AB OF THE CENTRAL EXCISE ACT AND THE QUANTITATIVE DETAILS AS REQUIRED BY .. (PAGE 227 ..)CLAUSE 28(B) OF FORM NO. 3CD REGARD ING RAW MATERIAL AND FINISHED PRODUCTS (I.E., OPENING STOCK OF RAW MATERIAL, RAW MATERIAL ISSUED TO PRODUCTION DEPARTMENT, RAW M ATERIAL CONSUMED AND CLOSING STOCK OF RAW MATERIAL, OPENING STOCK OF FINISHED GOODS, FINISHED GOODS PRODUCED DURING THE YEAR, FIN ISHED GOODS SOLD AND CLOSING STOCK OF FINISHED GOODS) WERE PREPARED AND AUDITED BY CERTIFIED ACCOUNTANT AND WERE ENCLOSED WITH FORM NO . 3CD WHICH HAD BEEN PLACED ON RECORD, BUT THE ASSESSING OFFICE R HAD IGNORED THE FACTUAL FIGURES, BOTH IN QUALITATIVE AND QUANTITATI VE TERMS, ENCLOSED WITH THE RETURN AND FILED DURING THE COURSE OF ASSE SSMENT PROCEEDINGS. IT WAS FOR THAT REASON THAT THE COMMISSIONER (APPEA LS) WAS SATISFIED THAT THE ASSESSEE HAD FURNISHED COMPLETE DETAILS, I NCLUDING QUANTITATIVE DETAILS IN RESPECT OF PURCHASE OF RAW MATERIAL, MANUFACTURE OF COPPER WIRE AND SALE OF THE FINISHED PRODUCTS. IN THOSE CIRCUMSTANCES, THE ACCOUNTS MAINTAINED BY THE ASSES SEE COULD NOT HAVE BEEN SAID TO BE INCOMPLETE OR INACCURATE. IN F ACT, THE ASSESSING OFFICER HAD NO MATERIAL BEFORE HIM TO TREAT THE ACC OUNTS OF THE ASSESSEE AS DEFECTIVE OR INCOMPLETE. [PARA 6] AS REGARDS THE MARGINAL INCREASE IN THE WEIGHT OF T HE FINISHED PRODUCT, THE EXPLANATION GIVEN BY THE ASSESSEE HAD BEEN ACCEPTED NOT ONLY BY THE COMMISSIONER (APPEALS) BUT ALSO BY THE TRIBUNAL. THE ASSESSING OFFICER HAD NO MATERIAL BEFORE HIM ON THE BASIS OF WHICH IT COULD BE SAID THAT THE WEIGHT OF THE WIRE DID NOT I NCREASE EVEN MARGINALLY DURING THE PROCESS OF ENAMELLING. THEREF ORE, HE HAD NO JUSTIFICATION, IN LAW, IN REJECTING THE EXPLANATION GIVEN BY THE ASSESSEE IN THAT REGARD. THE FALL IN GROSS PROFIT RATIO, IN THE ABSENCE OF ANY COGENT REASONS COULD NOT, BY ITSELF, HAVE BEEN A GR OUND TO HOLD THAT PROPER INCOME OF THE ASSESSEE COULD NOT BE DEDUCED FROM THE ACCOUNTS MAINTAINED BY HER AND, CONSEQUENTLY, COULD NOT HAVE BEEN A GROUND TO REJECT THE ACCOUNTS BY INVOKING SECTION 145(3). [PA RA 8] THE FALL IN THE GROSS PROFIT RATIO COULD BE FOR VAR IOUS REASONS SUCH AS INCREASE IN THE COST OF RAW MATERIAL, DECREASE IN T HE MARKET PRICE OF FINISHED PRODUCT, INCREASE IN THE COST OF PROCESSIN G BY THE ASSESSEE, ETC. THERE WAS NO FINDING THAT THE ACTUAL COST OF T HE RAW MATERIAL ITA NO.41/AGRA/2012 A.Y. 2008-09 13 PURCHASED BY THE ASSESSEE WAS LESS THAN WHAT WAS DE CLARED IN THE ACCOUNT BOOKS. THERE WAS NO FINDING THAT THE ACTUAL COST OF PROCESSING CARRIED OUT BY THE ASSESSEE WAS LESS THAN WHAT HAD BEEN DECLARED IN HER ACCOUNT BOOKS. NO PARTICULAR EXPENDITURE SHOWN IN THE ACCOUNT BOOKS HAD BEEN DISALLOWED BY THE ASSESSING OFFICER. THERE WAS NO FINDING BY THE ASSESSING OFFICER THAT THE ACTUAL QU ANTITY OF FINISHED PRODUCTS PRODUCED BY THE ASSESSEE WAS MORE THAN WHA T WAS SHOWN IN THE ACCOUNT BOOKS. THERE WAS NO FINDING THAT THE . (PAGE 228 ) ASSESSEE HAD MADE ANY SUCH SALE OF TH E FINISHED PRODUCTS WHICH WAS NOT REFLECTED IN THE ACCOUNT BOO KS. THERE WAS NO FINDING BY THE ASSESSING OFFICER THAT THE FINISHED PRODUCTS WERE SOLD BY THE ASSESSEE AT A PRICE HIGHER THAN WHAT WAS DEC LARED IN THE ACCOUNT BOOKS. IN THOSE CIRCUMSTANCES, THE COMMISSI ONER (APPEALS) AND THE TRIBUNAL WERE JUSTIFIED IN HOLDING THAT THE ASSESSING OFFICER COULD NOT HAVE INCREASED THE GROSS PROFIT RATIO MER ELY BECAUSE IT WAS LOW AS COMPARED TO THE GROSS PROFIT RATIO OF THE PR ECEDING YEAR. [PARA 9] THE REVENUE CONTENDED THAT THE ASSESSEE WAS NOT MAI NTAINING THE DAILY STOCK REGISTER. HOWEVER, NO SUCH FINDING WAS FOUND IN THE ASSESSMENT ORDER. ON THE OTHER HAND, THE ASSESSEE H AD SUBMITTED BEFORE THE COMMISSIONER (APPEALS) THAT FORM NO. 3CD CONTAINING ALL THE QUANTITATIVE DETAILS IN RESPECT OF RAW MATERIAL S AS WELL AS THE FINISHED GOODS AND DULY AUDITED BY THE CERTIFIED AC COUNTANT HAD BEEN PLACED ON RECORD, BUT THE ASSESSING OFFICER IGNORED THOSE ACTUAL FIGURES ENCLOSED WITH THE RETURN. IN ANY CASE, THER E IS NO STATUTORY PROVISION UNDER THE INCOME-TAX REGIME REQUIRING THE ASSESSEE TO MAINTAIN THE DAILY STOCK REGISTER. HENCE, EVEN IF N O SUCH REGISTER WAS BEING MAINTAINED BY THE ASSESSEE, THAT, BY ITSELF, WOULD NOT LEAD TO THE INFERENCE THAT IT WAS NOT POSSIBLE TO DEDUCE THE TR UE INCOME OF THE ASSESSEE FROM THE ACCOUNTS MAINTAINED BY HER, NOR T HE ACCOUNTS COULD BE SAID TO BE DEFECTIVE OR INCOMPLETE FOR THAT REAS ON ALONE. IF THE STOCK REGISTER IS NOT MAINTAINED BY THE ASSESSEE, THAT MA Y PUT THE ASSESSING OFFICER ON GUARD AGAINST THE FALSITY OF THE RETURN MADE BY THE ASSESSEE AND PERSUADE HIM TO CAREFULLY SCRUTINIZE THE ACCOUN T BOOKS OF THE ASSESSEE, BUT THE ABSENCE OF ONE REGISTER ALONE DOE S NOT AMOUNT TO SUCH A MATERIAL LEADING TO THE CONCLUSION THAT THE ACCOUNT BOOKS WERE INCOMPLETE OR INACCURATE. SIMILARLY, IF THE RATE OF GROSS PROFIT DECLARED BY THE ASSESSEE IN A PARTICULAR PERIOD IS LOWER AS COMPARED TO THE GROSS PROFIT DECLARED BY HIM IN THE PRECEDING YEAR, THAT MAY ALERT THE ASSESSING OFFICER AND SERVE AS A WARNING TO HIM TO LOOK INTO THE ITA NO.41/AGRA/2012 A.Y. 2008-09 14 ACCOUNTS MORE CAREFULLY AND TO LOOK FOR SOME MATERI AL WHICH COULD LEAD TO THE CONCLUSION THAT THE ACCOUNTS MAINTAINED BY THE ASSESSEE WERE NOT CORRECT, BUT A LOW RATE OF GROSS PROFIT, I N THE ABSENCE OF ANY MATERIAL POINTING TOWARDS FALSEHOOD OF THE ACCOUNT BOOKS, CANNOT, BY ITSELF, BE A GROUND TO REJECT THE ACCOUNT BOOKS UND ER SECTION 145(3). [PARA 10] IN THE CASE OF TOLARAM DAGA VS. COMMISSIONER OF IN COME-TAX [1966] 59 ITR 632 (ASSAM), THE COURT OBSERVED AS UNDER:- IT WOULD APPEAR THAT THE ACCOUNTS OF THE FIRM WHIC H HAD BEEN PRODUCED IN THE CASE HAD BEEN ACCEPTED AND ACTED UP ON BY THE DEPARTMENT AND NO SERIOUS CHALLENGE HAD BEEN MADE T O THEIR GENUINENESS OR THAT THEY WERE KEPT REGULARLY IN THE COURSE OF BUSINESS. THAT BEING THE CASE, THE ACCOUNTS ARE RELEVANT AND AFFORD PRIMA FACIE PROOF OF THE ENTRIES AND THE CORRECTNESS THEREOF UN DER SECTION 34 OF THE EVIDENCE ACT 6. IN THE LIGHT OF ABOVE DISCUSSION, IF WE CONSIDER TH E FACTS UNDER CONSIDERATION, WE NOTICE THAT THE A.O. DID NOT APPR ECIATE THE SYSTEM OF ACCOUNTING AND THE ENTRIES PASSED IN THE BOOKS OF A CCOUNT. THE PROCEDURE AVAILABLE FOR ACCOUNTING FREIGHT PAYABLE IN THE BOO KS OF ACCOUNT EXPLAINED TO A.O. VIDE ASSESSEE LETTER DATED 18.11.2010 WHICH RE ADS AS UNDER :- ( PAGE NO. 3&4, PAPER BOOK) THE ASSESSEE HAS SUBMITTED THE DESIRED DETAILS OF FREIGHT PAYABLE WITH FREIGHT MEMO NUMBER, DATE, AMOUNT ETC. BEFORE YOUR GOOD SELF FOR YOUR VERIFICATION. BEFORE SUBMITTING FURTHER, T HE ASSESSEE WISHES TO EXPLAIN THE MECHANISM THE BUSINESS OF THE ASSESSEE. THE ASSESSEE IS DOING TRANSPORTATION BUSINESSES IN WHICH THEY HIRE THE TRUCK FROM OPEN MARKET THROUGH BROKERS AVAILABLE IN THE MARKET BY TELEPHONE THEM. THE BROKER IN TURN SENDS THE DESIRED NUMBER O F TRUCKS AVAILABLE ITA NO.41/AGRA/2012 A.Y. 2008-09 15 IN THE OPEN MARKET FOR LOADING OF GOODS. THE TRUCK DRIVER WITH TRUCK REACHED TO US FIXED THE FREIGHT ACCORDING TO DISTAN CE WEIGHT ETC. THE ASSESSEE IN TURN PROVIDE THE ADVANCE AGAINST THE FR EIGHT AGREED TOWARDS. DIESEL AND OTHER EXPENSES ON THE WAY AND L OAD THE GOODS IN THE TRUCK. THE TRUCK DRIVERS DELIVER THE GOODS TO D ESTINATION AND COME BACK TO ASSESSEE WITH DELIVERY CHALLANS TO BALANCE PAYMENT OF FREIGHT PAYABLE. THE ASSESSEE ON THE BASIS OF SAID DELIVERY CHALLANS PREPARE THE BILL FOR FREIGHT AND SUBMIT TO THEIR CUSTOMER T O PAYMENT. AS NUMBER OF TRANSACTIONS RUNNING IN THOUSANDS DURING A YEAR. HENCE ALL THE RECORDS ARE MAINTAINED ON THE BASIS OF TRUCK NU MBER AND ALL THE FREIGHT MEMO INDICATING TRUCK NUMBERS, DESTINATION WEIGHT ETC. WERE PRODUCED BEFORE YOU FOR VERIFICATION. HENCE THE ASS ESSEE ALREADY PRODUCED BEFORE YOU THE DETAILS OF FREIGHT PAYABLE ALONG WITH FREIGHT MEMO CONFIRMING THE PAYMENT OF FREIGHT PAYABLE. MOR EOVER, THE ASSESSEE WILL SUBMIT BEFORE YOU THE BILLS RAISED AG AINST THE RESPECTIVE FREIGHT PAID IF YOU DESIRE SO FOR YOUR FURTHER VERI FICATION. WE THEREFORE, MOST RESPECTFULLY REQUEST TO KINDLY A LLOW OUR LAWFUL CLAIM OF PAYMENT OF FREIGHT EXPENSES IN FULL WITHOU T MAKING ANY DISALLOWANCE BECAUSE THE ASSESSEE HAS NOT CONTRAVEN E THE PROVISIONS OF THE ACT AND ANY ADDITION ON THIS GROUND WILL BE UNWARRANTED, UNLAWFUL, UNJUSTIFIED AND UNNECESSARY HARDSHIP TO T HE ASSESSEE. 7. THE LEARNED AUTHORIZED REPRESENTATIVE IN SUPPORT OF THE PROCEDURE OF MAKING ENTRIES IN BOOKS OF ACCOUNT DEMONSTRATED BY REFERRING VARIOUS PAGES OF THE PAPER BOOK WHERE COPIES OF RELEVANT CHALLANS AND BUILTY, COPIES OF FREIGHT MEMO FOR ENGAGING THE TRUCK, CONSIGNMENT NO TE, CONSIGNMENT RECEIPT NOTE ETC. HAVE BEEN PLACED AT PAGE NOS. 10 TO 12 OF THE ASSESSEES PAPER BOOK. LD. A.R. HAS ALSO DEMONSTRATED THAT THE ASSES SEE HAS FOLLOWED SUCH PRACTICE AND SUCH AMOUNTS WERE SHOWN PAYABLE IN PAS T YEARS. IN THE PAST YEARS THE REVENUE HAS ACCEPTED THE SYSTEM OF ACCOUN TING FOLLOWED BY THE ITA NO.41/AGRA/2012 A.Y. 2008-09 16 ASSESSEE AND DID NOT MAKE SUCH ADDITION. THE COMPAR ATIVE DETAILS NOTED BY THE CIT (A) IN THIS REGARD ARE REPRODUCED AS BELOW: - SL.NO. A.Y. FREIGHT/TRUCK RUNNING SUNDRY CREDITO RS REMARKS EXPENSES --------------------------------------------------- --------------------------------------------------- ------- 1. 2005-06 7,35,57,334/- 1,48,85,143/- D ISALLOWANCE OF RS.50,000 ON ESTIMATEDBASI 2. 2006-07 11,09,22,656/- 1,72,96,516/- ACCE PTED BY THE A.O. 3. 2007-08 15,61,57,557/- 3,05,99,104/- ACCEPT ED BY THE A.O. --------------------------------------------------- --------------------------------------------------- ------ 8. THE LD. AUTHORIZED REPRESENTATIVE DEMONSTRATED T HAT THE OUTSTANDING FREIGHT PAYABLE WERE PAID IN SUBSEQUENT YEARS AND I N SUBSEQUENT YEAR THE PAYMENT TO THIS OUTSTANDING FREIGHT HAS BEEN ACCEPT ED BY THE A.O. WHILE MAKING THE ASSESSMENT UNDER SECTION 143(3). THE LD. A.R. DREW OUR ATTENTION TO PAGE NOS. 42 TO 96 OF THE PAPER BOOK W HERE LIST SHOWING FREIGHT PAYABLE WITH DATE OF ITS PAYMENT HAS BEEN PLACED. I N THE LIGHT OF ABOVE ADMITTED FACTS AND AS PER THE DETAILED DISSECTIONS MADE BY THE CIT(A) WE FIND THAT THE CIT(A) HAS RIGHTLY APPRECIATED THE SY STEM OF ACCOUNTING MAINTAINED BY THE ASSESSEE. THE CIT (A) HAS RIGHTLY DELETED THE ADDITION OF RS.3,21,58,268/- .IN THE LIGHT OF THE FACT, WE DO N OT FIND ANY INFIRMITY IN THE ORDER OF CIT(A). THE ORDER OF CIT(A) IS CONFIRMED O N THIS ISSUE. ITA NO.41/AGRA/2012 A.Y. 2008-09 17 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. (ORDER PRONOUNCED IN THE OPEN COURT) SD/- SD/- (BHAVNESH SAINI) (A.L. GEHLOT) JUDICIAL MEMBER ACCOUNTA NT MEMBER AMIT/ COPY OF THE ORDER FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. CIT (APPEALS) CONCERNED 4. CIT CONCERNED 5. D.R., ITAT, AGRA BENCH, AGRA 6. GUARD FILE. BY ORDER SR. PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL, AGRA TRUE COPY