DCIT, Jaipur V. RAMAVTAR & PARTY(GROUP DHOLPUR), BHARATPUR

ITA 430/JPR/2001

• Counselvise Citation: 43023114 RSA 2001
• Duration Of Justice: 12 year(s) 10 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-05-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 1998-1999
• Appeal Filed On: 20-07-2001
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUBHASH CHANDRA; D C SHARMA DRS
• Assessee Lawyers: S P SINGHAL
• Keywords: Depreciation; Opportunity of being heard; Revised return
• Section: 145; 144

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH : JAIPUR BEFORE SHRI RAJPAL YADAV AND SHRI R.C. SHARMA ITA NO. 430/JP/2001 ASSESSMENT YR : 1998 -99 ITA NO. 433/JP/2004 ASSESSMENT YR : 1999- 00 DEPUTY CIT, VS. M/S. RAMAVTAR & PARTY (GROUP DH OLPUR), CIRCLE-2, A-56, RANJIT NAGAR, JAIPUR. BHARATPUR. PAN NO. - - (APPELLANT) (RESPONDENT) REVENUE BY : S/SHRI SUBHASH CHANDRA & D.C. SHA RMA, DRS ASSESSEE BY : SHRI SP SINGHAL, AR DATE OF HEARING : 27.05.2014 DATE OF PRONOUNCEMENT : 30.05.2014 ORDER PER RAJPAL YADAV: JUDICIAL MEMBER THE PRESENT TWO APPEALS ARE DIRECTED AT THE INSTAN CE OF REVENUE AGAINST THE ORDERS OF LEARNED CIT(APPEALS) DATED 15.05.2001 AND 11.06. 2004 PASSED FOR ASSESSMENT YEARS 1998-99 AND 1999-00 RESPECTIVELY. IN THE FIRST GROU ND OF APPEAL, REVENUE HAS PLEADED THAT LEARNED CIT(APPEALS) HAS ERRED IN RESTRICTING THE T RADING ADDITION AT RS.1 LAC AND RS.1..5 LACS IN ASSESSMENT YEAR 1998-99 AND 1999-00 AS AGAI NST THE TRADING ADDITION OF RS.8,96,570 AND RS. 8 LACS MADE BY THE ASSESSING OF FICER IN ASSESSMENT YEARS 1998-99 AND 1999-00 RESPECTIVELY. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS AN AOP CONSTITUTED BY 126 MEMBERS HAVING UNEQUAL SHARES. IT IS ENGAGED IN THE BUSINESS OF TRADING IN LIQUOR. IT HAD OBTAINED LICENSE FOR THE AREA OF DHOLPUR DISTRICT F OR TWO ASSESSMENT YEARS, NAMELY, 1998- 2 99 AND 1999-00. THE MINIMUM LICENSE FEE OF ASSESSME NT YEAR 1999-00 WAS INCREASED 15% FROM THE LICENSE FEE OF ASSESSMENT YEAR 1998-99 . THE ASSESSEE HAS FILED ITS RETURN OF INCOME ON 30.10.1998 AND 31.12.1999 DECLARING TOTAL INCOME OF RS.4,70,288 AND RS.5,43,320 RESPECTIVELY. THE CASE OF THE ASSESSEE IN BOTH THE ASSESSMENT YEARS WERE SELECTED FOR SCRUTINY ASSESSMENT AND A NOTICE UNDER SEC. 143(2) OF THE ACT WERE ISSUED AND SERVED UPON THE ASSESSEE. ON AN ANALYSIS OF THE REC ORD, LEARNED ASSESSING OFFICER WAS NOT SATISFIED WITH THE BOOK RESULTS SHOWN BY THE AS SESSEE. HE REJECTED THE BOOK RESULTS AND ESTIMATED THE PROFIT IN BOTH THE ASSESSMENT YEARS. HE MADE AN AD HOC ADDITION OF RS.8,96,570 AND RS. 8 LACS IN ASSESSMENT YEARS 1998 -99 AND 1999-00 RESPECTIVELY. 3. DISSATISFIED WITH THE AD HOC ADDITION, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LEARNED CIT(APPEALS) WHO RESTRICTED THE ADDITIO N TO RS. 1 LAC AND RS. 1.5 LACS RESPECTIVELY. THE DEPARTMENT WENT IN APPEAL BEFORE THE ITAT AND THE ITAT UPHELD THE ACTION OF THE LEARNED CIT(APPEALS) VIDE ITS ORDER D ATED 09.06.2006. THE DEPARTMENT WENT IN APPEAL BEFORE THE HON'BLE HIGH COURT AND HO N'BLE HIGH COURT HAS HEARD THE APPEALS OF THE ASSESSEE ALONG WITH A GROUP OF APPEA LS, ALL THESE APPEALS HAVE BEEN REMITTED BACK TO THE ITAT FOR READJUDICATION VIDE J UDGMENT DATED 21.1.2014 RENDERED IN THE CASE OF CIT VS. RAM SINGH & ORS. REPORTED IN 36 3 ITR 417. 4. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS AN D GONE THROUGH THE RECORDS CAREFULLY. SECTION 145 HAS A DIRECT BEARING ON THE CONTROVERSY, THEREFORE, IT IS SALUTARY UPON US TO TAKE NOTE OF THIS PROVISION. '145(1) INCOME CHARGEABLE UNDER THE HEAD PROFITS A ND GAINS OF BUSINESS OR PROFESSION OR INCOME FROM OTHER SOURCES SHALL, S UBJECT TO THE PROVISIONS OF SUB- 3 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 FOLLOWED BY ANY CLASS OF ASSESSEES OR IN RESPECT OF ANY CLASS OF INCOME. (3) WHERE THE ASSESSING OFFICER IS NOT SATISFIED AB OUT THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE, OR WHERE THE METHO D OF ACCOUNTING PROVIDED IN SUB- SECTION (1) OR ACCOUNTING STANDARDS AS NOTIFIED UND ER SUB-SECTION (2), HAVE NOT BEEN REGULARLY FOLLOWED BY THE ASSESSEE, THE ASSESSING O FFICER MAY MAKE AN ASSESSMENT IN THE MANNER PROVIDED IN SECTION 144.' 5. FROM THE BARE READING OF THIS SECTION, IT WOULD RE VEAL THAT IT PROVIDES THE MECHANISM HOW TO COMPUTE THE INCOME OF THE ASSESSEE . ACCORDING TO SUB-CLAUSE ( I ), THE INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF THE BUSINESS OR PROFESSIONS OR INCOME FROM OTHER SOURCES' SHALL BE COMPUTED IN ACC ORDANCE WITH THE METHOD OF ACCOUNTANCY EMPLOYED BY AN ASSESSEE REGULARLY SUBJE CT TO THE SUB-SECTION (2) OF SECTION 145 OF THE ACT. SUB-SECTION (2) PROVIDES THAT THE C ENTRAL GOVERNMENT MAY NOTIFY IN THE OFFICIAL GAZETTE FROM TIME TO TIME THE ACCOUNTING S TANDARD REQUIRED TO BE FOLLOWED BY ANY CLASS OF ASSESSEE IN RESPECT OF ANY CLASS OF INCOME . THUS, IT INDICATES THAT INCOME HAS TO BE COMPUTED IN ACCORDANCE WITH THE METHOD OF ACCOUN TANCY FOLLOWED BY AN ASSESSEE, I.E., CASH OR MERCANTILE. SUCH METHOD HAS TO BE FOLLOWED KEEPING IN VIEW THE ACCOUNTING STANDARD NOTIFIED BY THE CENTRAL GOVERNMENT FROM TI ME TO TIME. SUB-CLAUSE (3) PROVIDES A SITUATION, I.E., IF THE ASSESSING OFFICER IS UNABLE TO DEDUCE THE T RUE INCOME ON THE BASIS OF METHOD OF ACCOUNTANCY FOLLOWED BY AN ASSESSEE THEN HE CAN REJECT THE BOOK RESULTS AND ASSESS THE INCOME ACCORDING TO HIS ESTIMATE OR ACCO RDING TO HIS BEST JUDGMENT. THE ASSESSING OFFICER IN THAT CASE IS REQUIRED TO POINT OUT THE DEFECTS IN THE ACCOUNTS OF 4 ASSESSEE AND REQUIRE TO SEEK EXPLANATION OF THE ASS ESSEE QUA THOSE DEFECTS. IF THE ASSESSEE FAILED TO EXPLAIN THE DEFECTS THEN ON THE BASIS OF THE BOOK RESULTS, INCOME CANNOT BE DETERMINED AND ASSESSING OFFICER WOULD COMPUTE THE INCOME ACCORDING TO HIS ESTIMATION KEEPING IN VIEW THE GUIDING FACTOR FOR ESTIMATING S UCH INCOME. WHERE A STOCK ACCOUNT IS NOT MAINTAINED AND RECONCILIATION IS NOT POSSIBLE I N BETWEEN THE AGGREGATE OF STOCK ON OPENING DATE AND STOCKS PURCHASED WITH THE AGGREGAT E OF STOCK SOLD AND AVAILABLE IN CLOSING STOCK OR SALES ARE NOT VERIFIABLE THEN, IN SUCH CASES, IF THE GROSS PROFIT IS LOW IN COMPARISON WITH PAST YEARS OR IN COMPETITIVE BUSINE SS, THEN ASSESSING OFFICER CAN REJECT THE BOOK RESULTS AND ESTIMATE THE INCOME. 6. ADMITTEDLY, THE BOOKS OF THE ASSESSEE ARE NOT RE LIABLE, THEY ARE REJECTED. THIS ACTION OF THE ASSESSING OFFICER HAS BEEN UPHELD BY THE LEARNED CIT(APPEALS). THE ASSESSEE DID NOT CHALLENGE REJECTION OF BOOK RESULT S BEFORE THE ITAT AND THE DISPUTE TRAVELLED TO THE HON'BLE HIGH COURT WAS WITH REGAR D TO ESTIMATION OF INCOME AFTER REJECTION OF BOOKS. THUS, THE NEXT QUESTION CASE AR ISES, IS THAT WHAT SHOULD BE THE ESTIMATED ADDITION REQUIRED TO BE MADE BY THE ASSES SING OFFICER TO THE INCOME OF THE ASSESSEE. FOR THIS PURPOSE, SUB-SECTION (3) OF SECT ION 145 CONTEMPLATES THAT ASSESSING OFFICER MAKES AN ASSESSMENT IN THE MANNER PROVIDED IN SEC. 144 OF THE INCOME-TAX ACT, 1961. THIS SECTION READS AS UNDER: SECTION 144. (1) IF ANY PERSON (A) FAILS TO MAKE THE RETURN REQUIRED [UNDER SUB-SECTIO N (1) OF SECTION 139] AND HAS NOT MADE A RETURN OR A REVISED RETURN UNDER SUB -SECTION (4) OR SUB-SECTION (5) OF THAT SECTION, OR 5 (B) FAILS TO COMPLY WITH ALL THE TERMS OF A NOTICE ISSU ED UNDER SUB-SECTION(1) OF SEC. 142 [OR FAILS TO COMPLY WITH A DIRECTION ISSUE D 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 [ASSESSING OFFICER], AFTER TAKING INTO ACCOUNT ALL RELEVANT MATERIAL WHICH THE ASSESSING OFFICER HAS GATHERED, [SHALL, AFTER GIVIN G THE ASSESSEE AN OPPORTUNITY OF BEING HEARD, MAKE THE ASSESSMENT] OF THE TOTAL INCO ME OR LOSS TO THE BEST OF HIS JUDGMENT AND DETERMINE THE SUM PAYABLE BY THE ASSES SEE ON THE BASIS OF SUCH ASSESSMENT. PROVIDED THAT SUCH OPPORTUNITY SHALL BE GIVEN BY TH E ASSESSING OFFICER BY SERVING A NOTICE CALLING UPON THE ASSESSEE TO SHOW S\CAUSE, ON A DATE AND TIME TO BE SPECIFIED IN THE NOTICE, WHY THE ASSESSMENT SHOULD NOT BE COMPLETED TO THE BEST OF HIS JUDGMENT : PROVIDED FURTHER THAT IT SHALL NOT BE NECESSARY TO GIVE SUCH OPPORTUNITY IN A CASE WHERE A NOTICE UNDER SUB-SECTION (1) OF SECTION 142 HAS BEEN ISSUED PRIOR TO THE MAKING OF AN ASSESSMENT UNDER THIS SECTION.] (2) THE PROVISIONS OF THIS SECTION AS THEY STOOD IM MEDIATELY BEFORE THEIR AMENDMENT BY THE DIRECT TAX LAWS (AMENDMENT) ACT, 1 987 94 OF 1988), SHALL APPLY TO AND IN RELATION TO ANY ASSESSMENT FOR THE ASSESSMENT YEAR COMMENCING ON THE IST DAY OF APRIL, 1988, OR ANY EARLIER ASSESSME NT YEAR AND REFERENCES IN THIS SECTION TO THE OTHER PROVISIONS OF THIS ACT SHALL B E CONSTRUED AS REFERENCES TO THOSE PROVISIONS AS FOR THE TIME BEING IN FORCE AND APPLI CABLE TO THE RELEVANT ASSESSMENT YEAR.} 7. A BARE PERUSAL OF THIS SECTION WOULD SUGGEST THA T IN ORDER TO ESTIMATE INCOME, LEARNED ASSESSING OFFICER HAS TO EXERCISE HIS DISC RETION WHICH SHOULD BE IN CONSONANCE WITH BEST OF HIS JUDGMENT. HON'BLE HIGH COURT WHILE REMANDING THIS APPEAL TO THE ITAT HAS CONSIDERED THIS ASPECT IN PARAGRAPH NO. 24 AND OBSERVED AS UNDER: 6 IT IS WELL SETTLED THAT IN A BEST JUDGMENT ASSESSM ENT, THERE IS ALWAYS A CERTAIN DEGREE OF GUESS WORK. THE AUTHORITIES CONCERNED SHO ULD MAKE A HONEST AND FAIR ESTIMATE OF THE INCOME EVEN IN THE BEST JUDGMENT AS SESSMENT AND SHOULD NOT ACT ARBITRARILY. IT IS EQUALLY TRUE THAT ASSESSEE HIMSE LF TO BE BLAMED AS HE DID NOT SUBMIT PROPER ACCOUNTS. 8. APART FROM THE ABOVE PROPOSITION, WE ARE CONSCI OUS OF THE FACT THAT IN VARIOUS AUTHORITATIVE PRONOUNCEMENTS, IT HAS BEEN PROPOUNDE D THAT IN MAKING A BEST JUDGMENT ASSESSMENT, THE ASSESSING OFFICER MUST NOT ACT DISH ONESTLY OR VINDICTIVELY OR CAPRICIOUSLY. HE MUST MAKE WHAT HE HONESTLY BELIEVE TO BE A FAIR ESTIMATE OF THE PROPER FIGURE OF ASSESSMENT AND FOR THIS PURPOSE HE MUST B E ABLE TO TAKE INTO CONSIDERATION LOCAL KNOWLEDGE, REPUTATION OF THE ASSESSEE ABOUT HIS BUS INESS, THE PREVIOUS HISTORY OF THE ASSESSEE OR THE SIMILARLY SITUATED ASSESSEE. IT IS ALSO PERTINENT TO MENTION THAT JUDGMENT IS A FACULTY TO DECIDE MATTER WITH WISDOM, TRULY AND L EGALLY. JUDGMENT DOES NOT DEPEND UPON THE ARBITRARY, CAPRICE OF AN ADJUDICATOR, BUT ON SETTLED AND INVARIABLY PRINCIPLES OF JUSTICE. THUS, IN A BEST JUDGMENT, EVEN IF, THERE I S AN ELEMENT OF GUESS WORK, IT SHOULD NOT BE A WILD ONE, BUT SHALL HAVE REASONABLE NEXUS TO T HE AVAILABLE MATERIAL AND CIRCUMSTANCES OF EACH ASSESSEE. APPRAISING OURSELVE S WITH THESE FUNDAMENTALS, LET US CONSIDER THE FACTORS DISCUSSED BY THE ASSESSING OFF ICER IN THE ASSESSMENT WHILE MAKING THE LUMP SUM ADDITION. 9. LEARNED ASSESSING OFFICER WHILE ESTIMATING THE ADDITION HAS MADE REFERENCE TO A CASE, NAMELY, R.S. BHANDARI KISHAN SHARMA & PARTY. THIS CONCERN IN THE IMMEDIATELY PRECEDING YEAR HAS SHOWN G.P. AT 35.41%. HE OBSERVE D THAT SINCE ASSESSEES SALES ARE NOT VERIFIABLE, THEREFORE, ADDITION HAS TO BE MADE BUT HE LOST SIGHT THAT G.P. SHOWN BY THE 7 ASSESSEE AT 39.20% IS BETTER IN THIS YEAR. IT IS PE RTINENT TO MENTION HERE THAT ASSESSEE HAS SHOWN A TURNOVER OF RS.7,55,95,918. THE G.P. OF THE ASSESSEE IS OF RS.2,97,00,425. IN TERMS OF PERCENTAGE, IT IS 39.29%. LEARNED ASSESSI NG OFFICER HAS APPLIED A G.P. RATE AT 40% ONLY BUT HE HAS ENHANCED THE SALES BY ADDING G. P. IN THE COST AND ON THAT ASSUMED SALES HE APPLIED THE G.P. WE FIND THAT ASSESSEE HAS TO PAY A SHORT LICENSE FEE OF RS.2,47,05,787 IN ASSESSMENT YEAR 1998-99. THIS LIC ENSE FEE IS ALMOST 30% OF THE TURNOVER. THE MAJOR PART OF THE PROFIT ELEMENT HAS BEEN WIPED OUT BY THIS STATUTORY LICENSE FEE. WHETHER IN THE CASE RELIED UPON BY THE ASSESSI NG OFFICER, THE G.P. AT 35% WAS AFTER DEDUCTING THE SHORT LICENSE FEE FROM THE TRADING AC COUNT OR THE G.P. WAS DIRECTLY PROPORTIONATE TO THE TURNOVER. ALL THESE FACTORS HA VE NOT BEEN CONSIDERED IN THE ASSESSMENT ORDER, LEARNED ASSESSING OFFICER HAS MA DE A LUMP SUM ADDITION WHICH IS NOT THE LOGICAL WAY TO ASSUME THE G.P. IN ASSESSMENT YE AR 1999-00, THE G.P. HAS DECLINED TO 30.92%. THE REASON FOR THE DECLINE IN G.P. IS THAT ASSESSEE HAS TO PAY 15% MORE EXCISE DUTY. LEARNED FIRST APPELLATE AUTHORITY HAS CONSIDE RED THESE ASPECTS WHILE RESTRICTING THE ADDITION TO RS.1 LAC AND RS. 1.5 LACS AS AGAINST TH E ADDITIONS MADE BY THE ASSESSING OFFICER IN BOTH THE ASSESSMENT YEARS RESPECTIVELY. AFTER GOING THROUGH THE RECORD, WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF TH E LEARNED CIT(APPEALS) ON THIS ISSUE. 10. AS FAR AS THE AD HOC DISALLOWANCE OUT OF VARIOU S EXPENDITURE IS CONCERNED, THE ASSESSEE HAS DEBITED THE EXPENDITURE UNDER THE HEAD DIESEL AND PETROL EXPENSES, OFFICE EXPENSES, VEHICLE REPAIR EXPENSES, DEPRECIATION AND TELEPHONE ETC. LEARNED ASSESSING OFFICER HAD MADE AN AD HOC DISALLOWANCE OUT OF THES E EXPENDITURE BUT ONCE BOOKS ARE REJECTED AND OVERALL PROFIT HAS BEEN ESTIMATED, THE N, THE STEP WOULD TAKE CARE ALL OTHER 8 MISCELLANEOUS EXPENSES. LEARNED ASSESSING OFFICER IS NOT REQUIRED TO MAKE DISALLOWANCE SEPARATELY UNDER EACH HEAD BECAUSE HE HAS ALREADY D ISBELIEVED THE BOOKS AND MADE AD HOC ADDITION IN THE TOTAL INCOME OF THE ASSESSEE. L EARNED FIRST APPELLATE AUTHORITY HAS RIGHTLY CONSIDERED THOSE ASPECTS ALSO. WE DO NOT SE E ANY REASON TO INTERFERE IN THE ORDER OF LEARNED CIT(APPEALS). THE APPEALS OF THE REVENUE AR E DISMISSED. SD/- SD/- ( R.C. SHARMA ) ( RAJPAL YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 30 /05/2014 *MOHAN LAL* COPY FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. CIT(APPEALS) 5. THE DR